Note 3 - Investment in Joint Ventures.

3 Months Ended

Sep. 30, 2011

Investment InJoint Ventures [Text Block]

Note 3.  Investment in Joint Ventures.

The Company’s investments accounted for on the equity method of accounting consist of the following: (1) 50 percent interest in Illinois Corn Processing, LLC (“ICP”), which operates a distillery, and (2) 50 percent interest in D.M. Ingredients, GmbH, (“DMI”), which produces certain specialty starch and protein ingredients.   
 

Formation and Accounting Treatment of ICP Joint Venture

During fiscal year ended June 30, 2010, the Company completed a series of related transactions pursuant to which MGPI contributed its Pekin plant and certain maintenance and repair materials to a newly-formed company, ICP, and then sold 50 percent of the membership interest in ICP to Illinois Corn Processing Holdings, LLC (“ICP Holdings”), an affiliate of SEACOR Energy Inc.  In connection with these transactions, MGPI entered into various agreements with ICP and ICP Holdings, including a Contribution Agreement, an LLC Interest Purchase Agreement, a Limited Liability Company Agreement and a Marketing Agreement.   The formation of ICP, as well as a discussion of key contract terms and provisions for the above mentioned agreements, have been previously disclosed in Note 3. Investment in Joint Ventures, in Item 8 of Form 10-K for the fiscal year ended June 30, 2011.  Certain contract terms are further discussed below under “-Certain Rights of Joint Venture Partners and ICP’s Lender.”

The Company does not have the power to direct or control the activities of ICP that most significantly determine the economic performance of this investment.  These responsibilities are shared equally with the Company’s joint venture partner. In addition, Management has determined that MGPI does not have the power to direct the activities of ICP that most significantly impact economic performance, or have an obligation to absorb losses or the right to receive benefits from ICP that could be significant to ICP, and accordingly MGPI should not consolidate ICP.  The significant judgments and assumptions made by the Management in reaching this conclusion include consideration of 1) the economics to MGPI and SEACOR Energy, Inc. related to the marketing agreements, 2) the buy-out provisions by MGPI and SEACOR Energy, Inc. and 3) the financing provided by SEACOR Energy, Inc.’s affiliate.  The Company has not provided other financial explicit or implicit support to ICP during the quarter ended September 30, 2011 and does not intend to provide financial or other support at this time, other than as discussed below under “- Maximum Exposure to Loss.”

Certain Rights of Joint Venture Partners and ICP’s lender

ICP experienced EBITDA losses in excess of $500 in the quarters ended December 31, 2009, March 31, 2010, December 31, 2010, June 30, 2011 and September 30, 2011.  For the three consecutive quarters ending both September 30, 2011 and June 30, 2011, ICP experienced an EBITDA loss in excess of the $1,500 aggregate loss threshold amount described below permitted over any three consecutive quarters.

ICP’s Limited Liability Company Agreement gives MGPI and its joint venture partner, ICP Holdings, a subsidiary of SEACOR Energy Inc., certain rights to shut down the Pekin plant if ICP operates at an EBITDA loss of $500 in any quarter.  Such rights are conditional in certain instances but are absolute if EBITDA losses aggregate $1,500 over any three consecutive quarters or if ICP’s net working capital is less than $2,500.

Losses of such nature are also events of default under ICP’s term loan and revolving credit agreements with its lender, an affiliate (sister company) of SEACOR Energy, Inc., which, upon any requisite notice and/or lapse of time, would entitle the lender to impose a default rate of interest, foreclose on ICP’s assets and, in the case of the working capital deficiency or successive losses, enforce the closure provisions referred to above.

Both SEACOR Energy Inc. and ICP’s lender waived rights for covenant violations through September 30, 2011.

Maximum Exposure to Loss

The Company’s portion of the remaining commitment related to ICP’s acquisition, on January 29, 2010, of the existing steam facility that services the Pekin plant plus the Company’s investment balance is the maximum exposure to loss.  A reconciliation from the Company’s investment balance in ICP to the Company’s maximum exposure to loss is as follows:

	September 30,		June 30,
	2011		2011
MGPI’s investment balance in ICP	$	9,366	$	12,233
Plus:
Funding commitment for capital improvements		1,000		1,000
MGPI’s maximum exposure to loss related to ICP	$	10,366	$	13,233

Summary Financial Information

Condensed financial information of the Company’s non-consolidated equity method investment in ICP is shown below.

	Quarter Ended			Quarter Ended
	September 30,			September 30,
	2011			2010
ICP’s Operating results:
Net sales (a)	$	62,123		$	38,423
Cost of sales and expenses (b)		67,858			35,216
Net income (loss)	$	(5,735	)	$	3,207

(a) Includes related party sales to MGPI of $19,640 and $9,747 for the quarters ended September 30, 2011 and 2010, respectively.

(b) Includes depreciation and amortization of $1,375 and $1,389 for the quarters ended September 30, 2011 and 2010, respectively.

	September 30,		June 30,
ICP’s Balance Sheet:		2011		2011
Current assets	$	34,118	$	30,729
Noncurrent assets		26,212		27,474
Total assets	$	60,330	$	58,203
Current liabilities	$	16,960	$	7,105
Noncurrent liabilities		24,638		25,602
Equity		18,732		25,496
Total liabilities and equity	$	60,330	$	58,203

The Company’s equity in earnings (loss) of joint ventures is as follows:

	September 30,			September 30,
	2011			2010
ICP (50% interest)	$	(2,867	)	$	1,603
DMI (50% interest)		37			(14	)
	$	(2,830	)	$	1,589

The Company’s investment in joint ventures is as follows:

	September 30,		June 30,
	2011		2011
ICP (50% interest)	$	9,366	$	12,233
DMI (50% interest)		352		342
	$	9,718	$	12,575