SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2003 - Commission File No. 0-17196
MGP INGREDIENTS, INC.
(Exact Name of Registrant as Specified in Its Charter)
|
KANSAS (State or Other Jurisdiction of Incorporation or Organization) |
48-0531200 IRS Employer 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
7,691,944 shares outstanding
as of May 9, 2003
INDEX
Page
PART I. FINANCIAL INFORMATION
| Item 1. |
Financial Statements |
||
| Independent Accountants' Review Report | 1 | ||
|
Condensed Consolidated Balance Sheets as of March 31, 2003 and June 30, 2002 |
2 | ||
|
Condensed Consolidated Statements of Income for The Three Months Ended and the Nine Months Ended March 31, 2003 and 2002 |
3 | ||
|
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2003 and 2002 |
4 | ||
| Notes to Condensed Consolidated Financial Statements | 6 | ||
| Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
9 | |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 16 | |
| Item 4. | Controls and Procedures | 16 |
PART II. OTHER INFORMATION
| Item 1. | Legal Proceedings | 17 | |
| Item 6. | Exhibits and Reports on Form 8-K | 17 | |
| Signatures | 18 | ||
| Certifications | 18 |
i
Board of Directors and Stockholders
MGP Ingredients, Inc.
Atchison, Kansas 66002
We have reviewed the accompanying condensed consolidated balance sheets of MGP Ingredients, Inc. (f.k.a. Midwest Grain Products, Inc.) as of March 31, 2003 and the related condensed consolidated statements of income for the three-month and nine-month periods ended March 31, 2003 and 2002 and the related condensed consolidated statements of cash flows for the nine-month periods ended March 31, 2003 and 2002. 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 auditing standards generally accepted in the United States of America, the consolidated balance sheet as of June 30, 2002 and the related consolidated statements of income, retained earnings and cash flows for the year then ended (not presented herein), and in our report dated August 2, 2002, 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, 2002 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
| /s/ BKD, LLP |
Kansas City, Missouri
April 28, 2003
1
Assets
|
March 31, 2003 (Unaudited) |
June 30, 2002 | ||
| Current Assets | |||
| Cash and cash equivalents | $ 23,408 | $ 24,045 | |
| Investments | - -- | 4,691 | |
|
Receivables, net of allowance of $252 at March 31, 2003 and June 30, 2002 |
21,400 | 24,071 | |
| Inventories | 27,866 | 20,755 | |
| Prepaid expenses | 2,199 | 550 | |
| Deferred income taxes | 397 | 284 | |
| Income taxes receivable | 1,439 | 585 | |
| Total current assets | 76,709 | 74,981 | |
| Property and Equipment, at cost | 262,051 | 258,501 | |
| Less accumulated depreciation | 171,048 | 167,486 | |
| Total property and equipment, net | 91,003 | 91,015 | |
| Insurance Receivable | 8,936 | - -- | |
| Other Assets | 208 | 222 | |
| Total Other Assets | 9,144 | 222 | |
| Total Assets | $ 176,856 | $ 166,218 |
See Accompanying Notes to Condensed Consolidated Financial
Statements and Independent Accountants' Review Report
2
Liabilities and Stockholders' Equity
|
March 31, 2003 (Unaudited) |
June 30, 2002 | ||
| Current Liabilities | |||
| Current maturities of long-term debt | $ 3,202 | $ 3,201 | |
| Accounts payable | 10,586 | 8,681 | |
| Accrued expenses | 3,323 | 3,745 | |
| Deferred income | 15,907 | 10,971 | |
| Total current liabilities | 33,018 | 26,598 | |
| Long Term Debt | 15,463 | 18,433 | |
| Post-Retirement Benefits | 5,798 | 5,921 | |
| Deferred Income Taxes | 15,688 | 10,588 | |
| Stockholder's Equity | |||
| Capital stock | |||
|
Preferred, 5% cumulative, $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 | 2,605 | 2,601 | |
| Retained earnings | 116,230 | 110,916 | |
| Accumulated other comprehensive gain (loss) | |||
| Cash flow hedges | (142) | 176 | |
| 125,412 | 120,412 | ||
| Treasury stock, at cost | |||
| Common | |||
