EXHIBIT 10(C) FINANCIAL INFORMATION

Exhibit 10(c)

Selected Financial Information

Years ended June 30
(in thousands, except per share amounts)

1997 1996 1995 1994 1993
-------------------------------------------
Income Statement Data:
Net sales $224,733 $194,638 $180,252 $185,968 $163,426
Cost of sales 213,733 190,173 159,149 148,320 130,551
------- ------- ------- ------- -------
Gross profit 11,000 4,465 21,103 37,648 32,875
Selling, general &
administrative expenses 9,169 9,001 10,553 12,212 10,677
Other operating income (expense) 370 159 (107) (669) (264)
--- --- ---- ---- ----
Income (loss) from operations 2,201 (4,377) 10,443 24,767 21,934
Other income (loss), net 618 1,309 (4,225) 924 1,045
Interest expense (2,604) (2,556) (606) (127) (71)
------ ------ ---- ---- ---
Income (loss) from continuing
operations before income taxes 215 (5,624) 5,612 25,564 22,908
Provision (credit) for income taxes 84 (2,218) 2,273 9,713 8,278
-- ------ ----- ----- -----
Income (loss) from
continuing operations 131 (3,406) 3,339 15,851 14,630
Discontinued operations 1,665
Cumulative effect of change in
accounting principles-post-retirement benefit (2,241)
Cumulative effect of change in
accounting principles-income taxes 2,182
Net Income (Loss) $ 131 $ (3,406) $ 3,339 $ 15,851 $ 16,236
======= ======== ======= ======== ========
Earnings (Loss) per Common Share
Continuing operations .01 (.35) .34 1.62 1.50
Discontinued operations .17
Cumulative effect of changes in accounting principles (.01)
------- -------- ------- -------- --------
$ .01 $ (.35) $ .34 $ 1.62 $ 1.66
======= ======== ======= ======== ========
Cash dividends per common share .50 .50 .50
Weighted average common
shares outstanding 9,762 9,765 9,765 9,765 9,765
Balance Sheet Data:
Working capital 36,580 37,113 26,955 21,951 41,580
Total Assets 165,330 172,785 176,749 168,146 126,671
Long-term debt, less
current maturities 29,933 40,933 38,908 25,000
Stockholders' equity $108,561 $109,222$ 112,628$ 114,173 $103,206

10
Management's Discussion and Analysis of
Financial Condition and Results of Operations

Results of Operations
The following table sets forth items in the Company's consolidated statements of
income expressed as percentages of net sales for the years indicated and the
percentage change in the dollar amount of such items compared to the prior
period:

Percentage of Net Sales Percentage
Years Ended June 30 Increase (Decrease)
---------------------------- -------------------
Fiscal 1997 Fiscal 1996
1997 1996 1995 Over 1996 Over 1995
---- ---- ---- --------- ---------
Net sales 100.0% 100.0% 100.0% 15.5% 8.0%
Cost of sales 95.1 97.7 88.3 12.4 19.5
---- ---- ---- ---- ----
Gross profit 4.9 2.3 11.7 146.4 (78.8)
Selling, general
and administrative
expenses 4.1 4.6 5.8 1.9 (14.7)
Other operating income
(loss) .2 .1 (.1) 132.7 248.6
-- -- --- ----- -----
Income from operations 1.0 (2.2) 5.8 150.3 (141.9)
Other income (expense) (.9) (.6) (2.7) 59.2 (74.2)
--- --- ---- ---- -----
Income from continuing
operations
before income taxes .1 (2.8) 3.1 103.8 (200.2)
Provision for income
taxes .04 (1.1) 1.2 103.8 (197.6)
--- ---- --- ----- ------
Income from continuing
operations .06 (1.7)% 1.9% 103.8% (202.0)%
=== ==== === ===== ======

Fiscal 1997 Compared to Fiscal 1996

The Company's net income of $131,000 in fiscal 1997 was a sizeable improvement
over the prior year's net loss of $3,406,000. A greater improvement was
prevented by the intensification of competitive pressures in the Company's vital
wheat gluten market. Higher than normal energy costs from late fall through late
winter, and a surge in competition in the food grade alcohol markets in the
third quarter affected the Company's alcohol production. In addition, while
average prices for the Company's principal raw materials, namely wheat, corn and
milo, were below the exceptionally high levels experienced in the prior fiscal
year, they remained well above what traditionally have been considered normal
price levels. The increased energy costs, which the Company began experiencing
midway through the second quarter, resulted from a significant jump in natural
gas prices due to periods of extreme cold weather throughout much of the U.S.
During the latter part of the third quarter, those prices returned to more
normal levels, allowing the Company to realize improved energy cost
efficiencies.


