-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BUbFppqrHQRifJe3MAn2ButfTLH+fx8tQgfOLIr779WjV6y1hrsMdVvwOJmQYJ+I nR92anV0J2rR+cXD8u604g== 0000916002-95-000018.txt : 19951119 0000916002-95-000018.hdr.sgml : 19951119 ACCESSION NUMBER: 0000916002-95-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MIDWEST GRAIN PRODUCTS INC CENTRAL INDEX KEY: 0000835011 STANDARD INDUSTRIAL CLASSIFICATION: GRAIN MILL PRODUCTS [2040] IRS NUMBER: 480531200 STATE OF INCORPORATION: KS FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17196 FILM NUMBER: 95591016 BUSINESS ADDRESS: STREET 1: 1300 MAIN ST CITY: ATCHISON STATE: KS ZIP: 66002 BUSINESS PHONE: 9133671480 MAIL ADDRESS: STREET 1: 1300 MAIN STREET CITY: ATCHISON STATE: KS ZIP: 66002 10-Q 1 MIDWEST GRAIN PRODUCTS, INC. 1ST QTR 1996 10Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended September 30, 1995 - Commission File No. 0-17196 MIDWEST GRAIN PRODUCTS, INC. ------------------------------------------------------------ (Exact Name of Registrant as Specified in Its Charter) KANSAS 48-0531200 ---------------------- ------------------ (State or Other Jurisdiction of IRS Employer Incorporation or Organization) Identification No. 1300 Main Street, Atchison, Kansas 66002 --------------------------------------------------- (Address of Principal Executive Offices and Zip Code) (913) 367-1480 ---------------------------------------------- (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to the filing requirements for at least the past 90 days. X YES NO ------ ------ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock, no par value 9,765,172 shares outstanding as of November 1, 1995. INDEX Page PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Independent Accountants' Review Report.......................... 2 Condensed Consolidated Balance Sheets as of September 30, 1995 and June 30, 1995............................ 3 Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 1995 and 1994.............. 5 Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 1995 and 1994.............. 6 Notes to Condensed Consolidated Financial Statements............................................ 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................. 8 PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K.......................... 11 -1- {LOGO} Independent Accountants' Review Report Baird, Kurtz & Dobson Board of Directors and Stockholders Midwest Grain Products, Inc. Atchison, Kansas 66002 We have reviewed the condensed consolidated balance sheet of MIDWEST GRAIN PRODUCTS, INC. and subsidiaries as of September Certified 30, 1995, and the related condensed consolidated statements Public of operations for the three month periods ended September 30, Accountants 1995 and 1994, and the related condensed consolidated statements of cash flows for the three month periods ended September 30, 1995 and 1994. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of June 30, 1995, and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended (not presented herein); and, in our report dated August 4, 1995, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of June 30, 1995, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. /s/Baird, Kurtz & Dobson BAIRD, KURTZ & DOBSON Kansas City, Missouri November 3, 1995 City Center Square, Suite 2700, 1100 Main, 816 221-6300 Kansas City, Missouri 64105 FAX 816 221-6380 With Offices in: Arkansas, Colorado, Kansas, Kentucky, Missouri, Nebraska, Oklahoma Member of Moores Rowland International -2- MIDWEST GRAIN PRODUCTS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands) ASSETS September 30, June 30, 1995 1995 ------------- -------- (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 339 $ 460 Receivables 22,720 21,550 Notes receivable 748 919 Inventories 16,903 14,690 Prepaid expenses 890 560 Deferred income taxes 875 875 Income taxes receivable 5,114 2,338 -------- ------- Total Current Assets 47,589 41,392 -------- ------- PROPERTY AND EQUIPMENT, At cost 207,664 206,336 Less accumulated depreciation 74,686 71,424 -------- -------- 132,978 134,912 -------- ------ OTHER ASSETS 445 445 -------- -------- $181,012 $176,749 ======== ======== See Accompanying Notes to Condensed Consolidated Financial Statements -3- MIDWEST GRAIN PRODUCTS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Continued) (In Thousands) LIABILITIES AND STOCKHOLDERS' EQUITY September 30, June 30, 1995 1995 ------------- -------- (Unaudited) CURRENT LIABILITIES Note payable-bank $ 2,000 Accounts payable 9,885 $ 7,807 Accrued expenses 3,048 6,630 -------- --------- Total Current Liabilities 14,933 14,437 -------- --------- LONG-TERM DEBT 44,908 38,908 -------- --------- POST-RETIREMENT BENEFITS 5,593 5,449 -------- -------- DEFERRED INCOME TAXES 5,327 5,327 -------- -------- STOCKHOLDERS' EQUITY Capital stock Preferred, 5% noncumulative, $10 