PRESS RELEASE
Published on
FOR IMMEDIATE RELEASE: MIDWEST GRAIN REPORTS THIRD
QUARTER EARNINGS IMPROVEMENT
ATCHISON, Kan., May 7, 2002--Midwest Grain Products, Inc. (MWGP/Nasdaq)
today reported net income of $709,000, or 9 cents per share, on sales of
$55,403,000 for the third quarter of fiscal 2002. The company's earnings
performance for the period, which ended March 31, is an improvement over the net
loss of $218,000, or 3 cents per share, on sales of $55,434,000 that was
incurred in the third quarter of fiscal 200l. For the first nine months of
fiscal 2002, the company had net income of $5,704,000, or 70 cents per share, on
sales of $164,091,000, compared to net income of $1,111,000, or 13 cents per
share, on sales of $172,220,000 for the first nine months of the prior fiscal
year.
According to Ladd Seaberg, president and chief executive officer,
approximately $668,000 in net income for the quarter and approximately
$2,182,000 for the year to date resulted from a previously announced United
States Department of Agriculture (USDA) program to support the development of
products and markets for value-added wheat proteins and wheat starches. Seaberg
also cited a reduction in energy costs as a significant cause for the
improvement between this quarter and the comparable quarter in the prior year.
Total alcohol sales for the quarter were up just slightly over the prior
year's third quarter despite a weakening in selling prices for fuel grade
alcohol, commonly known as ethanol, and lower unit sales of food grade alcohol
compared to a year ago. Sales of wheat-based ingredients, consisting of starches
and proteins, were lower than the prior year due to the company's planned
reduction in sales of commodity wheat starch and vital wheat gluten, a protein
used mainly in a variety of bread products. However, sales of specialty
value-added wheat proteins and starches increased about 20 percent over the
prior year to nearly $10 million for the quarter and represented approximately
60 percent of the company's total wheat-based ingredient sales for the period.
Growth in the specialty protein area resulted principally from higher sales
of the company's Arise line of wheat protein isolates that improve the shelf
life and textural qualities of frozen and baked dough products; Wheatex, which
enhances the texture and flavor of vegetarian and extended meat products; its
Aqua Pro line of wheat proteins for personal care and cosmetics products; and a
line of wheat-based polymers that are used in the production of high protein pet
treats.
"Our strategy of building a value-added protein business through a focus on
three distinct markets--food, personal care ingredients and polymers used in
high protein pet treats is working well," said Mike Trautschold, executive vice
president of marketing and sales. "Our intent," he added "has been to develop a
diverse portfolio of products to shelter us from the inevitable swings in any
given industry. Currently, we are expanding sales in all three of our target
markets. Additionally, we currently are making progress in shifting our starch
sales mix to more value-added applications in these markets."
The USDA program to support value-added wheat protein and wheat starch
development was implemented last June. Administered by the USDA's Commodity
Credit Corporation, it was granted in lieu of an extended quota on imports of
foreign wheat gluten. Over the life of the program, which is scheduled to end
May 31, 2003, Midwest Grain is eligible for nearly $26 million of the program
total of $40 million. For the first 12 months of the program, approximately
$17.3 million has been allocated to the company. The remaining amount is
expected to become available starting in June, 2002, subject to a review by the
Commodity Credit Corporation to determine the company's progress in completing
the first year's activities. The funds are to be used for capital, research,
marketing and promotional costs related to value-added wheat protein and starch
products. Funds received are recognized in income during the period in which
they are expended for a permitted purpose. However, funds that are used for
capital expenditure projects will be recognized in income over the periods
during which those projects are depreciated.
The Company expects that approximately 80 percent of the first year's
allotment will go toward capital projects and will be reflected in earnings over
the next seven to 10 years. These projects include a previously announced $8.3
million expansion project at the company's Atchison plant. The expansion is
slated for completion in early fiscal 2003 and involves the installation of
additional processing and drying equipment for the production of specialty wheat
proteins for bakery, pasta and noodle and related food markets, both domestic
and foreign. The remaining 20 percent of the first year's funds is expected to
be applied toward research and marketing-related costs, and hence will be
reflected in earnings. "The real value of this program," Seaberg said, "is that
it supports our investment in the future."
Because of the expiration of the wheat gluten quota last June, the company
has significantly reduced its production of vital wheat gluten. "We have taken
this measure in the face of greatly increased competitive pressures from the
European Union," Seaberg said. "Simultaneously," he added," we are focusing our
attention and many resources on repositioning the company for the future as a
technologically advanced, service-oriented producer and marketer of value-added
ingredients." Seaberg continued by saying that "while this process is gradual,
we are making definite headway in our quest to evolve our role in the
marketplace."
Seaberg explained that the reduction in third quarter energy costs resulted
from an over 70 percent drop in the average per unit price of natural gas that
the company experienced during the same period a year ago. "Natural gas prices
rose steadily during most of fiscal 2001 until reaching a record level in last
year's third quarter," Seaberg said. "Current prices for natural gas remain
significantly below that level and well beneath the average that was experienced
in last year's fourth quarter," he added.
