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As Filed with the Securities and Exchange Commission on September 20, 2000
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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, 2000
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. 48-0531200
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, 8,583,397 shares of which were outstanding at June 30,
2000. 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 highest sales price of such stock on July 27,
2000, was $75,694,023.
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. 2000 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 12, 2000, dated September 15, 2000
(incorporated into Part III).
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CONTENTS
PART I PAGE
Item 1. Business............................................... 1
General Information.................................... 1
Wheat Gluten........................................... 2
Premium Wheat Starch................................... 5
Alcohol Products....................................... 6
Flour and Other Mill Products.......................... 8
Transportation......................................... 8
Raw Materials.......................................... 9
Energy................................................. 9
Employees.............................................. 10
Regulation............................................. 10
Item 2. Properties............................................. 10
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 Operation ................. 12
Item 7A. Quantitative and Qualitative Disclosure About Market Risk. 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............................... 16
Item 13. Certain Relationships and Related Transactions......... 16
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K......................................... 16
SIGNATURES....................................................... 19
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.
This report, including the portions of the Annual Report incorporated herein
by reference, contains forward-looking statements as well as historical
information. Forward-looking statements are usually identified by or are
associated with such words such as "intend, " believe," "estimate," "expect,"
"anticipate," "hopeful," "should," "may" and similar expressions. They reflect
management's current belief's and estimates of future economic circumstances,
industry conditions, Company performance and financial results and are not
guarantees of future performance. The forward- looking statements are based on
many assumptions and factors including those relating to grain prices, gasoline
prices, energy costs, product pricing, competitive environment and related
market conditions, operating efficiencies, access to capital and actions of
governments. Any changes in the assumptions or factors could produce materially
different results than those predicted and could impact stock values.
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 wheat gluten, which
includes vital wheat gluten and specialty wheat proteins, 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, a portion of which is
further processed into specialty wheat proteins. Vital wheat gluten and most
wheat protein products are dried into powder and sold in packaged or bulk form.
The starch slurry which results after the extraction of the gluten and wheat
proteins is further processed to extract premium wheat starch which is also
dried into 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, 2000, as well as such
sales as a percent of total sales.
PRODUCT GROUP SALES
Year Ended June 30,
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2000 1999 1998 1997 1996
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(thousands of dollars)
Amount % Amount % Amount % Amount % Amount %
------ - ------ - ------ - ------ - ------ -
Wheat Gluten............... $ 70,912 30.6 $ 56,153 26.0 $ 42,489 19.0 $ 39,968 17.8 $ 39,514 20.3
Premium Wheat Starch....... 29,186 12.6 27,173 12.6 27,791 12.4 29,935 13.3 26,354 13.5
Alcohol Products:
Food Grade Alcohol
Beverage Alcohol...... 27,728 11.9 30,373 14.1 35,934 16.1 43,118 19.2 39,465 20.3
Food Grade Industrial. 16,136 7.0 19,276 8.9 27,487 12.3 38,004 16.9 32,064 16.5
Fuel Grade Alcohol....... 62,066 26.7 54,639 25.3 51,227 23.0 34,992 15.6 25,347 13.0
Alcohol By-products...... 23,093 10.0 25,441 11.8 33,259 14.9 34,553 15.4 28,449 14.6
------- ---- ------- ----- ------- ----- ------- ---- ------- -----
Total Alcohol
Products............. 129,023 55.6 129,729 60.1 147,957 66.3 150,667 67.1 125,325 64.4
------- ----- ------- ----- -------- ----- ------- ----- ------- -----
Flour and Other Mill
Products................. 2,759 1.2 3,046 1.4 5,017 2.3 4,163 1.8 3,445 1.8
----- ---- ------ ---- ------ ---- ------ ---- ------ ----
Net Sales ........... $231,880 100.0 $216,101 100.0 $223,354 100.0 $224,733 100.0 $194,638 100.0
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
The Company's results for fiscal 2000 were up substantially over
results for the prior fiscal year. Net income rose to $4.9 million compared to
$1.3 million in fiscal 1999 due principally to the effects of heightened demand
for the Company's vital wheat gluten, specialty and modified wheat proteins and
wheat starches. Lower per unit costs for grain also contributed to the
improvement. These conditions partially offset the impact of reduced selling
prices for the Company's alcohol products resulting from the continuation of
excess alcohol supplies throughout the industry.
The bulk of the Company's sales are made direct to large institutional
food and beverage processors and distributors with respect to which the Company
has longstanding relationships. Sales to these customers are usually evidenced
by short term agreements that are cancelable within 30 days and under which
products are usually ordered, produced, sold and shipped within 60 days.
However, a substantial amount of the Company's fuel alcohol is sold under longer
term contracts, primarily to cover the needs of gasoline refiners during
September through April of each year. None of the Company's customers accounted
for more than ten percent of the Company's consolidated revenues during fiscal
2000, except for a distributor of vital wheat gluten that accounted for
approximately 14% of the Company's 2000 sales.
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Historically, the Company's sales have not been seasonal except for
variations affecting alcohol and gluten sales. Fuel alcohol sales usually
increase during the period August through March due to requirements of the Clean
Air Act which inhibit the sale of ethanol in certain areas of the country during
May 1 through September 15 each year. Certain environmental regulations also
favor greater use of ethanol during the winter months of the year. See "Alcohol
Products- Fuel Grade Alcohol." Beverage alcohol sales tend to peak in the fall
as distributors order stocks for the holiday season, while gluten sales have
tended to increase to a minor extent during the second half of the fiscal year
as demand increases for hot dog and hamburger buns and similar bakery products.