| March 31, 2003 - 2,062,878 shares | |||
| June 30, 2002 - 1,684,778 | (18,523) | (15,734) | |
| 106,889 | 104,678 | ||
| Total liabilities and stockholders' equity | $ 176,856 | $ 166,218 |
3
| Three Months | Nine Months |
| 2003 | 2002 | 2003 | 2002 |
| (in thousands) | (in thousands) |
| Net Sales | $ 52,536 | $ 55,403 | $ 139,843 | $ 164,091 | |
| Cost of Sales | 55,502 | 51,292 | 145,127 | 146,096 | |
| Gross Profits (Loss) | (2,966) | 4,111 | (5,284) | 17,995 | |
| Selling, General and Administrative | 3,384 | 3,684 | 10,111 | 11,383 | |
| (6,350) | 427 | (15,395) | 6,612 | ||
| Other Operating Income | 6,112 | 1,182 | 13,806 | 3,633 | |
| Operating Income (Loss) | (238) | 1,609 | (1,589) | 10,245 | |
| Other Income, net | 23 | (86) | 13,302 | 284 | |
| Interest Expense | (301) | (352) | (927) | (1,101) | |
| Income (Loss) before Income Taxes | (516) | 1,171 | 10,786 | 9,428 | |
| Provision (Credit) for Income Taxes | (204) | 462 | 4,260 | 3,724 | |
| Net Income (Loss) | (312) | 709 | 6,526 | 5,704 | |
| Other Comprehensive (Loss) | (142) | (690) | (750) | (764) | |
| Comprehensive Income (Loss) | $ (454) | $ 19 | $ 5,776 | $ 4,940 | |
| Basic Earnings per Common Share | $ (0.04) | $ 0.09 | $ 0.81 | $ 0.70 | |
| Diluted Earnings per Common Share | $ (0.04) | $ 0.09 | $ 0.81 | $ 0.70 | |
| Dividends per Common Share | $ (0.00) | $ 0.00 | $ 0.15 | $ 0.15 |
See Accompanying Notes to Condensed Consolidated Financial
Statements and Independent Accountants' Review Report
4
| 2003 | 2002 | ||
| (in thousands) | (in thousands) | ||
| Operating Activities | |||
| Net income | $ 6,526 | $ 4,995 | |
| Items not requiring (providing) cash | |||
| Depreciation | 10,695 | 7,109 | |
| Deferred income taxes | 4,987 | (38) | |
| Gain on insurance recovery | (13,000) | - -- | |
| Changes in | |||
| Accounts receivable | 2,671 | 1,676 | |
| Inventories | (7,429) | (3,993) | |
| Accounts payable | 1,668 | 756 | |
| Deferred revenue | 4,936 | (2,514) | |
| Income taxes (receivable) payable | (854) | 1,561 | |
| Other | 2,884 | (583) | |
| Net cash provided by operating activities | 13,084 | 8,969 | |
| Investing Activities | |||
| Additions to property and equipment | (11,446) | (5,620) | |
| Net proceeds from disposition of investments | 4,691 | -- | |
| Net cash used in investing activities | (6,755) | (5,620) | |
| Financing Activities; | |||
| Purchase of treasury stock | (2,785) | (1,598) | |
| Net payments on long-term debt | (2,969) | (11,017) | |
| Net proceeds from issuance of long-term debt | - -- | 6,423 | |
| Dividends paid | (1,212) | (1,220) | |
| Net cash used in financing activities | (6,966) | (7,412) | |
| Decrease in Cash and Cash Equivalents | (637) | (4,063) | |
| Cash and Cash Equivalents, Beginning of Period | 24,045 | 33,454 | |
| Cash and Cash Equivalents, End of Period | $ 23,408 | $ 29,391 |
See Accompanying Notes to Condensed Consolidated Financial
Statements and Independent Accountants' Review Report
5
| The accompanying unaudited condensed consolidated financial statements reflect all adjustments that are, in the opinion of the Company’s management, necessary to fairly present the financial position, results of operations and cash flows of the Company. Those adjustments consist only of normal recurring adjustments. The condensed consolidated balance sheet as of June 30, 2002 has been derived from the audited consolidated balance sheet of the Company as of that date. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s Form 10-K Annual Report for 2002 filed with the Securities and Exchange Commission. The results of operations for the period are not necessarily indicative of the results to be expected for the full year. |