par value; authorized 1,000 shares; issued and outstanding 437 shares 4 4 Common, no par; authorized 20,000,000 shares; issued 9,765,172 shares 6,715 6,715 Additional paid-in capital 2,485 2,485 Retained earnings 101,047 103,424 --------- -------- 110,251 112,628 --------- -------- $181,012 $176,749 ======== ======== See Accompanying Notes to Condensed Consolidated Financial Statements -4- MIDWEST GRAIN PRODUCTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATION THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (Unaudited) 1995 1994 --------- --------- (in thousands, except per share amounts) NET SALES $47,160 $45,984 COST OF SALES 48,097 38,334 ------- ------- GROSS PROFIT (LOSS) (937) 7,650 SELLING, GENERAL AND ADMINIS- TRATIVE EXPENSES 2,463 3,429 ------- ------- (3,400) 4,221 OTHER OPERATING INCOME 1 4 ------- ------- INCOME (LOSS) FROM OPERATIONS (3,401) 4,225 OTHER INCOME (EXPENSE) (524) 407 ------- ------- INCOME (LOSS) BEFORE INCOME TAXES (3,925) 4,632 PROVISION (CREDIT) FOR INCOME TAXES (1,548) 1,876 ------- ------- NET INCOME (LOSS) $ (2,377) $ 2,756 ======= ======= EARNINGS (LOSS) PER COMMON SHARE $ (.24) $ .28 ======= ======= See Accompanying Notes to Condensed Consolidated Financial Statements -5- MIDWEST GRAIN PRODUCTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (Unaudited) 1995 1994 -------- ------ (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (2,377) $ 2,756 Items not requiring (providing) cash: Depreciation 3,292 1,732 Gain on sale of equipment (2) (49) Changes in: Accounts receivable (1,171) (2,717) Inventories (2,213) 2,599 Prepaid expenses (330) (173) Accounts payable 3,331 (1,474) Accrued expenses (2,217) (2,068) Income taxes receivable (2,776) (173) ------- -------- Net cash provided by (applied to) operating activities (4,463) 433 ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (2,631) (9,602) Proceeds from sale of equipment 22 65 Sale of short-term investments 8,883 Payment received on note for sale of plant 172 135 ------- ------- Net cash used in investing activities (2,437) (519) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Net advances on notes payable 2,000 Net proceeds from issuance of long-term debt 6,000 Dividends paid (1,221) (1,221) ------- -------- Net cash provided by (used in) financing activities 6,779 (1,221) ------- -------- DECREASE IN CASH AND CASH EQUIVALENTS (121) (1,307) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 460 3,832 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 339 $ 2,525 ======= ======== See Accompanying Notes to Condensed Consolidated Financial Statements -6- MIDWEST GRAIN PRODUCTS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED SEPTEMBER 30, 1995 (Unaudited) NOTE 1: GENERAL In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments necessary to present fairly the Company's condensed consolidated financial position as of September 30, 1995, and the condensed consolidated results of its operations and its cash flows for the periods ended September 30, 1995 and 1994, and are of a normal recurring nature. -7- MIDWEST GRAIN PRODUCTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1995 RESULTS OF OPERATIONS GENERAL The Company experienced a $3.9 million pre-tax loss in the first quarter of fiscal 1996 compared to a $4.6 million pre-tax gain in the same quarter in fiscal 1995. This was due primarily to unusually high raw material costs for grain in the face of lower selling prices for wheat gluten and fuel alcohol. Fuel alcohol prices were down slightly due to increased capacities and lower gasoline prices. Wheat gluten prices not only failed to adjust to the rising grain costs, as is normally the case, but actually declined due to significantly increased gluten imports from the European Union. Profits from their highly subsidized and protected wheat starch business have allowed European producers to dump their surpluses of gluten, a co-product, in the United States at prices below U. S. production costs. 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. The Company is actively seeking measures that would rectify this problem by creating a more level playing field. The issue is presently being addressed by the office of the U.S. Trade Representative as part of a comprehensive trade discussion with European Union officials. The outcome of this discussion is uncertain and, until the intensity of competitive conditions subsides and wheat costs substantially decrease, the Company does not anticipate utilizing the 40% increase in gluten production capacity that was completed at its Pekin, Illinois plant in the latter part of the first quarter. As a result of the Company's recent distillery expansion in Pekin, its unit sales of alcohol products in the first quarter rose noticeably compared to the prior year's first quarter amount. Increases occurred in unit sales of