During the next year the Company may experience fluctuations in wheat gluten
sales due to the effects of quarterly quotas on the import of wheat gluten into
the United States. See "Vital Wheat Gluten - Competition."
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.
Wheat Gluten
The Company's wheat gluten products consist of vital wheat gluten and
specialty wheat proteins that are derived from vital wheat gluten. During fiscal
2000, the sale of specialty wheat proteins increased by approximately 45% over
specialty protein sales in fiscal 1999, to approximately 13% of total fiscal
2000 wheat gluten sales.
Vital wheat gluten is a free-flowing light tan powder which contains
approximately 75% to 80% protein. Its vitality, water absorption and retention
and film-forming properties make it desirable as an ingredient in many food
products. 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, hot dog
and hamburger buns to improve the strength and cohesiveness of the product. For
example, vital wheat gluten provides greater hinge strength for hot dog buns.
In recent years the Company began the development of a number of
specialty wheat proteins for food and non-food applications. Specialty Wheat
Proteins are derived from vital wheat gluten through a variety of proprietary
processes which change the molecular structure of vital wheat gluten. Food
application wheat proteins include gliadin, glutenin, products in the
Wheatex(TM) and FP(TM) series and Pasta Power(TM). Non-food applications include
wheat proteins designed for use primarily in cosmetics and personal care
products and in biodegradable gluten resins that can be molded to form a variety
of biodegradable plastic-like objects.
Food Applications
o Gliadin and Glutenin are the two principal molecules that make up vital
wheat gluten. The Company's patented process enables the separation of each
for a variety of end uses. Glutenin, a large molecule responsible for the
elastic character of vital wheat gluten, increases the strength of bread
doughs, improves the freeze-thaw characteristics of frozen doughs and may
be used as a functional protein source in beef jerky-type products, as well
as in meat extension. Gliadin, the smaller of the two molecules, is soluble
in water and other liquids, including alcohol, and is responsible for the
viscous properties of wheat gluten. Those characteristics make it ideal to
improve the texture of noodles and pastas. Gliadin is also used in a number
of cosmetics and personal care products as described below under "Non-Food
Applications."
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o Wheatex(TM)Series consists of texturized wheat proteins made from vital
wheat gluten by changing it into a pliable substance through special
processing. The resulting solid food product can be further enhanced with
flavoring and coloring and reconstituted with water. Texturized wheat
proteins are used for meat, poultry and fish substitutes, extenders and
binders. Wheatex(TM)mimics the textural characteristics and appearance of
meat, fish and poultry products. It is available in a variety of sizes and
colors and can be easily formed into patties, links or virtually any other
shape the customer requires. Because of its neutral taste, Wheatex(TM)will
not alter flavors that are added to the product. It also has excellent
water-binding capacities for the retention of natural meat juices.
Wheatex(TM)is presently being sold for applications in vegetarian and
extended meat products.
o FP(TM) Series. The Midsol FP(TM) series of products consist of specialty
wheat proteins each tailored for use in a variety of food applications.
These include proteins that can be used to form barriers to fat and
moisture penetration to enhance the crispness and improve batter adhesion
in fried products; increase the freshness and shelf life of frozen and
refrigerated dough products after they are baked; effectively bond other
ingredients in vegetarian patties and extended meat products; and fortify
nutritional drinks.
o Pasta Power(TM) is a specialty wheat protein that is a cost-effective
replacement for whole eggs and egg whites and enhances the strength,
texture, quality and functionality of fresh, frozen and flavored pasta
products. The added strength enables the canning of pasta and its treatment
with spices without significant deterioration of the noodle or other pasta
product, as in the case of canned spaghetti and similar products.
Non-Food Applications
o Cosmetics and Personal Care Products. Specialty wheat proteins include
proteins that have been hydrolyzed or otherwise altered to become soluble
in water and other liquids. This enables their use in food as well as
non-food cosmetic applications such as hair sprays, shampoos, skin lotions
and similar products. These include Foam Pro(TM), a hydrolyzed wheat
protein that has been developed as a foam booster to naturally enhance
detergent systems such as shampoos, liquid hand soaps and bath and shower
gels; Aqua Pro(TM)II WAA, a solution of amino acids produced from natural
wheat proteins that helps provide excellent moisturizing and film forming
properties in both hair and skin systems; Aqua Pro(TM)II WP, an additive
for shampoo; Aqua Pro(TM)QWL, which enhances the functionality of hair
conditioners; and Aqua Pro(TM)II WG, which is a gliadin formulation that is
used in hair and skin cleansers and conditioners.
o Biodegradable Gluten Resins. Polytriticum(TM) 200 and Polytriticum(TM) 2000
are the Company's environmentally friendly biodegradable gluten resins that
can be molded to produce a variety of plastic-like objects.
Polytriticum(TM) 200 may be used as a commercial raw material for the
production of pet foods and biodegradable landscaping materials and
Polytriticum(TM) 2000 has been developed for use in disposable eating
utensils, golf tees, food and feed containers and similar type vessels.
Although a number of the specialty wheat proteins are being marketed,
others are still in the test marketing or development stage. Specialty wheat
proteins are accounting for an increasing share of the Company's total wheat
gluten sales. During fiscal 2000 specialty wheat protein sales increased by 45%,
to approximately 13% of total wheat gluten sales. That share is expected to
continue to increase due to increased marketing and customer recognition of the
advantages of these unique products and due to an expected increase in capacity.
In August 2000 the Board of Directors approved a plan to expand the Company's
Wheatex production capacity with the construction of new facilities at a cost of
about $6.05 million. All of these initiatives with the Company's overall
strategy to focus on the marketing and development of specialty wheat gluten and
starch products for use in unique market niches. Specialty wheat proteins
generally compete with other ingredients and modified proteins having similar
characteristics.