The recent softening in fuel alcohol prices, Seaberg said, "could extend
through this summer and fall" due to increased ethanol supplies throughout the
industry. "This situation developed as certain producers added capacity and/or
built inventories in anticipation of an expanded market for grain-based ethanol
as a replacement for MTBE in California," he explained. "However, California's
ban on MTBE, a petroleum-based fuel oxygenate that has shown to be a groundwater
pollutant, has been delayed for a year, causing excess supplies of ethanol at
this time."
Seaberg said that "despite this situation and the adverse impact it could
have on our current and near-term performance, we believe the long-term future
for ethanol in this country remains promising." That expectation, he commented,
"is based partially on the U.S. Senate's recent passage of a comprehensive
energy bill that includes establishing a renewable fuels standard." According to
the Renewable Fuels Association, if this provision becomes law it could
approximately triple the use of ethanol to 5 billion gallons annually by 2012.
The energy bill must now be considered by the U.S. House-Senate Conference
Committee and could be forwarded to the President by the end of 2002. Seaberg
also noted that the recent installation of a new distillery feed dryer at the
company's Pekin, Ill., plant "should allow us to realize improved production
efficiencies for alcohol products at that location." The new dryer expands the
company's feed processing capacity and "is expected to allow the entire alcohol
operation to experience improved output," he said.
THIS NEWS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS AS WELL AS HISTORICAL
INFORMATION. FORWARD-LOOKING STATEMENTS ARE IDENTIFIED BY OR ARE ASSOCIATED WITH
SUCH WORDS AS "INTEND," "BELIEVE," "ESTIMATE," "EXPECT," "ANTICIPATE,"
"HOPEFUL," "SHOULD," "MAY" AND SIMILAR EXPRESSIONS. THEY REFLECT MANAGEMENT'S
CURRENT BELIEFS 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 MARKETING
CONDITIONS, OPERATING EFFICIENCIES, ACCESS TO CAPITAL AND ACTIONS OF GOVERNMENTS
OR GOVERNMENT OFFICIALS. ANY CHANGES IN THE ASSUMPTIONS OR FACTORS COULD PRODUCE
MATERIALLY DIFFERENT RESULTS THAN THOSE PREDICTED AND COULD IMPACT STOCK VALUES.
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CONSOLIDATED STATEMENT OF EARNINGS
- --------------------------------------------------------------------------------------------------------------
(unaudited) Three Months Ended March 31 Nine Months Ended March 31
(Dollars in thousands, except per share) 2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------------------
NET SALES $ 55,403 $ 55,434 $ 164,091 $ 172,220
COST OF SALES 51,292 52,893 146,096 160,761
----------------------------- -----------------------------
GROSS PROFIT 4,111 2,541 17,995 11,459
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ( 3,684 ) ( 2,689 ) ( 11,383 ) ( 9,110 )
OTHER OPERATING INCOME (EXPENSE) 1,182 14 3,633 19
----------------------------- -----------------------------
INCOME (LOSS) FROM OPERATIONS 1,609 ( 134 ) 10,245 2,368
OTHER INCOME (EXPENSE)
INTEREST ( 352 ) ( 348 ) ( 1,101 ) ( 996 )
OTHER ( 86 ) 119 284 462
----------------------------- -----------------------------
INCOME BEFORE INCOME TAXES 1,171 ( 363 ) 9,428 1,834
PROVISION (BENEFIT) FOR INCOME TAXES 462 ( 145 ) 3,724 723
----------------------------- -----------------------------
NET INCOME $ 709 $ ( 218 ) $ 5,704 $ 1,111
----------------------------- -----------------------------
BASIC EARNINGS (LOSS) PER COMMON SHARE $ 0.09 $ (0.03 ) $ 0.70 $ 0.13
============================= =============================
DILUTED EARNINGS (LOSS) PER COMMON SHARE $ 0.09 $ (0.03 ) $ 0.70 $ 0.13
============================= =============================
DIVIDENDS PER COMMON SHARE $ 0.15 $ 0.10
============================= =============================
Weighted average shares outstanding 8,039,347 8,492,309 8,092,177 8,527,126
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CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------------------------------------------------
(unaudited) March 31 June 30 (unaudited) March 31 June 30
(Dollars in thousands) 2002 2001 (Dollars in thousands) 2002 2001
- -------------------------------------------------------------------------------------------------------------------------
ASSETS LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and cash equivalents $ 23,629 $ 33,454 Current maturities of long-term debt $ 3,202 $ 4,273
Investments 4,691 - Accounts payable 6,242 10,446
Receivables 23,915 26,109 Accrued expenses 3,793 4,008
Inventories 17,381 18,230 Deferred income 12,242 15,951
Prepaid expenses 1,862 1,625 Income taxes payable 1,229 -
Deferred income taxes 2,934 2,451
Refundable Income taxes - 299
----------------------- -----------------------
Total Current Assets 74,412 82,168 Total Current Liabilities 26,708 34,678
PROPERTY AND EQUIPMENT, At Cost 254,231 245,305 LONG-TERM DEBT 18,665 22,420
Less accumulated depreciation 163,882 153,181 POST-RETIREMENT BENEFITS 5,929 6,034
-----------------------
90,349 92,124 DEFERRED INCOME TAXES 10,769 10,774
OTHER ASSETS 193 158 STOCKHOLDERS' EQUITY 102,883 100,544
----------------------- -----------------------
$164,954 $174,450 $164,954 $174,450
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