both food grade alcohol, which is sold for beverage, industrial and commercial applications, and fuel grade alcohol, which is sold as an octane additive and oxygenate commonly known as ethanol. The increase in the food grade category resulted from higher unit sales of beverage alcohol. Unit sales of industrial alcohol were approximately even with last year's first quarter amount. Demand in the food grade markets remains strong. Therefore, the Company plans to continue to maximize production in this category, as market prices for fuel grade alcohol remain depressed in spite of higher grain costs. The Company's unit sales of wheat starch in the first quarter increased substantially above the prior year's first quarter. The increase resulted from higher volumes of unmodified, modified and specialty wheat starches, which was made possible by a 70% increase in the Company's total starch production capacity. Completion of the additional capacity occurred this past July in Pekin and greatly improves the Company's ability to meet current and future increases in demand for wheat starch. -8- MIDWEST GRAIN PRODUCTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) THREE MONTHS ENDED SEPTEMBER 30, 1995 While the Company expects higher raw material costs for grain and intense foreign competition to continue having a negative impact on results during much of fiscal 1996, it believes it is in an excellent position to realize significant growth with a return to more favorable market conditions and lower grain prices. Additionally, the Company has implemented widespread measures to reduce costs and improve cash flow in response to the negative conditions it currently is experiencing. SALES Net sales for the first quarter of fiscal 1996 increased by approximately $1,176,000 above sales in the first quarter of fiscal 1995. The increase was principally due to a 14% jump in sales of premium wheat starch, and substantial increases in sales of alcohol products and alcohol by-products, the latter consisting mainly of distillers feeds. The rise in wheat starch sales resulted from strengthened market demand and the Company's ability to meet this demand with its increased production capacity. A 22% increase in total alcohol sales resulted from strengthened demand for food grade beverage and industrial alcohol and higher sales of fuel grade alcohol. Sales of distillers feed climbed 31% compared to a year ago. These increases were partially offset by a 33% decrease in sales of wheat gluten due to intense competitive pressures from European gluten producers. Changes in selling prices of the Company's vital wheat gluten normally 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. In the first quarter of fiscal 1996, grain costs increased to exceptionally high levels in the face of competition from foreign exporters of vital wheat gluten and relatively flat markets for fuel grade alcohol and poor markets for distillers feeds. The combination of these factors 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. COST OF SALES The cost of sales in the first quarter of fiscal 1996 increased by approximately $9,763,000 above the cost of sales in the first quarter of fiscal 1995. The principal cause was a $10.6 million increase in raw material costs for grain. Other manufacturing costs increases were due to higher maintenance and repair costs which were associated mainly with work on expanded production facilities at the Company's Pekin, Illinois plant, equipment rental and depreciation of buildings and equipment. -9- MIDWEST GRAIN PRODUCTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) THREE MONTHS ENDED SEPTEMBER 30, 1995 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses in the first quarter of fiscal 1996 were down approximately $966,000 compared to the same period the prior year. This principally was due to a decrease of almost $800,000 resulting from reductions in compensation, commissions and accruals for the Company's management and employee incentive programs. These and other reductions helped to more than offset increases which were incurred in a minor segment of the expense categories. The consolidated effective income tax rates were consistent for the periods. The general effects of inflation were minimal. NET INCOME As a result of the foregoing factors, the Company experienced a pre-tax loss of $3,925,000 in the first quarter of fiscal 1996. After a credit of $1,548,000 for income taxes, the resulting net loss was $2,377,000 compared to net income of $2,756,000 in the first quarter of fiscal 1995. -10- MIDWEST GRAIN PRODUCTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 LIQUIDITY AND CAPITAL RESOURCES The following table is presented as a measure of the Company's liquidity and financial condition: September 30, June 30, 1995 1995 ------------- ---------- (in thousands) Cash, cash equivalents $ 339 $ 460 Note payable and long-term debt 46,908 38,908 Working capital 32,656 26,955 The Company's improvement in working capital is primarily due to increased borrowings of long-term debt. The loss for the current quarter combined with increased inventories caused a negative cash flow from operations. The increased inventories were caused by a high level of fuel grade alcohol to be sold over the late fall and winter months and higher unit costs for raw materials in inventory. Due to the current downturn in operations and cash flow needs, dividends for the first quarter were suspended. At September 30, 1995, the Company has only $2.0 million to spend on capital improvement projects, primarily relating to improvements and replacements of existing equipment. The Company has approximately $10 million available under existing lines of credit. Management believes the available lines of credit, combined with existing working capital and working capital to be generated from future operations, will allow the Company to complete its capital improvement projects and meet its expanded working capital needs. -11- PART II OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 4(a) Copy of Second Amended Line of Credit Loan Agreement providing for the Issuance of a Line of Credit Note in the amount of $27,000,000. 4(b) Copy of Line of Credit Note Under Second Amended Line of Credit Loan Agreement. (15) Letter from independent public accountants pursuant to paragraph (d) of Rule 10-01 of Regulation S-X (incorporated by reference to Independent Accountants' Review Report at page 2 hereof). (20) Report to Stockholders for the three months ended September 30, 1995 (without financial statements). (27) Financial Data Schedule for the quarter ended September 30, 1995. (b) Reports on Form 8-K The Company has filed no reports on Form 8-K during the quarter ended September 30, 1995. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MIDWEST GRAIN PRODUCTS, INC. November 13, 1995 /s/Ladd M. Seaberg - ---------------------------------------- By -------------------------------- Date Ladd M. Seaberg President and Chief Executive Officer November 13, 1995 /s/Robert G. Booe - ---------------------------------------- By -------------------------------- Date Robert G. Booe, Vice President and Chief Financial Officer -12- EX-99 2 EXHIBIT INDEX EXHIBIT 99 EXHIBIT INDEX Exhibit Number Description 4(a) Copy of Second Amended Line of Credit Loan Agreement providing for the Issuance of a Line of Credit Note in the amount of $27,000,000. 4(b) Copy of Line of Credit Note Under Second Amended Line of Credit Loan Agreement. (15) Letter from independent public accountants pursuant to paragraph (d) of Rule 10-01 of Regulation S-X (incorporated by reference to Independent Accountants' Review Report at page 2 hereof). (20) Report to Stockholders for the three months ended September 30, 1995 (without financial statements). (27) Financial Data Schedule for the quarter ended September 30, 1995. EX-4 3 LOAN AGREEMENT Exhibit (4)(a) SECOND AMENDED LINE OF CREDIT LOAN AGREEMENT THIS SECOND AMENDED LINE OF CREDIT LOAN AGREEMENT (the "Agreement"), executed this ------- day of September , 1995, by and between MIDWEST GRAIN PRODUCTS, INC., a corporation organized under the laws of the state of Kansas and having its principal place of business in Atchison, Kansas ("Borrower"), and Commerce Bank, N.A., a national banking association, having its principal place of business in Kansas City, Missouri ("Bank"). WHEREAS, Borrower desires to establish a line of credit with Bank to provide working capital and capital expenditures; and WHEREAS, Bank desires to extend such line of credit upon the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and mutual agreements contained in this Agreement, the parties agree as follows: ARTICLE I Line of Credit Section 1.1. GENERAL TERMS. Subject to the terms of this Agreement, Bank will lend Borrower, from time to time, until the termination hereof, such sums as Borrower may request, in minimum increments of $100,000, which shall not exceed in the aggregate principal amount at any one time outstanding the sum of Twenty Seven Million and no/100 Dollars ($27,000,000.00) (the "Line of Credit Loan"). Bank's obligation to lend hereunder may be terminated by Bank at any time in Bank's sole discretion, or if no such termination is made, then on October 1, 1997. Each advance under the Line of Credit Loan is at the option of Bank and Bank has no obligation to make advances. In addition this Agreement shall be deemed to automatically terminate if the occurrence of an event pursuant to Section 4.1 causes the Line of Credit Note to become immediately due and payable. The inclusion of monthly interest payments, events of default and an alternate maturity date does not alter the discretionary nature of the line of