The Company produces vital wheat gluten from modernized facilities at
the Atchison and Pekin plants. It is shipped throughout the continental United
States in bulk and in 50 to 100 pound bags. Approximately 14% of the
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Company's total fiscal 2000 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.
The Company believes its wheat gluten processing operations produce a
quality of vital wheat gluten and specialty wheat proteins that are equal to or
better than that of any others 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 service
to customers.
Competition-Vital Wheat Gluten. The Company's principal competitors in
the U.S. vital wheat gluten market consist primarily of three other domestic
producers and producers in the European Union (the "E.U."), Australia and
certain other regulated countries (the "Foreign Exporters"). Between June 30,
1994 and June 30, 1998, the E.U. took an increasingly large share of the U.S.
gluten market. Imports of wheat gluten shipped into the United States from the
E.U. during the crop year ended June 30, 1995, were approximately 51.9 million
pounds. Those imports increased to 70.2 million pounds in the crop year ending
June 30, 1996, to 91.1 million pounds in the crop year ending June 30, 1997, and
to 97.5 million pounds in the crop year ending June 30, 1998, for an aggregate
increase of 88%. Due to the imposition of import quotas beginning on June 1,
1998, U.S. Customs data shows that E.U. imports declined to 65.5 million pounds
in the quota year ending May 31, 1999 and to 45.8 pounds (excluding Poland) for
the quota year ending May 31, 2000. The quota for the year ending May 31, 2001
is 60.7 million pounds. Due to pending proceedings which challenge the legal
validity of the quota, it is uncertain as to whether the quota will continue
through May 31, 2001. However, requests are expected to be made to extend the
quota for additional periods, which if satisfied could extend the quota beyond
May 31, 2001.
Competition in the vital wheat gluten industry is based primarily upon
price. Since the increasing surge of large, subsidized volumes of E.U. wheat
gluten into the U.S., vital wheat gluten prices have been primarily affected by
(i) excess E.U. capacity, (ii) high tariff barriers, subsidies and other
protective measures ("Subsidies") provided to E.U. exporters by their host
governments, (iii) low U.S. tariffs and (iv) gluten import quotas. The Subsidies
and low U.S. tariffs encouraged E.U. producers to expand wheat starch and wheat
gluten production capacity and to continue the development of even greater
capacities. Based on industry sources, during the years ending December 31, 1998
and 1999, an estimated 160 million pounds of additional E.U. capacity were
completed and an estimated additional 60 million pounds of E.U. capacity have
been forecasted to be completed by December 31, 2000. Until the imposition of
quotas by the President of the United States effective June 1, 1998, it was
expected that a majority of the excess wheat gluten production from these plants
would be targeted for shipment to the U.S.
The Wheat Gluten Industry Council of the United States, which is
principally supported by the Company and two other domestic wheat gluten
producers, has engaged in a number of initiatives to combat this surge in
Subsidized E.U. wheat gluten. Initially the Wheat Gluten Industry Council
attempted to establish equal opportunity or a "level playing field" in the U.S.
market through negotiations under a Grains Agreement between the E.U. and the
United States. A lack of meaningful discussions was followed by an action under
Section 301 of the Trade Act of 1974. Following a further round of
unsatisfactory discussions in connection with that action, the Wheat Gluten
Council initiated a second proceeding on September 19, 1997, with the
International Trade Commission of the United States under section 201 of the
Trade Act of 1974 (the "Section 201 Proceeding").
The Section 201 Proceeding met with success during the second half of
fiscal 1998. On March 18, 1998, the International Trade Commission submitted to
the President a unanimous affirmative determination that "imports of wheat
gluten are being imported into the United States in such increased quantities as
to be a substantial cause of serious injury to the domestic industry." The
International Trade Commission also recommended to the President that a quota be
placed on imports of foreign wheat gluten. As a result of that finding and
recommendation and pursuant to Section 203 of the Trade Act of 1974, the
President issued Proclamation 7103, on May 30, 1998. The Proclamation imposes
annual quantitative limitations for three years on imports of wheat gluten from
the E. U. and other Foreign Exporters at an amount equal to the total average
imports of wheat gluten shipped into the United States by the Foreign Exporters
during the three crop years ended June 30, 1995. The aggregate quota for the
first year was 126.8 million pounds. Annual increases in that quota of six
percent prevail in the second year and in the third year. Due to violations of
the quota by the E.U. during the first quota year, the President issued a
proclamation on May 29, 1999, that reduced the
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E.U.'s second year quota by the amount of illegally shipped gluten in the first
year and placed in effect other measures designed to preclude further
violations. Due to the importation of the EU's entire annual amount allowed in
the first quarter of the second quota year and the shipment of large quantities
of gluten through Poland (a previously exempt country), the President in May
2000, took further action. That action restricted shipment of the annual amount
to one fourth of the annual amount in each of the four quarters of the quota
year. The action removed Poland from the list of exempted countries. The quotas
for "goods entered, or withdrawn from warehouse for consumption, on or after
June 1, 2000" in millions of pounds are, per quarter, beginning June 1, 2001:
Per Quarter
-----------
Australia 17.525 million pounds
European Community 15.175 million pounds
Other Countries 2.925 million pounds
In fiscal 2000 a proceeding was commenced in the World Trade
Organization ("WTO") to set aside the action of the ITC in establishing the
quota. The essential basis of the claim was that the ITC and the President had
not used the appropriate methodology in determining the cause of serious injury
to the U.S. industry. On June 28, 2000, the WTO dispute resolution panel ruled
in favor of the claim. The decision is being appealed by the U.S. Trade
Representative. Pending resolution of the appeal, the quota will remain in
place. In the event the appeal is lost, it is uncertain as to the effect of such
an event on the quota, since the ITC and the President could choose to commence
additional proceedings that could correct the record and allow the quota to
remain in place. In addition, it is anticipated that the U.S. Wheat Gluten
Industry Council will seek an extension of the quota in order to cure past quota
violations and to provide the additional time necessary to achieve the purposes
of the quota.