Conditions in the wheat gluten market were adversely affected by increased
competition from the European Union (E.U.), whose exports of cross-subsidized
gluten to the United States continued at record levels. As a result, the Company
was unable to adjust the selling price of its gluten enough to effectively
offset production costs. Profits from their highly subsidized and protected
wheat starch business have allowed European producers to dump surpluses of
gluten, a co-product, at prices below U.S. production costs. Low U.S. tariff
rates on wheat gluten offer little deterrence to this practice, while high
tariffs in Europe effectively prohibit non-E.U. member countries from competing
in the wheat gluten and starch markets there. Consultations

11


Management's discussion and Analysis

aimed at finding a bilateral solution to the gluten trade problem were
renewed in June, 1997 between U.S. and E.U. officials. The framework for these
discussions arose from a grains agreement that was ratified in July, 1996.
However, because this process has failed to produce evidence that the E.U. is
genuinely willing to negotiate an effective remedy, the U.S. Wheat Gluten
Industry Council plans to request additional legal action. This action woud seek
to bring stability back to the market and provide relief from artificially low
E.U. prices. In the meantime, efforts by the Company to develop specialty wheat
gluten products for niche markets continue to attract increased, but gradual
interest

While conditions in the Company's alcohol markets generally remained
healthy in fiscal 1997, prices for food grade and fuel grade alcohol declined
through the year from their first quarter highs. This primarily was due to the
effects of falling prices for corn and milo, the principal raw materials used in
the Company's alcohol production process. A drop in beverage alcohol prices in
the third quarter additionally was due to increased competition resulting from
the start-up of new distillation capacities throughout the industry. Increased
supplies of fuel grade alcohol caused a reduction in selling prices in that
market as well during the third quarter. Demand for each type of alcohol
produced by the Company increased in the fourth quarter, raising unit sales
substantially and causing prices to stabilize somewhat. As the result of
increased alcohol production in fiscal 1997, unit sales of distillers feed, the
principal by-product of the distillation process, grew significantly in fiscal
1997 compared to fiscal 1996.

Demand for the Company's premium wheat starch was solid throughout fiscal
1997 and is expected to continue to result in increased utilization of capacity
at Midwest Grain's Pekin, Illinois plant, where a new starch production facility
was completed in the first quarter of fiscal 1996.


With a continued normalization of energy costs, consistently lower grain
costs and improved production efficiencies, the Company expects to strengthen
its competitive abilities in the alcohol and wheat starch markets going forward.

Net sales in fiscal 1997 were approximately $30.1 million higher than net
sales in fiscal 1996. The increase principally resulted from increased unit
sales of most of the Company's principal products. The lower sales in fiscal
1996 were partially caused by reduced production resulting from an extended
maintenance and repair shutdown at the Company's Pekin, Illinois plant during
the entire month of June.

Sales of all alcohol increased by aproximately 20% over fiscal 1996 mainly
as the result of higher unit sales and higher prices for the Company's food
grade industrial alcohol and fuel grade alcohol. Sales of distillers feed, the
principal by-product of the alcohol process, rose by approximately 21%, due
mainly to higher production and sales of alcohol and an improvement in the
selling price compared to the prior year.


Sales of vital wheat gluten were approximately even with sales in fiscal
1996, as the Company continued to minimize gluten production in the face of
greatly increased competition from European Union producers. Sales of the
Company's premium wheat starch grew approximately 14% above sales in fiscal 1996
as the result of greater unit sales and a modest price improvement.