credit. Section 1.2. COMMITMENT FEE. Borrower shall pay a fee equal to 1/4% per annum on the unused portion of the Line of Credit Loan. Such fee shall be paid quarterly in arrears. Section 1.3. NOTE. Borrower agrees to execute and deliver to Bank the Line of Credit Note to evidence the Line of Credit Loan. Each advance made thereunder, together with each repayment made by Borrower, shall be evidenced by a notation dated the date of the advance or repayment and recorded by Bank on the schedule appearing on the reverse side of or attached to the Line of Credit Note. The aggregate unpaid principal amount of the Line of Credit Note set forth on the schedule shall be conclusively presumed to reflect the amounts advanced and repaid, and the outstanding principal balance of the Line of Credit Loan. Section 1.4. PRINCIPAL PAYMENT. In the event of a default as defined in Section 4.1 or on October 1, 1997, the principal balance of the Line of Credit Note together with all accrued interest shall become immediately due and payable. Section 1.5. INTEREST. If the outstanding balance is less than $500,000, the line of credit shall bear interest at a per annum rate equal to the Prime Rate. If the outstanding balance is $500,000 or greater, the line of credit shall bear interest at the greater of either (1) the Prime Rate, minus 1%, or (2) the Federal Funds Rate plus 1.50%. Interest will be payable monthly, in arrears, and at maturity, whether by acceleration or otherwise. Interest will be computed on the actual days outstanding based upon a year consisting of 360 days. "Prime Rate" means the Prime Rate of interest established from time to time by Commerce Bank and designated as such for its internal convenience, and no representation is made that the Prime Rate is the best, the lowest or a favored rate of interest. The rate of interest, if tied to the Prime Rate, shall change with and be effective on the date of each change in the Prime Rate. "Federal Funds Rate" means the effective Federal Funds Rate as quoted by the Federal Reserve Bank of New York on a daily basis. The Federal Funds Rate is adjusted daily. Section 1.6. PURPOSE. Borrower represents the purpose of the Line of Credit Loan is to provide short term working capital and capital expenditures. Section 1.7. DISBURSEMENTS. Bank will credit the proceeds of any borrowing hereunder to Borrower's deposit account maintained with Bank. Section 1.8. CONDITION OF LOANS. Any advance under the Line of Credit Note is subject to the condition precedent that no event of default described in Section 4.1 shall have occurred, and that the Line of Credit has not been terminated. Each request for a borrowing under the Line of Credit Note shall be deemed to constitute a representation by Borrower at the time of the request that no event of default as defined in Section 4.1 exists or is imminent and that the representations and warranties of Borrower contained in this Agreement are true in all material respects on or as of the date of borrowing. ARTICLE II Warranties and Representations Section 2.1. GOOD STANDING. The Borrower is a corporation duly organized and in good standing, under the laws of the state of Kansas, and has the power to own its property and to carry on its business and is in good standing in each jurisdiction in which the character of the properties owned by it or in which the transaction of its business makes such qualifications necessary. Section 2.2. AUTHORITY. The Borrower has full power and authority to enter into this Agreement, to make the borrowing hereunder, and to execute and deliver the Line of Credit Note, all of which has been duly authorized by all proper and necessary corporate action. No consent or approval of stockholders is required as a condition to the validity of this Agreement or the Line of Credit Loan. Section 2.3. BINDING AGREEMENT. This Agreement constitutes, and the Line of Credit Note when issued and delivered pursuant hereto, for value received, will constitute, the valid and legally binding obligations of the Borrower in accordance with all stated terms. Section 2.4. LITIGATION. There are no proceedings pending, or, so far as the officers of the Borrower know threatened, which will materially adversely affect the financial condition or operations of the Borrower or any subsidiary. Section 2.5. NO CONFLICTING AGREEMENTS. There are no charter, bylaw, or preference stock provisions of the Borrower and no provision of any existing mortgage, indenture, contract or agreement binding on the Borrower or affecting its property, which would conflict with or in any way prevent the execution, delivery, or carrying out of the terms of this Agreement and of the Line of Credit Note. Section 2.6. TAXES. The Borrower has filed all Federal, State and other tax and similar returns and has paid or provided for the payment of all taxes and assessments