Since the imposition of the quota, the Company has focused its efforts
on developing and increasing the production and sales of specialty wheat
proteins. These are niche products that are expected to be able to compete more
effectively with increased foreign imports following the end of the annual
quotas. Although the Company has made significant progress to this end, it
believes that it will need additional quota relief beyond May 30, 2001, to be
able to compete effectively in a market that is expected to be inundated with
low cost subsidized foreign gluten following the end of the quota.
The Company's sales of vital wheat gluten during 2000 increased
approximately 26% over gluten sales in fiscal 1999 as the Company increased
production to respond to the market requirements resulting from the gluten
import quotas. This increased production , combined with relatively low grain
prices and reduced hedging costs, enabled the Company's gluten operations to
provide the bulk of the Company's overall profitability for 2000.
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.
A substantial portion of the Company's premium wheat starch is also
altered during processing to produce certain unique modified and specialty wheat
starches designed for special applications in niche markets.
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. Important physical properties contributed by wheat
starch include whiteness, clean flavor, viscosity and texture. 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
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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 modified and specialty starches are also sold for a
number of industrial and non-food applications, which include uses in the
manufacture of adhesives, paper coatings and carbonless paper.
The Company's premium wheat starch is sold nationwide to food
processors and distributors and for export, with the bulk of international sales
going to Japan, Mexico and East Asian countries 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 has
experienced substantial growth over the years. 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 and specialty wheat starches and continues to explore the
development of additional starch products with the view to increasing sales of
value added modified and specialty 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 and specialty 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 and
specialty wheat starches are better suited to a customer's requirements for a
specific use.
Starch sales and profitability for 2000 improved modestly over those of
1999, due primarily to strengthened demand for the Company's modified and
specialty starches.
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, which further process the alcohol for
sale to consumers under numerous labels.
The Company believes that in terms of fiscal 2000 net sales, it is one
of the three 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. Beginning in 1997, competition in beverage markets
increased significantly as producers of fuel grade alcohol converted portions of
fuel grade production into food grade production. 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 within the industry.
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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 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 industrial and beverage alcohol sales declined by
approximately $5.8 million during 2000 and $13.8 million during 1999 due
primarily to continuing decreased demand, lower selling prices and excess food
grade production capacity throughout the industry. Although the effects of
declining sales were partially offset by reduced grain prices, food grade
results for 2000 had a negative impact on the Company's 2000 profitability. The
increased industry-wide capacity for food grade alcohol is due to a large scale
conversion of fuel grade distillation equipment into food grade production. This
conversion followed an expansion of an abundance of fuel grade capacity that was
constructed in the early 1990s in anticipation of the implementation of Clean
Air Act regulations mandating ethanol use that were subsequently reversed by
court order.
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 particulates 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
U.S. metropolitan areas during the summer months (May 1 through September 15).
As a consequence, the demand for ethanol increases during the period from
August through March of each fiscal year as gasoline blenders acquire stocks for
blending with gasoline to be marketed in the period September 16 through April
30.
Since the adoption of the Clean Air Act, the gasoline industry has
relied primarily upon methyl tertiary butyl ether (MTBE) to reduce toxic
emissions of air pollutants to meet the requirements of the Act and related EPA
regulations. Ethanol is also used to a lesser extent during the cooler months of
the year. However, the EPA has recently concluded that the use of MTBE has
created a "significant and unacceptable risk to drinking water and ground water
resources." Concerns have also been raised as to the effectiveness of MTBE
versus the effectiveness of Ethanol as a reducer of air pollutants. As the
result of these concerns, the EPA commissioned a "Blue Ribbon Panel" to
investigate the matter and recommend solutions. In March 2000, the EPA announced
the recommendations of the Panel. The recommendations propose that the Clean Air
Act be amended to provide the EPA with authority to significantly reduce or
eliminate the use of MTBE, and to "replace the 2 percent oxygenate requirement
in the Clean Air Act with a renewable fuel annual average content for all
gasoline at a level that maintains the current level of renewable fuel (1.2
percent of the gasoline supply) and allows for sustained growth over the next
decade." States have also begun to take action to curb the use of MTBE,
including California, which has adopted regulations that will require a phase
out of the use of MTBE in that state by January 1, 2003. The effect of such
requirements and actions if adopted and implemented would be to significantly
increase demand for ethanol. However, to date no major actions have been taken
to implement or promote the use of ethanol. Accordingly, there can be no
assurance that ethanol will replace MTBE in any significant market.
7
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 the end of 2007, 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 (the "Federal Tax Credit"). A
mix of at least 10% ethanol by volume is required to receive the maximum credit.
Although the Federal Tax Credit is not directly available to the Company, it
allows the Company to sell its ethanol at prices competitive with less expensive
additives and gasoline. From time to time legislation is proposed to eliminate,
reduce or extend the tax benefits enjoyed by the ethanol industry, and
indirectly by producers of the grain that is converted into ethanol. During 1998
legislation was enacted that extended the credit through 2007, with the credit
being reduced to $0.51 per gallon beginning in 2005.
The Kansas Qualified Agricultural Ethyl Alcohol Producer Incentive
Fund, which expires in 2001, provides incentives for sales of ethanol produced
in Kansas to gasoline blenders. Fiscal 2000 payments to the Company out of the
fund totaled $427,000 for the ethanol produced by the Company at the Atchison
plant during that year.