The cost of sales in fiscal 1997 increased by approximately $23.6 million
above the cost of sales in fiscal 1996. This occurred partially as the result of
a $16.7 million rise in raw material costs for grain, as more grain was required
to satisfy increased production needs. In addition, the Company experienced a
jump of approximately $4.7 million in energy costs due principally to higher
than normal prices for natural gas during the second and third quarters, and a
rise of approximately $1.2 million in maintenance and repair costs. The
remainder of the increase in the total cost of sales compared to fiscal 1996 was
mainly attributable to costs associated with increased product sales,
principally in the food grade alcohol area.

Selling, general and administrative expenses in fiscal 1997 were
approximately even with selling, general and administrative expenses the prior
year. This principally was the result of the continuation

12

of an intense cash management program which was implemented in fiscal 1996
and included reductions in compensation as well as in costs for management and
employee incentive programs.

The consolidated effective income tax rate was consistent for all periods.
The general effects of inflation were minimal.

As the result of the foregoing factors, the Company experienced net income
of $131,000 in fiscal 1997 compared to a net loss of $3,406,000 in fiscal 1996.

Fiscal 1996 Compared to Fiscal 1995

The Company experienced a $3,406,000 net loss in fiscal 1996 compared to
net income of $3,339,000 in fiscal 1995. The decline, which actually began in
the third quarter of fiscal 1995, was due primarily to unusually high raw
material costs for grain in the face of greatly increased competition from
foreign exporters of vital wheat gluten and a relatively flat market for fuel
grade alcohol. The combination of these factors significantly restricted the
ability of the Company to adjust the price of its gluten and fuel alcohol to
compensate for the increased grain costs. In response to these negative
conditions, the Company implemented an intense cash management program to reduce
costs and improve cash flow, including reductions in management and
administrative compensation and benefits, and strategies to maximize operating
results by maintaining a high degree of flexibility in targeting production
levels and product sales mixes.

The upward surge in grain prices was driven by a worldwide shortage of
grain supplies, and concerns about crop conditions during the 1996 season due
principally to weather-related factors. As a result, the Company's corn and milo
costs averaged 44% more per bushel in fiscal 1996 compared to the prior year.
Wheat costs in fiscal 1996 averaged 32% more per bushel versus the average in
fiscal 1995. While the Company used only 2.3 million more bushels of grain in
fiscal 1996, its total combined cost for wheat, corn and milo for the year rose
approximately $27 million above grain expenditures the prior year. The Company's
ability to adjust grain procurement strategies regularly through a strengthened
risk management program prevented this increase from being substantially higher.

Wheat gluten prices failed to adjust to the significant rise in wheat
costs, while record amounts of gluten from the European Union (E.U.) poured into
the United States.

Increased alcohol production in fiscal 1996 resulted from growth in unit
sales of food grade alcohol, which is sold for beverage and industrial
applications. This more than offset a decline in unit sales of fuel grade
alcohol. A reduction in fuel alcohol sales was implemented by the Company due to
depressed fuel alcohol prices and exceptionally high grain costs. Fuel alcohol
prices remained flat due to increased capacities throughout the industry and low
gasoline prices during a substantial portion of fiscal 1996. Due to the
significant grain cost increases, combined with adverse market conditions for
fuel alcohol and wheat gluten, operations at the Company's Pekin plant were
halted for an extended maintenance shutdown during the last month of fiscal
1996. This resulted in reduced production of all of the Company's principal
products during the fourth quarter.


Net sales in fiscal 1996 increased by approximately $14.4 million above
sales in fiscal 1995. The increase was principally due to increased unit sales
of food grade alcohol and alcohol by-products, the latter consisting mainly of
distillers feeds, and higher sales of premium wheat starch. These increases were
partially offset by a 21% decrease in sales of wheat gluten due to intense
competitive pressures from European Union gluten producers.

A 15% increase in total alcohol sales resulted from strong demand for food
grade beverage and industrial alcohol, mainly in the second and third quarters.
Sales of distillers feed climbed 45% compared to the prior year as the result of
increased alcohol production.

The Company's sales of wheat starch in fiscal 1996 continued the upward
pattern experienced over the previous several years, rising noticeably

13

Management's Discussion and Analysis

above fiscal 1995. The increase resulted from higher volumes of unmodified,
modified and specialty wheat starches, which was made possible by a 70% increase
in the Company's total starch production capacity. Completion of the additional
capacity occurred during the first month of fiscal 1996, greatly improving the
Company's ability to satisfy increased demand for wheat starch.