due thereunder including, without limitation, all withholding, FICA and franchise taxes. Section 2.7. FINANCIAL STATEMENTS. There have been no material changes in the Borrower's financial statements dated June 30, 1995. ARTICLE III Covenants So long as this Agreement remains in effect or as long as there is any principal or interest due on the Line of Credit Note, Borrower agrees as follows: Section 3.1. Comply with all Company Covenants as defined and contained in Section 5 of the Note Agreement dated as of August 1, 1993, between Borrower and the Principal Mutual Life Insurance Company (the "Principal Agreement") including, but not limited to, the following: (a) CURRENT RATIO. Maintain a Current Ratio of not less than 1.50 to 1.00. (b) CONSOLIDATED TANGIBLE NET WORTH. Maintain Consolidated Tangible Net Worth at an amount not less than THE GREATER OF (i) $70,000,000 and (ii) the sum of $70,000,000 plus 50% of Consolidated Net Income for the period from and after March 31, 1993 to the date of determination thereof (considered as a single accounting period). (c) FUNDED DEBT. Not permit Consolidated Funded Debt to exceed 60% of total capitalization. (d) DEBT/WORTH. Maintain a ratio of Debt to Tangible Net Worth of not more than 2.50 to 1.00. (e) FIXED CHARGES COVERAGE RATIO. Maintain a ratio of Net Income Available for Fixed Charges to Fixed Charges of not less than 1.50 to 1.00. The Company Covenants as of the date of this Agreement shall survive any modification or termination of the Principal Agreement. Section 3.2 Promptly pay all taxes, assessments and other government charges (unless such payments are being contested in good faith). Section 3.3 Maintain insurance on all its properties in such amounts and against such hazards as is customary in Borrower's industry. Section 3.4 Maintain its books and records and account for financial transactions in accordance with generally accepted accounting principals. Section 3.5 Borrower shall furnish Commerce Bank with the following information: (a) Its annual audited financial statement within 90 days of its fiscal year-end, in a form and prepared by a certified public accounting firm acceptable to Commerce Bank; (b) Its quarterly financial statements within 45 days after the end of each quarter; and (c) Such other information as Commerce Bank may reasonably request from time to time. ARTICLE IV Defaults Section 4.1. EVENTS OF DEFAULT. The entire unpaid balance of the Line of Credit Note shall become immediately due and payable without demand, presentment, notice or protest of any kind (all of which are expressly waived), upon the happening of any of the following events of default: (a) Nonpayment of any interest or any principal payment owing under the Line of Credit Note whether at maturity or otherwise; or (b) If any certificate, statement, representation, warranty or audit furnished by or on behalf of the Borrower in connection with this Agreement, including those contained herein, or as an inducement by Borrower to enter into, modify, extend, or renew this Agreement shall prove to be false in any material respect, or if Borrower shall have omitted the listing of a substantial contingent or unliquidated liability or claim against Borrower or, if on the date of execution of this Agreement there shall have been any materially adverse change in any of the facts disclosed by any such certificate, statement, representation, warranty or audit, which change shall not have been disclosed by Borrower to Bank at or prior to the time of execution; or (c) If Borrower shall default in the due performance or observance of any covenant undertaken by it under this Agreement; or (d) Default in the performance of the obligations of Borrower pursuant to any other note or agreement binding on Borrower including, but not limited to the Principal Agreement; or (e) Borrower shall be adjudicated a bankrupt, or make a general assignment for the benefit of its creditors, or there are instituted by or against Borrower any type of bankruptcy proceedings or any proceeding for the liquidation or the termination of Borrower's affairs, or the appointment of a receiver or trustee for Borrower or for any of Borrower's assets, or a properly filed petition for Borrower's reorganization under the Bankruptcy Code or otherwise is approved, or Borrower files a petition for arrangement under Chapter 11 of the Bankruptcy Code or any similar statute. (f) Any judgment or judgments, writ or writs, or warrant or warrants of attachment, or any similar process or processes shall be entered or filed against the Borrower or any Subsidiary or against any of their respective property or assets and remain unstayed and undischarged for a period of 60 days from the date of its entry. Section 4.2. REMEDIES. If any event of default occurs, Bank may resort to any remedy existing at law or in