The fuel grade alcohol market is dominated by Archer Daniels Midland,
with the Company's being 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 grade alcohol sales increased by $7.4 million or 13.5% during
2000, due primarily to increased demand during the 4th quarter of fiscal 2000.
Alcohol By-Products
The bulk of fiscal 2000 sales of alcohol by-products consisted 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 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.
Sales of alcohol by-products during fiscal 2000 declined by 9% relative
to 1999 sales, due primarily to lower selling prices that resulted from lower
grain prices.
Flour and Other Mill Products
The Company owns and operates a flour mill at the Atchison plant. The
mill's output of flour is used internally to satisfy a majority of the raw
material needed for the production of vital wheat gluten and premium wheat
starch.
In addition to flour, the wheat milling process generates mill feeds or
"midds." Midds are sold to processors of animal feeds as a feed additive.
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 389 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
8
owned by the Company. The facility on the Missouri River, which is not
company-owned, is approximately one mile from the Atchison plant.
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. Such variations in grain prices
have had and are expected to have from time to time significant adverse effects
on the results of the Company's operations. This is primarily due to a variety
of factors. From time to time it has been difficult for the Company to
compensate for increases in grain costs through adjustments in prices charged
for the Company's vital wheat gluten due to the surge of Subsidized E.U. wheat
gluten, whose artificially low prices are not affected by such costs. Although
the three-year quota on imports of wheat gluten has temporarily alleviated this
condition to some degree, no assurance can be given that the effect will be
uniform throughout each crop year covered by the quota or that the market will
otherwise adjust following the lifting of the quota. Also, fuel grade alcohol
prices, which historically have tracked the cost of gasoline, do not usually
adjust to rising grain costs. Excess industry-wide alcohol capacities have also
depressed alcohol selling prices below historically normal margins.
During fiscal 2000 market prices for grain continued to decline. The
average Kansas City market price per bushel for corn and milo was $1.87 during
2000 and $1.98 during 1999, while the average Kansas City market price for a
bushel of wheat was $2.59 during 2000 versus $2.86 during 1999. Although the
continuation of low grain prices contributed to the Company's positive earnings
in 2000, excess industry-wide alcohol capacities continued to restrict the
ability of the company to adjust the price of its alcohol to compensate for
grain and other production costs.
The Company engages in the purchase of commodity futures to hedge
economic risks associated with fluctuating grain and grain products prices.
During fiscal 2000, the Company hedged approximately 11% of corn processed
compared to 34% in 1999 and 22% of wheat processed compared to 42% in 1999. The
contracts are accounted for as hedges and, accordingly, gains and losses are
deferred and recognized in cost of sales as part of contract costs when contract
positions are settled and related products are sold. For fiscal 2000, raw
material costs included a net loss of approximately $1.3 million on contracts
settled during the year compared to a net loss of $3.5 million for fiscal 1999.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Market Risk" in the Annual Report.
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 procured in the
open market from various suppliers. Depending on existing market conditions, the
Company has the ability to transport the gas through a gas pipeline owned by a
wholly-owned subsidiary of the Company. The Atchison boilers may also be oil
fired.
In 1995 the Company entered into a long-term arrangement with an
Illinois utility to satisfy the energy needs of the Pekin, Illinois plant. Under
the arrangement, the utility constructed a new gas fired electric and steam
generating facility on ground leased from the Company. The utility sells steam
and electricity to the Company, generally at fixed rates, using gas procured by
the Company.
9
Employees
As of June 30, 2000, the Company had 433 employees, 280 of whom are
covered by two collective bargaining agreements with one labor union. One
agreement, that expires on August 31, 2002, covers 188 employees at the Atchison
Plant. The other agreement, that expires in November, 2000, covers 92 employees
at the Pekin plant. As of June 30, 1999, the Company had 426 employees.
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.
The Company is subject to extensive environmental regulation at the
federal, state and local levels. The regulations include the regulation of water
usage, waste water discharge, disposal of hazardous wastes and emissions of
volatile organic compounds, particulates and other substances into the air.
Under these regulations the Company is required to obtain operating permits and
to submit periodic reports to regulating agencies. During 1997 the Illinois
Environmental Protection Agency commenced an action against the Company with
respect to alleged noncompliance of the Pekin Plant with certain air quality
regulations. This action is further described under "Item 3. Legal Proceedings."
The Company has submitted an application to the Agency for construction of new
pollution control equipment that is expected to bring emissions into compliance
with all applicable regulations.
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.
10
Item 3. Legal Proceedings.
On April 13, 1997, an administrative proceeding was filed against the
Company's Illinois subsidiary before the Illinois Pollution Control Board (the
"Board"), by the Illinois Attorney General on behalf of the Illinois
Environmental Protection Agency (the "Agency"). The proceeding relates to the
Company's installation and operation of two feed dryers at its facility in
Pekin, Illinois. The Complaint alleges that the dryers exceed the particulate
emission limitations specified in the construction permits for the units; that
the dryers are being operated without operating permits; and that the dryers
were constructed without a Prevention of Significant Deterioration (PSD)
construction permit setting forth a best available control technology ("BACT")
emission limitation. The Complaint seeks a Board order ordering the Company to
cease and desist from violations of the Illinois Environmental Protection Act
and associated regulations, assessing a civil penalty, and awarding the state
its attorneys fees.
The Company has filed an Answer before the Board admitting that
compliance tests have shown particulate emissions in excess of the limits set
forth in the construction permits, but denying the remainder of the State's
claims. Since the time operational problems were discovered with the dryers'
pollution control equipment, the Company has been conferring and negotiating
with the Agency on the issues involved in the Complaint. The Company has
submitted an application to the Agency for construction of new pollution control
equipment for the dryers, at an estimated cost of approximately $1.0 million. It
is anticipated that the new equipment will bring emissions into compliance with
all applicable limitations. The Company is currently engaged in supplementing
its application with additional information that has been requested by the
Agency.