The cost of sales in fiscal 1996 increased by approximately $31.0 million
above the cost of sales in fiscal 1995. The principal cause was a nearly $27.0
million increase in raw material costs for grain. Other manufacturing cost
increases principally included a $5.2 million increase in depreciation and a
$2.4 million rise in operating costs associated with increased energy
requirements resulting from the Company's expanded production facilities at its
Pekin, Illinois plant. These increases were partially offset by a $4.3 million
decrease in maintenance and repair and costs, which returned to more normal
levels following the completion of the expansion project in the first quarter of
fiscal 1996.

Selling, general and administrative expenses in fiscal 1996 were down
approximately $1.6 million compared to the prior year. This principally was due
to a decrease of almost $1.2 million resulting from reductions in compensation,
and in costs for the Company's management and employee incentive programs. These
and other reductions helped to more than offset increases which were incurred in
a minor segment of the expense categories.

The consolidated effective income tax rate was consistent for all periods.

Other income amounted to $1.3 million, compared to a loss of $4.2 in fiscal
1995, which was primarily due to the $5.0 million write-off of a coal-fired
boiler at the Company's Pekin plant.

Interest expense increased as most of the new production facilities in
Pekin came on line during fiscal 1995. Therefore, far less interest was
capitalized as part of these projects.

As the result of the foregoing factors, the Company experienced a net loss
of $3,406,000 in fiscal 1996 compared to net income of $3,339,000 in fiscal
1995.


Quarterly Financial Information

Generally, the Company's sales are not seasonal except for variations affecting
fuel grade alcohol, beverage alcohol and gluten sales. In recent years, demand
for fuel grade alcohol has tended to increase during the fall and winter to
satisfy clean air standards during those periods. Beverage alcohol sales tend to
peak in the fall as distributors order stocks for the holiday season, while
gluten sales tend to increase during the second half of the fiscal year as
demand increases for hot dog buns and similar bakery products. The following
table shows quarterly information for each of the years ended June 30, 1997 and
1996. Note: sales for the period ended June 30, 1996 were significantly lower
than sales for the same period in fiscal 1997 due principally to reduced
production resulting from an extended maintenance and repair shutdown at the
Company's Pekin, Illinois plant during the month of June, 1996.

Quarter Ending

Sept. 30 Dec. 31 March 31 June 30 Total
-------- ------- -------- ------- -----
(in thousands except per share amounts)
Fiscal 1997
Sales $53,173 $55,249 $54,449 $61,862 $224,733
Gross profit 2,063 4,889 2,474 1,574 11,000
Net income (loss) (346) 1,205 3 (731) 131
Earnings(loss) per share (.04) .12 .00 (.08) .01

Fiscal 1996
Sales $47,160 $55,751 $53,871 $37,856 $194,638
Gross profit (937) 3,619 1,304 479 4,465
Net income (loss) (2,377) 195 (410) (814 (3,406)
Earnings (loss) per share (.25) .02 (.04) (.08) (.35)

14

Liquidity and Capital Resources
The following table is presented as a measure of the Company's liquidity and
financial condition:

At June 30,
-----------
1997 1996
---- ----
(in thousands)
Cash and cash equivalents $ 6,005 $ 3,759
Working capital 36,580 37,113
Amounts available under lines of credit 29,000 18,600
Note payable and long-term debt 30,933 40,933
Stockholders' equity $108,561 $109,222

The Company's positive cash flow generated from operations allowed it to
reduce its debt by $10 million during fiscal 1997. Continued positive cash flow
has allowed the Company to further reduce its debt by another $5.0 million since
the end of the fiscal year. Additionally, the Company's Board of Directors
authorized the purchase of up to 200,000 shares of its common stock to fund the
Company's stock option plans and for other corporate purposes. Pursuant to that
authority, 65,000 shares were purchased for $791,700 prior to the fiscal year
end. The measures instituted in the previous fiscal year, including stringent
cost reductions, suspension of quarterly cash dividends to stockholders and
changes in production, purchasing and marketing strategies, remain in effect.