| On September 13, 2002, the Company’s Atchison, Kansas distillery was shut down as the result of an explosion at the distillery. As a result, business interruption insurance proceeds of $5,000,000 and $10,530,000 were recorded as other operating income for the three months and nine months ended March 31, 2003, respectively. In addition, the Company recorded an insurance receivable totaling approximately $14 million, of which approximately $5 million has been collected, and reflected as other income of approximately $13 million gain, resulting from the property damage incurred. The Company and its insurer are in the process of determining the actual damages, and the ultimate insurance recovery could differ from the estimates recorded through March 31, 2003. Additional costs (net of insurance recoveries) will be recognized in future periods, as they are incurred. Amounts of such future costs (net of insurance recoveries) cannot be estimated at this time, but are expected primarily to relate to inefficiencies in production and additional shipping and handling costs resulting from the shut-down of the Atchison distillery operation. |
| There are various legal proceedings involving the Company and its subsidiaries. Management considers that the aggregate liabilities, if any, arising from such actions would not have a material adverse effect on the consolidated financial position or operations of the Company. |
6
| The Company is a fully integrated producer of ingredients and distillery products. The operations are classified into two reportable segments: ingredients and distillery products. Ingredients consist of specialty ingredients, including specialty, or value-added, wheat proteins and starches, commodity ingredients, including vital wheat gluten and commodity wheat starch, and mill feeds. Distillery products consist of food grade alcohol, including beverage alcohol and industrial alcohol, fuel grade alcohol, and distillers’ feed and carbon dioxide, which are by-products of the Company’s distillery operations. |
| The operating profit for each segment is based on net sales less identifiable operating expenses. Interest expense, investment income and other general miscellaneous expenses have been excluded from segment operations and classified as Corporate. Receivables, inventories and equipment have been identified with the segments to which they relate. All other assets are considered as Corporate. |
| Three Months | Nine Months |
| 2003 | 2002 | 2003 | 2002 | ||
| Sales to customers | |||||
| Ingredients | $ 14,699 | $ 16,474 | $ 40,783 | $ 49,981 | |
| Distiller products | 37,837 | 38,929 | 99,060 | 114,110 | |
| $ 52,536 | $ 55,403 | $139,843 | $164,091 | ||
| Depreciation | |||||
| Ingredients | $ 1,269 | $ 1,255 | $ 3,743 | $ 3,762 | |
| Distillery products | 2,030 | 1,997 | 6,303 | 6,079 | |
| Corporate | 196 | 273 | 612 | 793 | |
| $ 3,495 | $ 3,525 | $ 10,658 | $ 10,634 | ||
| Income before income taxes | |||||
| Ingredients | $ 3,199 | $ 1,511 | $ 5,507 | $ 3,320 | |
| Distillery products | (3,280) | 394 | 6,465 | 7,629 | |
| Corporate | (435) | (734) | (1,186) | (1,521) | |
| $ (516) | $ 1,171 | $ 10,786 | $ 9,428 | ||
| Earnings per common share data is based upon the weighted average number of common shares totaling 7,950,774 and 8,039,199 in the third quarter of 2003 and 2002, respectively, and 8,016,847 and 8,092,177 in the first nine months of 2003 and 2002, respectively. The effect of employee stock options, which are the only potentially dilutive securities held by the Company, were anti-dilutive in each period. |
7
| The Company has a stock-based employee compensation plan, which it accounts for under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income (loss), as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the grant date. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation. |
| Three Months | Nine Months |
| 2003 | 2002 | 2003 | 2002 | ||
|
(in thousands, except per share amounts) |
|||||
| Net income, as reported | $ (312) | $ 709 | $ 6,526 | $ 5,704 | |
| Less: Total stock-based employee | |||||
| compensation cost determined | |||||
| under the fair value based | |||||
| method, net of income taxes | &nb |