equity for the collection of the Line of Credit Note and enforcement of the covenants and provisions of this Agreement. Bank's resort to any remedy shall not prevent the concurrent or subsequent employment of any other remedy. Section 4.3. WAIVER. Any waiver of an event of default by Bank shall not extend to or affect any subsequent default. No failure or delay by Bank in exercising any right hereunder shall operate as a waiver nor shall any single or partial exercise of any right preclude any other right hereunder. ARTICLE V Miscellaneous Section 5.1. AMENDMENTS. This Agreement may be amended or modified in whole or in part at anytime, if in writing and signed by the parties. Bank may further consent in writing, or give written waiver to any covenant or event which might otherwise create a default. Section 5.2. DELAY, WAIVER. No omission or delay on the part of Bank in exercising any right, power, or privilege hereunder shall impair or operate as a waiver thereof; nor shall any single or partial exercise or any right, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power, or privilege. No waiver by Bank will be valid unless in writing and signed by Bank and then only to the extent specified therein. The rights and remedies herein expressly specified are cumulative and not exclusive of any rights or remedies which Bank would otherwise have. Section 5.3. BANK. Whenever in this Agreement reference is made to the Bank, such term shall be deemed for the purpose of benefits, powers, and privileges hereunder to include any firm, person, or corporation who may be the holder from time to time of the Note issued hereunder or a participation therein. Section 5.4. GOVERNING LAW. This Agreement and the Line of Credit Note shall be construed and interpreted in accordance with the laws of the State of Missouri. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. BORROWER: MIDWEST GRAIN PRODUCTS, INC. By: /s/ Ladd M. Seaberg Title: President & C.E.O. By: /s/ Robert G. Booe Title: V.P. C.F.O. BANK: COMMERCE BANK, N.A. By: /s/ Frederick J. Marston Title: Vice President EX-4 4 NOTE Exhibit (4)(b) LINE OF CREDIT NOTE $27,000,000 September _______, 1995 FOR VALUE RECEIVED, the undersigned, MIDWEST GRAIN PRODUCTS, INC., a Kansas corporation ("Borrower") hereby promises to pay to the order of Commerce Bank of Kansas City, N.A. ("Bank") at its offices in Kansas City, Missouri, the aggregate unpaid principal amount and accrued interest of all borrowings hereunder. The aggregate unpaid principal amount shall also become immediately due and payable, without demand or further action on the part of Bank upon the occurrence of an event of default as set forth in Section 4.1 of the Line of Credit Loan Agreement, as amended, dated November 30, 1993 (the "Agreement"). Interest on this note shall be calculated on the actual number of days on the basis of a year of 360 days. If the outstanding balance is less than $500,000, the line of credit shall bear interest at a per annum rate equal to the Prime Rate. If the outstanding balance is $500,000 or greater, the line of credit shall bear interest at the greater of either (1) the Prime Rate, minus 1%, or (2) the Federal Funds Rate plus 1.50%. Interest will be payable monthly, in arrears, and at maturity, whether by acceleration or otherwise, beginning October 1,1995, and on the first day of each month thereafter. Interest will be computed on the actual days outstanding based upon a year consisting of 360 days. If any interest payment on this note shall become due and payable on a day which is not a business day of Bank, payment shall be made on the next succeeding business day of Bank. "Prime Rate" means the Prime Rate of interest established from time to time by Commerce Bank and designated as such for its internal convenience, and no representation is made that the Prime Rate is the best, the lowest or a favored rate of interest. The rate of interest, if tied to the Prime Rate, shall change with and be effective on the date of each change in the Prime Rate. "Federal Funds Rate" means the effective Federal Funds Rate as quoted by the Federal Reserve Bank of New York on a daily basis. The Federal Funds Rate is adjusted daily. So long as the Agreement has not been terminated, Borrower may, from the date of this note through October 1, 1997 borrow, repay and reborrow sums, at any one time outstanding, not to exceed $27,000,000. All advances and repayments hereunder shall be endorsed on the reverse hereof (or an attached schedule) by the Bank or holder, and between the undersigned and Bank, such endorsements and the balances derived from such endorsements shall be conclusively presumed to reflect the amounts advanced and repaid hereunder and the then outstanding and unpaid balance of sums advanced or readvanced hereunder. The undersigned hereby waives presentment, protest, demand