PRESS RELEASE
Published on
FOR IMMEDIATE RELEASE: MIDWEST GRAIN REPORTS FOURTH QUARTER EARNINGS
ATCHISON, Kan., August 12, 2002--Midwest Grain Products, Inc. (MWGP/Nasdaq)
today reported net income of $555,000, or 7 cents per share, on sales of
$50,437,000 for the fourth quarter of fiscal 2002, which ended June 30. This
represents a decrease compared to the net income of $1,549,000, or 19 cents per
share, on sales of $57,021,000 that was experienced in the fourth quarter of
fiscal 200l. For all 12 months of fiscal 2002, the company had net income of
$6,259,000, or 77 cents per share, on sales of $214,528,000, compared to net
income of $2,660,000, or 32 cents per share, on sales of $229,241,000 for all 12
months of the prior fiscal year.
The fourth quarter earnings decline was primarily due to reduced alcohol
sales, principally caused by lower selling prices for the company's fuel grade
alcohol, which commonly is known as ethanol. Prices fell approximately 26
percent compared to a year ago as the result of increased ethanol supplies
throughout the industry. This decrease was partially offset by increased sales
of the company's specialty wheat-based ingredients, consisting of value-added
wheat proteins and starches. Approximately $769,000 in net income for the
quarter and approximately $2,951,000 for the year 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. The company also benefited from approximately $965,000 in net income
received during the quarter and approximately $3 million in net income for the
year under a USDA program to provide cash incentives to ethanol producers. "The
real value of these programs is that they are helping us evolve our business in
a rapidly changing market environment," said Ladd Seaberg, president and chief
executive officer. "In essence, they are helping to support the building blocks
for our future," he added.
The increase in fuel grade alcohol supplies occurred as various producers
added capacity and/or built inventories in anticipation of an expanded market
for this product as a replacement for MTBE in California. However, California's
ban on MTBE, a petroleum-based fuel oxygenate that has shown to be a groundwater
pollutant, was postponed by a year from December, 2002 to December, 2003,
causing the surplus of fuel alcohol. "Since the end of the fourth quarter, fuel
alcohol prices have begun to improve as several gasoline suppliers to California
have decided to switch to ethanol-blended fuels much earlier than the ban on
MTBE is scheduled to take effect," Seaberg said. "As a result," he added,
"although prices remain below the higher levels experienced during a large
portion of this past fiscal year, we hope to see an improvement in this area in
the current year's first quarter compared to the final quarter of fiscal 2002."
As previously reported, because of the expiration of the wheat gluten quota
in June, 2001, the company has significantly reduced its production of vital
wheat gluten. This measure was taken in the face of greatly increased
competitive pressures from the European Union. At the same time, the company is
placing greater attention and resources on the development, production and
marketing of its specialty wheat proteins and starches for use in value-added
applications.
Seaberg said he is "especially encouraged by the growth" being experienced
by the company's specialty wheat proteins and starches. "Total sales of all of
our wheat-based ingredients in the fourth quarter were lower than the prior year
due to our planned reduction in sales of commodity wheat starch and vital wheat
gluten," he said. "However," he added, "I am pleased to report that sales of our
specialty wheat proteins and starches rose compared to a year ago to nearly $10
million for the quarter and represented approximately 66 percent of the
company's total wheat-based ingredient sales for the quarter."
-more-
ADD 1--MIDWEST GRAIN REPORTS FOURTH QUARTER
Seaberg stated that the company currently is concentrating its specialty
ingredients marketing efforts on manufacturers of food, personal care and pet
products. "We have an established presence in all three of these product areas,"
he said, "and expect our growth in each to gain considerable momentum going
forward."
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 approximately $25.6 million of the
program total of $40 million. For the first 12 months of the program,
approximately $17.3 million was allocated to the company. The remaining $8.3
million was allocated to the company in July, 2002. The funds must 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.
Approximately 80 percent of the first year's allotment has been applied
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 went toward research and
marketing-related costs, and hence was reflected in earnings.
The USDA's incentive program for ethanol producers began in December, 2000
and extends through September, 2006. It was initiated to provide a cash
incentive for ethanol producers who increase their grain usage over comparable
quarters in the prior year to raise fuel alcohol production. Funding from the
program is determined on an annual basis. The company's eligibility to
participate in the program is determined from quarter to quarter. Meanwhile,
U.S. House and Senate negotiators are expected to reconvene next month to
continue discussions about a proposed renewable fuels standard that, if included
in the new comprehensive energy bill, could approximately triple the use of
ethanol to 5 billion gallons by 2012.
"While we continue to make much progress in our drive to position the
company as an innovative, customer-focused supplier of specialty ingredients,
our performance in the near term could be affected by increased raw material
costs for grain together with what are still relatively low selling prices for
fuel grade alcohol," Seaberg said. Prices for wheat, corn and milo, the
principal raw materials used by the company, have risen this summer due to
exceptionally hot and dry weather across much of the U.S.
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.
###
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
(unaudited) Three Months Ended June 30 Twelve Months Ended June 30
(Dollars in thousands, except per share) 2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------------------
NET SALES $ 50,437 $ 57,021 $ 214,528 $ 229,241
COST OF SALES 47,229 51,297 193,325 212,058
--------------------------- -------------------------
GROSS PROFIT 3,208 5,724 21,203 17,183
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (3,306) (4,435) (14,689) (13,545)
OTHER OPERATING INCOME 1,232 1,307 4,865 1,326
--------------------------- -------------------------
INCOME FROM OPERATIONS 1,134 2,596 11,379 4,964
OTHER INCOME (EXPENSE)
INTEREST (136) (351) (1,237) (1,347)
OTHER (58) 318 226 780
--------------------------- -------------------------
INCOME BEFORE INCOME TAXES 940 2,563 10,368 4,397
PROVISION FOR INCOME TAXES 385 1,014 4,109 1,737
--------------------------- -------------------------
NET INCOME $ 555 $ 1,549 $ 6,259 $ 2,660
--------------------------- -------------------------
BASIC AND DILUTED EARNINGS PER COMMON SHARE $ 0.07 $ .19 $ 0.77 $ 0.32
=========================== =========================
DIVIDENDS PER COMMON SHARE $ 0.15 $ 0.10
=========================
Weighted average shares outstanding 8,066,786 8,211,656 8,085,847 8,397,308
</TABLE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
(unaudited) June 30 June 30 (unaudited) June 30 June 30
(Dollars in thousands) 2002 2001 (Dollars in thousands) 2002 2001
- -----------------------------------------------------------------------------------------------------------------------
ASSETS LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
CURRENT ASSETS: Current maturities of
Cash and cash equivalents $ 28,736 $ 33,454 long-term debt $ 3,201 $ 4,273
Receivables 24,071 26,109 Accounts payable 8,681 10,446
Inventories 20,755 18,230 Accrued expenses 3,745 4,008
Prepaid expenses 550 1,625 Deferred income 10,971 15,951
Deferred income taxes 449 2,451
Refundable Income taxes 569 299
--------------------- ------------------------
Total Current Assets 75,130 82,168 Total Current Liabilities 26,598 34,678
PROPERTY AND EQUIPMENT, At Cost 258,501 245,305 LONG-TERM DEBT 18,433 22,420
Less accumulated depreciation 167,486 153,181 POST-RETIREMENT BENEFITS 5,922 6,034
---------------------
91,015 92,124 DEFERRED INCOME TAXES 10,736 10,774
OTHER ASSETS 222 158 STOCKHOLDERS' EQUITY 104,678 100,544
--------------------- ------------------------
$166,367 $174,450 $166,367 $174,450
===================== ========================
</TABLE>