At June 30, 1997, the Company had $3.4 million committed to improvements
and replacements of existing equipment.

The Company continues to maintain a strong working capital position and a
low debt-to-equity ratio, while generating positive cash flows. Management
believes this strong financial position and available lines of credit, combined
with the strategies which continue to be implemented, position it to take
advantage of a return to more favorable conditions.

Forward-Looking Information

Readers are cautioned that in addition to historical information contained
herein, this Annual Report also includes forward-looking statements and
information which are based on management's beliefs as well as on assumptions
made by and information currently available to management. When used in this
report, the words "anticipate," "intend'" "believe," "estimate," "expect" and
similar expressions are intended to identify forward-looking statements. Such
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions which could cause the Company's future results and
stock values to differ materially from those expressed in such forward-looking
statements.

15

Independent Accountant's Report

Board of Directors and Stockholders
Midwest Grain Products, Inc.
Atchison, Kansas

We have audited the accompanying consolidated balance sheets of MIDWEST
GRAIN PRODUCTS, INC. as of June 30, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MIDWEST
GRAIN PRODUCTS, INC. as of June 30, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1997, in conformity with generally accepted accounting principles.



/s/ Baird, Kurtz & Dobson
BAIRD, KURTZ & DOBSON


Kansas City, Missouri
August 8, 1997

16

Financial Review

Consolidated Statements of Operations
Years Ended June 30, 1997, 1996 and 1995

1997 1996 1995
---- ---- ----
(in thousands, except per share amounts)
Net Sales $224,733 $194,638 $180,252
Cost of sales 213,733 190,173 159,149
------- ------- -------
Gross profit 11,000 4,465 21,103
Selling, general & administrative expenses 9,169 9,001 10,553
----- ----- ------
(4,536) 10,550
Other operating income (expense) 370 159 (107)
--- --- ----
Income (loss) from operations 2,201 (4,377) 10,443
Other income (loss), net 618 1,309 (4,225)
Interest expense (2,604) (2,556) (606)
------ ------ ----
Income (loss) before income taxes 215 (5,624) 5,612
Provision (credit) for income taxes 84 (2,218) 2,273
Net income (loss) $ 131 $ (3,406) $ 3,339
-------- -------- --------
Earnings (loss) per common share $ .01 $ (.35) $ .34
======== ======== ========

See Notes to Consolidated Financial Statements

17
Consolidated Balance Sheets
June 30, 1997 and 1996
1997 1996
---- ----
Assets (in thousands)
Current Assets
Cash and cash equivalents $ 6,005 $ 3,759
Receivables (less allowance for
doubtful accounts (1997 and 1996 - $285) 26,276 18,365
Inventories 15,000 19,913
Prepaid expenses 988 573
Deferred income taxes 1,688 1,531
Income taxes receivable 227 3,063
--- -----
Total Current Assets 50,184 47,204
------ ------
Property & equipment, at cost 213,813 210,304
Less accumulated depreciation 99,099 85,155
------ ------
Property & equipment, net 114,714 125,149
------- -------
Other assets 432 432
--- ---
Total assets $165,330 $172,785
======== ========
Liabilities & Stockholders' Equity
Current Liabilities
Notes payable $ 1,000
Accounts payable 8,196 6,416
Accrued expenses 4,408 3,675
----- -----
Total Current Liabilities 13,604 10,091
------ ------
Long-term debt 29,933 40,933
------ ------
Post-retirement benefits 6,245 5,945
----- -----
Deferred income taxes 6,987 6,594
----- -----
Stockholders' equity
Capital stock
Preferred, 5% non-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 6,715 6,715
Additional paid-in capital 2,485 2,485
Retained earnings 100,149 100,018
------- -------
109,353 109,222
Treasury stock, at cost
Common; 1997-65,000 shares (792)
---- -------
Total stockholders' equity 108,561 109,222
------- -------
Total liabilities and stockholders' equity $165,330 $172,785
======== ========
See Notes to Consolidated Financial Statements
18
Financial Review

<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity
Years Ended June 30, 1997, 1996 and 1995