and notice of dishonor or default. This note is issued pursuant to the terms of the Agreement, to which Agreement, and any amendments thereto, reference is hereby made for a statement of the terms and conditions under which this borrowing was made, and is to be repaid. MIDWEST GRAIN PRODUCTS, INC. By: /s/ Ladd M. Greenberg Title: President & CEO By: /s/ Robert G. Booe Title: VP - CFO EX-20 5 LETTER TO STOCKHOLDERS EXHIBIT 20 Letter To Our Stockholders November 9, 1995 Dear Stockholder: I am encouraged by improvements we currently are experiencing in our operational cash flow as the result of widespread cost-saving measures and strategies. However, as anticipated in a previous announcement, our earnings performance in the beginning months of fiscal 1996 has been severely affected by a combination of exceptionally high raw material costs for grain, stiff competition from European wheat gluten producers and softness in the fuel alcohol market. As a result, we experienced a first quarter pre-tax loss of almost $4,000,000. After the credit for income taxes, the resulting net loss was $2,377,000, or $0.24 per share on sales of $47,160,000. For the first quarter of fiscal 1995, we had net income of $2,756,000, or $0.28 per share on sales of $45,984,000. Prices for wheat, which we mill into flour and then process into vital wheat gluten and premium wheat starch, have reached their highest levels since 1974. Our cost for wheat in this year's first quarter averaged $1.10 more per bushel compared to the prior year's first quarter. Our costs for corn and milo, which are used in our distillery operations, increased an average of 42 cents per bushel compared to a year ago. The higher wheat prices put an additional squeeze on our ability to compete cost effectively in the wheat gluten market, which continues to be flooded by gluten imports from the European Union (E.U.). This tide of imports is being sustained by a lopsided tariff structure and government incentive programs which greatly benefit E.U. wheat gluten and wheat starch producers. These inequities presently are being addressed by the office of U.S. Trade Representative Mickey Kantor. To help keep this issue a priority, I ask you to assist the efforts of our employees and many others, including several U.S. Senators and Representatives, by writing to Ambassador Kantor and urging him to level the playing field. His address is: Office of the U.S. Trade Representative, 600 17th Street N.W., Washington, D.C. 20506. In the meantime, as we reported in our recent Annual Report to Stockholders, we will continue to place emphasis on the development of specialty wheat gluten and wheat starch products for value-added market niches. This approach in the wheat starch area has been especially successful and has increasingly contributed to our steady growth in total wheat starch sales. Demand for our food grade alcohol for beverage, industrial and commercial applications remains strong, while conditions in our fuel grade market remain flat in the face of high grain costs. As a result, we will continue to gear our distillery operations toward maximizing the production of food grade alcohol. These strategies complement an intense cash management plan we have in place to trigger a turnaround, both short term and long-term. The recent decision by our Board of Directors not to declare a cash dividend on the Company's common stock for the first quarter coincides with multiple measures we have implemented to improve cash flow. In closing, I would like to reiterate that we are seeing strong indications that these measures and strategies are working. When grain costs and selling prices return to more normal levels, we will be prepared to increase production and sales in all three of our principal product areas and to realize significant long-term growth. Sincerely, /s/ Ladd M. Seaberg Ladd M. Seaberg President and CEO EX-27 6 FINANCIAL DATA SCHEDULE
5 EXHIBIT 27 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MIDWEST GRAIN PRODUCTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND CONDENSED CONSOLIDATED BALANCE SHEET AS AT SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000835011 MIDWEST GRAIN PRODUCTS, INC. 1,000 3-MOS JUN-30-1996 JUL-01-1995 SEP-30-1995 339 0 23,468 0 16,903 47,589 207,664 74,686 181,012 14,933 44,908 6,715 0 4 103,532 181,012 47,160 47,160 48,097 48,097 2,463 0 0 (3,401) (1,548) (2,377) 0 0 0 (2,377) (.24) (.24) After deduction of allowances and addition of Notes Receivable. See Note F1. Reflects Retained Earnings and Additional Paid In Capital. Reflects net sales plus Other Operating Loss and Other Income. Consists of Selling, General and Administrative Expenses. Total revenues includes "Other Income." Other Income reflects excess Other Income after deducting interest expense.
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