Proceedings under the Complaint are being held in abeyance by agreement
of the parties pending completion of a review by the State of the Company's
application and completion of the Company's compliance activities. Once
compliance has been achieved, the Company anticipates negotiating a settlement
of the remainder of the State's claims. Based on the circumstances and a
preliminary review of decisions by the Board in air pollution matters, the
Company does not believe that any such settlement will be material to the
business or financial condition of the Company.
There are no other legal proceedings pending as of June 30, 2000 which
the Company believes to be material. Legal proceedings which are pending,
including the proceeding with the Illinois Environmental Protection Agency
described above, are believed by the Company to 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 during the
fourth quarter of fiscal year covered by this report.
11
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 following table below reflects the high and low closing prices of
the Common Stock for each quarter of fiscal 2000 and 1999 Cash dividends have
not been paid since the end of 1995.
Sales Price
-----------
High Low
2000: ---- ---
First Quarter................................ $ 11.50 $ 9.38
Second Quarter............................... 9.75 7.00
Third Quarter................................ 9.25 6.38
Fourth Quarter............................... 8.63 6.13
1999:
First Quarter................................ $ 14.63 $ 10.00
Second Quarter.............................. 14.75 10.25
Third Quarter............................... 14.63 10.00
Fourth Quarter............................... 11.63 9.00
At June 30, 2000 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 7A. Quantitative and Qualitative Disclosures About Market Risk.
Incorporated by reference to the information under Managements
Discussion and Analysis of Financial Condition and Results of Operations -
Market Risk on pages 23 of the Annual Report, copies of which page is 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.
12
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. 77 Chairman of the Board and Director
Laidacker M. Seaberg 54 President, Chief Executive Officer and Director
Sukh Bassi, Ph.D. 59 Vice President, Research and Development
Robert G. Booe 63 Vice President, Finance and Administration, Controller,
Treasurer and Chief Financial Officer
Gerald Lasater 62 Vice President, Export Marketing and Sales
Marta L. Myers 40 Secretary and Administrative Assistant to the President
Steven J. Pickman 47 Vice President, Corporate Relations
David E. Rindom 45 Vice President, Human Resources
Randy M. Schrick 50 Vice President, Operations and Director
Dennis E. Sprague 54 Vice President, Alcohol and Feed Products Marketing and
Sales
William R. Thornton 48 Vice President, Quality Management
Michael J. Trautschold 52 Executive Vice President, Marketing and Sales
Michael Braude 64 Director
Michael R. Haverty 54 Director
F.D. "Fran" Jabara 75 Director
Linda E. Miller 47 Director
Robert J. Reintjes 68 Director
Daryl R. Schaller, Ph.D. 56 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.
13
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, and Vice President - Specialty Ingredients Marketing and Sales between
1998 and 2000. He previously served as Technical Director from 1989 to 1998 and
Vice President - Vital Wheat Gluten Marketing from 1992 to 1998. 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.
Mr. Lasater joined the Company in 1962. He has served as Vice President -
Export Marketing and Sales since 1998. Previously, he served as Vice President -
Starch Marketing from 1992 to 1998. Prior to that he served as Vice President in
charge of the Wheat Starch Strategic Business Unit.
Ms. Myers joined the Company in 1996. She has served as Secretary since
October 1996 and as Administrative Assistant to the President since 1999.
Previously she was executive secretary for Superintendent of Schools for Unified
School District 409, Atchison, Kansas.
Mr. Pickman joined the Company in 1985. He has served as Vice President,
Corporate Relations since June, 2000. Previously he was Executive Director of
Corporate Relations from 1999 to June 2000 and prior to that Corporate Director
of Public and Investor Relations. Between 1985 and 1989 he served as the
Director of Public Relations and Marketing Administration for the Company's
former subsidiary, McCormick Distilling Company, Weston, Missouri.
Mr. Rindom joined the Company in 1980. He has served as Vice President,
Human Resources since June 2000. He was Corporate Director of Human Relations
from 1992 to June 2000, Personnel Director from 1988 to 1992 and Assistant
Personnel Director from 1984 to 1988.
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. Sprague joined the Company in October 1998. He has served as Vice
President, Alcohol and Feed Products since June, 2000. Previously, he served as
Vice President, Corporate Marketing and Sales. Prior to joining the Company, he
held a variety of management, sales and plant operations positions with Joseph
E. Seagrams & Sons, Inc.
Mr. Thornton joined the Company in 1994. He has served as Vice President of
Quality Management since June 2000. He was Corporate Director of Quality
Management from 1997 to June 2000 and Corporate Director of Continuous Quality
Improvement from 1994 to 1997.
Mr. Trautschold joined the Company in September 2000. He has served since
then as Executive Vice President of Marketing and Sales. He was Vice President
of Product Strategy in the Consumer direct Division of Schwan's Sales
Enterprises, Inc. from 1999 to September 2000 and Vice President of Corporate
Marketing Services for ConAgra, Inc. prior to that time.
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 NPC International, Inc., an
operator of numerous Pizza Hut and other quick service restaurants throughout
the United States, Country Club Bank, Kansas City, Missouri and National Futures
Association,
14
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. Haverty, has been a director since October 13, 1999. He has been the
Executive Vice President of Kansas City Southern Industries, Inc. and President
and Chief Executive Officer of The Kansas City Southern Railway Company since
1995. Mr. Haverty previously served as Chairman and Chief Executive Officer of
Haverty Corporation from 1993 to May, 1995, acted as an independent executive
transportation adviser from 1991 to 1993 and was President and Chief Operating
Officer of The Atchison, Topeka and Santa Fe Railway Company from 1989 to 1991.