Additional
Preferred Common Paid-in Retained Treasury
Stock Stock Capital Earnings Stock Total
----- ----- ------- -------- ----- -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994 $4 $6,715 $2,485 $104,969 $114,173
1995 net income 3,339 3,339
Payment of cash dividends
of $.50 per share (4,884) (4,884)
-- ------ ------ ------ ------
Balance, June 30, 1995 4 6,715 2,485 103,424 112,628
1996 net loss (3,406) (3,406)
-- ------ ------ ------ ------
Balance, June 30, 1996 4 6,715 2,485 100,018 109,222
Purchase of treasury stock $(792) (792)
1997 net income 131 131
---- --- ---
Balance, June 30, 1997 $4 $6,715 $2,485 $100,149 $(792) $108,561
=== ==== == ====== ====== ======== ===== ========
</TABLE>

See Notes to Consolidated Financial Statements

19

Financial Review

Consolidated Statements of Cash Flows
Years Ended June 30, 1997, 1996 and 1995

1997 1996 1995
---- ---- ----
(In Thousands)
Cash Flows from Operating Activities
Net income (loss) $ 131 $(3,406) $3,339
Items not requiring (providing) cash:
Depreciation 14,041 13,854 8,681
(Gain) loss on sale of assets (18) (41) 4,696
Deferred income taxes 236 611 (628)
Changes in:
Accounts receivable (7,911) 3,185 (1,198)
Inventories 4,913 (5,223) (1,461)
Accounts payable 1,578 4 1,780
Income taxes (receivable) payable 2,836 (725) (3,570)
Other 618 (1,238) (929)
--- ------ ----
Net cash provided by operating activities 16,424 7,021 10,710
------ ----- ------
Cash Flows From Investing Activities
Additions to property & equipment (3,491) (5,516) (38,870)
Proceeds from sale of equipment 105 71 615
Proceeds from notes receivable 919 645
Change in current & non-current investments, net 14,504
------ ----- ------
Net cash used in investing activities (3,386) (4,526) (23,106)
------ ----- ------
Cash Flows From Financing Activities
Purchase of treasury stock (792)
Principle payments on long-term debt (10,000)
Proceeds from issuance of long-term debt 2,025 13,908
Dividends paid (1,221) (4,884)
------ ------
Net cash (used in) provided by
financing activities (10,792) 804 9,024
------- --- -----
Increase (Decrease) in Cash & Cash Equivalents 2,246 3,299 (3,372)
Cash & Cash Equivalents, Beginning of Year 3,759 460 3,832
----- --- -----
Cash & Cash Equivalents, End of Year $ 6,005 $ 3,759 $ 460
======== ======== ========

See Notes to Consolidated Financial Statements

20

Financial Review
Notes to consolidated financial statements

Note 1: Nature of Operations and Summary
of Significant Accounting Policies

Nature of Operations. The activities of Midwest Grain Products, Inc. and
its subsidiaries consist of the production of vital wheat gluten, specialty
wheat proteins, premium wheat starch, alcohol products and flour mill products.
The Company sells its products on normal credit terms to customers in a variety
of industries located primarily throughout the United States. Through its
wholly-owned subsidiaries, the Company operates in Atchison, Kansas and Pekin,
Illinois (Midwest Grain Products of Illinois, Inc.). Additionally, Midwest Grain
Pipeline, Inc., another wholly-owned subsidiary, supplies natural gas to the
Company's Atchison plant.

Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Principles of Consolidation. The consolidated financial statements include
the accounts of Midwest Grain Products, Inc. and all subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.

Inventories. Inventories are stated at the lower of cost or market on the
first-in, first-out (FIFO) method. In connection with the purchase of raw
materials, principally corn and wheat, for anticipated operating requirements,
Midwest Grain Products, Inc. enters into commodity contracts to reduce the risk
of future grain price increases. These contracts, including those terminated
early, are accounted for as hedges and, accordingly, gains and losses are
deferred and recognized in cost of sales as part of product cost when contract
positions are settled and as related products are sold. If grain requirements
fall below anticipated needs and open contract levels, then gains and losses are
recognized immediately for the excess open contract levels. At June 30, 1997,
Midwest Grain Products, Inc. had entered into contracts hedging future corn
prices through the first quarter of fiscal 1998.


Property and Equipment. Depreciation is computed using both straight-line
and accelerated methods over the estimated useful lives of the assets. The
Company capitalizes interest costs as a component of construction in progress,
based on the weighted average rates paid for long-term borrowing. Total interest
incurred each year was:

Years Ended June 30,
1997 1996 1995
---- ---- ----
(in thousands)
Interest costs capitalized $ 364 $1,570
Interest costs charged
to expense $2,604 2,556 606
------ ----- ---
$2,604 $2,920 $2,176
====== ====== ======

Earnings Per Common Share. Earnings per common share data is based upon the
weighted average number of shares and common share equivalents, except when
anti-dilutive, totaling 9,761,967 at June 30, 1997 and 9,765,172 at June 30,
1996 and 1995.

Cash Equivalents. The Company considers all liquid investments with
maturities of three months or less to be cash equivalents.

Income Taxes. Deferred tax liabilities and assets are recognized for the
tax effect of the differences between the financial statement and tax bases of
assets and liabilities. A valuation allowance is established to reduce deferred
tax assets if it is more likely than not that a deferred tax asset will not be
realized.

Note 2: Inventories

Inventories consist of the following:

June 30,
1997 1996
---- ----
(in thousands)
Whiskey, alcohol and spirits $ 4,017 $ 9,830
Unprocessed grain 5,803 5,203
Operating Supplies 3,105 2,632
Gluten 757 1,208
By-products and other 1,318 1,040
----- -----
$15,000 $19,913
======= =======

21

Financial Review
Notes to consolidated financial statements

Note 3: Property and Equipment

Property and equipment consists of the following:

June 30,
1997 1996
---- ----
(in thousands)
Land, buildings and improvements $ 17,411 $ 17,411
Transportation equipment 1,081 1,166
Machinery equipment 193,923 186,154
Construction in progress 1,398 5,573
----- -----
213,813 210,304
Less accumulated depreciation 99,099 85,155
------ ------
$114,714 $125,149
======== ========


Note 4: Accrued Expenses

Accrued expenses consist of the following:

June 30,
1997 1996
---- ----
(in thousands)
Excise taxes $ 642 $ 236
Employee benefit plans (Note 10) 768 374
Salaries and wages 963 770
Property taxes 593 519
Insurance 723 991
Interest 696 696
Other expenses 23 89
-- --
$4,408 $3,675
====== ======


Note 5: Long-Term Debt

Long-term debt consists of the following:

June 30,
1997 1996
---- ----
(in thousands)
Senior notes payable $25,000 $25,000
Line of credit 4,000 15,000
Other 933 933
--- ---
Long-term portion $29,933 $40,933
======= =======

The unsecured senior notes payable are payable in annual installments of
$2,273,000 from 1999 through 2008, with the final principal payment of
$2,270,000 due in 2009. Interest is payable semiannually at 6.68% per annum for
the fifteen-year term of the notes.

At June 30, 1997, the Company had a $27 million unsecured revolving line of
credit expiring on October 1, 1998, with interest at 1% below prime on which
there was $4.0 million in borrowings at June 30, 1997. All other terms remain
the same. The Company had four additional lines of credit totaling $7.0 million
expiring on dates through April 1, 1998, with interest rates varying from prime
to 1% below prime on which there were $1.0 million in borrowings at June 30,
1997.

In connection with the above borrowings, the Company, among other
covenants, is required to maintain certain financial ratios, including a current
ratio of 1.5 to 1, minimum consolidated tangible net worth of $78 million and
debt service coverage ratio of 1.5 to 1.

The fair value of the senior notes payable debt, based upon a market rate
of 7.35% at June 30, 1997 was $24,300,000.