He is also a director of Kansas City Southern Industries, Inc. and Grupo
Transportacion Ferroviaria Mexicana, S.A. de C.V.
Mr. Jabara has been a director since October 6, 1995, and is a member of
the Audit Committee and Human Resources 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.
Ms. Miller has been a director since June 2000 and is a member of the Audit
and Human Resources committees. She is an independent marketing consultant and
has been a Program Director of the University of Kansas School of Journalism
since 1996. She was Marketing Director of the American Business Women's
Association , Kansas City, Missouri from 1990 to 1996.
Mr. Reintjes has been a director since 1986, and is Chairman of the Audit
Committee and a member of the Nominating and Human 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. Schaller has been a director since October, 1997, and is Chairman of
the Human Resources Committee and a member of the Audit and Nominating
Committees. He retired from Kellogg Co. in 1996 after 25 years of service. He
served Kellogg as its Senior Vice President -- Scientific Affairs from 1994, and
previously was Senior Vice President -- Research, Quality and Nutrition for
Kellogg.
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 Expires Group B Directors Term Expires
----------------- ------------ ----------------- ------------
Mr. Jabara 2000 Mr. Cray, Jr. 2001
Mr. Haverty 2002 Mr. Reintjes 2001
Ms. Miller 2001 Mr. Braude 2000
Dr. Schaller 2000 Mr. Schrick 2002
Mr. Seaberg 2002
Item 11. Executive Compensation.
Incorporated by reference to the information under "Executive
Compensation" on pages 6 through 10 of the Proxy Statement.
15
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference to the information under "Principal
Stockholders" beginning on page 11 and 12 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, 2000 and 1999.
Consolidated Statements of Income - for the Three Years
Ended June 30, 2000, 1999 and 1998.
Consolidated Statements of Stockholders' Equity for the
Three Years Ended June 30, 2000, 1999 and 1998.
Consolidated Statements of Cash Flow - for the Three Years
Ended June 30, 2000, 1999 and 1998. 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
Allother 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).
16
Exhibit No. Description
----------- -----------
4(c) Copy of Sixth 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 4.3 to the Company's Report on Form 10-Q for
the quarter ended December 31, 1999).
4(d) Copy of Line of Credit Note Under Sixth Amended Line of
Credit Loan Agreement (incorporated by reference to
Exhibit 4.4 to the Company's Report on Form 10-Q for
the quarter ended December 31, 1999) .
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 17, 2000, 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. 2000 Annual Report to Stockholders that is
incorporated herein by reference.
10(d)Copy of Midwest Grain Products, Inc. Stock Incentive
Plan of 1996, as amended as of August 26, 1996
(incorporated by reference to Exhibit 10(d) to the
Company's Form 10-K for the year ended June 30, 1996).
10(e)Copy of amendment to Midwest Grain Products, Inc.
Stock Incentive Plan of 1996 (incorporated by reference
to Exhibit 10.1 to the Company's Form 10-Q for the
quarter ended September 30, 1998).
10(f)Form of Stock Option with respect to stock options
granted under the Midwest Grain Products, Inc. Stock
Incentive Plan of 1996 (incorporated by reference to
Exhibit 10(e) to the Company's Form 10-K for the year
ended June 30, 1996).
10(g)Copy of Midwest Grain Products, Inc. 1996 Stock Option
Plan for Outside Directors, as amended as of August 26,
1996 (incorporated by reference to Exhibit 10(f) to the
Company's Form 10-K for the year ended June 30, 1996).
10.(h) Copy of amendment to Midwest Grain Products, Inc.
1996 Stock Option Plan for Outside Directors
(incorporated by reference to Exhibit 10.2 to the
Company's Form 10-Q for the quarter ended September 30,
1998).
10(g)Copy of Midwest Grain Products, Inc. 1998 Stock
Incentive Plan for Salaried Employees (incorporated by
reference to Appendix A to the Company's Notice of
Annual Meeting and Proxy Statement dated September 17,
2000, filed with the Securities and Exchange Commission
on September 15, 2000).
10(h)Form of Stock Option with respect to stock options
granted under the Midwest Grain Products, Inc. 1998
Stock Incentive Plan for Salaried Employees
(incorporated by reference to Exhibit 10(e) to the
Company's Form 10-K for the year ended June 30, 1996).
17
Exhibit No. Description
----------- -----------
10(i)Copy of amendments to Options granted under Midwest
Grain Products, Inc. Stock Option Plans (incorporated
by reference to Exhibit 10.3 to the Company's Form 10-Q
for the quarter ended September 30, 1998).
10(j)Form of Option Agreement for the grant of Options
under the Midwest Grain Products, Inc. 1996 Stock
Option Plan for Outside Directors, as amended
(incorporated by reference to Exhibit 10.4 to the
Company's Form 10-Q for the quarter ended September 30,
1998).
10.5 Form of Amended Option Agreements for the grant of
Options under the Midwest Grain Products, Inc. 1998
Stock Incentive Plan for Salaried Employees
(incorporated by reference to Exhibit 10.5 to the
Company's Form 10-Q for the quarter ended September 30,
1998).
10.6 Form of Option Agreement for the grant of Options under
the Midwest Grain Products, Inc. Stock Incentive Plan
of 1996, as amended.
22 Subsidiaries of the Company other than insignificant
subsidiaries:
State of Incorporation
Subsidiary or Organization
---------- ---------------
Midwest Grain Pipeline, Inc. Kansas
Midwest Grain Products of Illinois, Inc. Illinois
23 Consent of Baird, Kurt & Dobson.
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 at June
30, 2000 and for the year then ended.
No reports on Form 8-K have been filed during the quarter ended June
30, 2000.
18
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 19 th day of September, 2000.
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
- -----------------------------------
Laidacker M. Seaberg Executive Officer) and Director September 19, 2000
s/Robert G. Booe Vice President, Treasurer
- -----------------------------------
Robert G. Booe and Controller (Principal
Financial and Accounting Officer) September 19, 2000
s/Michael Braude
Michael Braude Director September 19, 2000
s/ Cloud L. Cray, Jr. Director
- -----------------------------------
Cloud L. Cray, Jr. September 19, 2000
s/Michael R. Haverty Director September 19,2000
- -----------------------------------
Michael R. Haverty
s/ F.D. "Fran" Jabara Director
- -----------------------------------
F. D. "Fran" Jabara September 19, 2000
s/Linda E. Miller Director September 19, 2000
- -----------------------------------
Linda E. Miller
s/Robert J. Reintjes Director
- -----------------------------------
Robert J. Reintjes September 19, 2000
s/Randy M. Schrick Director September 19, 2000
- -----------------------------------
Randy M. Schrick
s/Daryl R. Schaller Director
- -----------------------------------
Daryl R. Schaller September 19, 2000
19
MIDWEST GRAIN PRODUCTS, INC.
Consolidated Financial Statement Schedules
(Form 10-K)
June 30, 2000, 1999 and 1998
(With Auditors' Report Thereon)
S-1
[LOGO]
City Center Square
1100 Main Street, Suite 2700
Kansas City, Missouri 64105-2112
Baird, Kurtz & Dobson 816 221-6300 FAX 816 221-6380
- -------------------------------------------------------------------------------
bkd.com
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 consolidated financial statements of
MIDWEST GRAIN PRODUCTS, INC. for each of the three years in the period ended
June 30, 2000, 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
September 8, 2000
Solutions for Success
Member of Moores Rowland International [Logo]
an association of independent
accounting firms throughout the world
S-2
MIDWEST GRAIN PRODUCTS, INC.
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, 2000
Allowance for
doubtful
accounts $ 285 $202 --- $ 235 $ 252
Year Ended
June 30, 1999
Allowance for
doubtful
accounts $ 285 $1,037 --- $1,037 $ 285
Year Ended
June 30, 1998
Allowance for
doubtful
accounts $ 285 $ 53 --- $ 53 $ 285
S-3
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).
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 17, 2000, 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. 2000 Annual Report to Stockholders that is
incorporated herein by reference.
10(d)Copy of Midwest Grain Products, Inc. Stock Incentive
Plan of 1996, as amended as of August 26, 1996
(incorporated by reference to Exhibit 10(d) to the
Company's Form 10-K for the year ended June 30, 1996).
10(e)Copy of amendment to Midwest Grain Products, Inc.
Stock Incentive Plan of 1996 (incorporated by reference
to Exhibit 10.1 to the Company's Form 10-Q for the
quarter ended September 30, 1998).
10(f)Form of Stock Option with respect to stock options
granted under the Midwest Grain Products, Inc. Stock
Incentive Plan of 1996 (incorporated by reference to
Exhibit 10(e) to the Company's Form 10-K for the year
ended June 30, 1996).
10(g)Copy of Midwest Grain Products, Inc. 1996 Stock Option
Plan for Outside Directors, as amended as of August 26,
1996 (incorporated by reference to Exhibit 10(f) to the
Company's Form 10-K for the year ended June 30, 1996).
10.(h) Copy of amendment to Midwest Grain Products, Inc.
1996 Stock Option Plan for Outside Directors
(incorporated by reference to Exhibit 10.2 to the
Company's Form 10-Q for the quarter ended September 30,
1998).
10(g)Copy of Midwest Grain Products, Inc. 1998 Stock
Incentive Plan for Salaried Employees (incorporated by
reference to Appendix A to the Company's Notice of
Annual Meeting and Proxy Statement dated September 17,
2000, filed with the Securities and Exchange Commission
on September 15, 2000).
10(h)Form of Stock Option with respect to stock options
granted under the Midwest Grain Products, Inc. 1998
Stock Incentive Plan for Salaried Employees
(incorporated by reference to Exhibit 10(e) to the
Company's Form 10-K for the year ended June 30, 1996).
10(i)Copy of amendments to Options granted under Midwest
Grain Products, Inc. Stock Option Plans (incorporated
by reference to Exhibit 10.3 to the Company's Form 10-
Q for the quarter ended September 30, 1998).
10(j)Form of Option Agreement for the grant of Options
under the Midwest Grain Products, Inc. 1996 Stock
Option Plan for Outside Directors, as amended
(incorporated by reference to Exhibit 10.4 to the
Company's Form 10-Q for the quarter ended September 30,
1998).
10.5 Form of Amended Option Agreements for the grant of
Options under the Midwest Grain Products, Inc. 1998
Stock Incentive Plan for Salaried Employees
(incorporated by reference to Exhibit 10.5 to the
Company's Form 10-Q for the quarter ended September 30,
1998).
10.6 Form of Option Agreement for the grant of Options under
the Midwest Grain Products, Inc. Stock Incentive Plan
of 1996, as amended.
22 Subsidiaries of the Company other than insignificant
subsidiaries:
State of Incorporation
Subsidiary or Organization
---------- ---------------
Midwest Grain Pipeline, Inc. Kansas
Midwest Grain Products of Illinois, Inc. Illinois
23 Consent of Baird, Kurt & Dobson.
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 at June
30, 2000 and for the year then ended.
2