Aggregate annual maturities of long-term debt at June 30, 1997 are as
follows:

(in thousands)
1998 $ 0
1999 7,119
2000 2,335
2001 2,298
2002 2,273
Thereafter 15,908
------
$29,933
=======

22


Note 6: Income Taxes

The provisions (credit) for income taxes are comprised of the following:

Years Ended June 30,
1997 1996 1995
---- ---- ----
(in thousands)
Income taxes currently
payable (receivable) $(152) $(2,829) $2,901
Income taxes deferred 236 611 (628)
--- --- ----
$ 84 $(2,218) $2,273
===== ======= ======

The tax effects of temporary differences related to deferred taxes shown on
the consolidated balance sheets are as follows:

June 30,
1997 1996
---- ----
(in thousands)
Deferred tax assets:
Accrued employee benefits $ 110 $ 156
Post-retirement liability 2,436 2,378
Insurance accruals 831 1,002
State operating loss
carryforwards 447 341
Alternative minimum tax 723
Other 383 337
--- ---
4,930 4,214
----- -----
Deferred tax liabilities:
Accumulated depreciation (9,860) (8,857)
Deferred gain on
involuntary conversion (369) (420)
---- ----
(10,229) (9,277)
------- ------
Net deferred tax liability $ (5,299) $(5,063)
======== =======

The above net deferred tax liability is presented on the consolidated
balance sheets as follows:

June 30,
1997 1996
---- ----
(in thousands)
Deferred tax asset - current $ 1,688 $ 1,531
Deferred tax liability - long-term (6,987) (6,594)
------ ------
Net deferred tax liability $(5,299) $(5,063)
======= =======


No valuation allowance has been recorded at June 30, 1997 or 1996.

A reconciliation of the provision for income taxes at the normal statutory
federal rate to the provision (credit) included in the accompanying consolidated
statements of operations is shown below:

Years Ended June 30,
1997 1996 1995
---- ---- ----
(in thousands)
"Expected" provision (credit)
at federal statutory
rate (34%) $73 $(1,912) $1,908
Increases (decreases)
resulting from:
effect of state
income taxes 9 (236) 223
Other 2 (70) 142
- --- ---
Provision (credit) for
income taxes $84 $(2,218) $2,273
=== ======= ======

Note 7: Capital Stock

The Common Stock is entitled to elect four out of the nine members of the
Board of Directors, while the Preferred Stock is entitled to elect the remaining
five directors. Holders of Common Stock are not entitled to vote with respect to
a merger, dissolution, lease, exchange or sale of substantially all of the
Company's assets, or on an amendment to the Articles of Incorporation, unless
such action would increase or decrease the authorized shares or par value of the
Common or Preferred Stock, or change the powers, preferences or special rights
of the Common or Preferred Stock so as to affect the holders of Common Stock
adversely.

23

Financial Review
Notes to consolidated financial statements

Note 8: Other Operating Income (Expense)

Other operating income (expense) consists of the following:

Years Ended June 30,
1997 1996 1995
---- ---- ----
(in thousands)
Truck operations $342 $136 $(222)
Warehousing and
storage operations (13) (32) 41
Miscellaneous 41 55 74
-- -- --
$370 $159 $(107)
==== ==== =====

Note 9: Energy Commitment

During fiscal 1995, the Company negotiated a 15-year agreement to purchase
steam heat and electricity from a utility for its Illinois operations. Steam
heat is being purchased for a minimum monthly charge of $114,000, with a
declining fixed charge for purchases in excess of the minimum usage. Electricity
purchases will occur at fixed rates through May 31, 2002. In connection with the
agreement, the Company leased land to the utility company for 15 years so it
could construct a co-generation plant at the Company's Illinois facility. The
Company has also agreed to reimburse the utility for the net book value of the
plant if the lease is not renewed for an additional 19 years. The estimated net
book value of the plant would be $10.6 million at that date.

As a result of the above agreements, the Board approved the disposal of the
coal boiler which previously supplied the majority of the Illinois plant's
energy needs. The Company recorded the estimated effect of the disposal as a
non-recurring other expense of approximately $5.0 million during the fiscal year
ended June 30, 1995.


Note 10: Employee Benefit Plans

Pension Plan. The Company has a noncontributory defined benefit pension
plan covering union employees. The plan provides benefits based on the
participants' years of service. The Company only contributes amounts deductible
for federal income tax purposes.

Pension costs included the following components:

Years Ended June 30,
1997 1996 1995
---- ---- ----
(in thousands)
Service cost benefits
earned during year $ 43 $ 54 $ 58
Interest cost on projected
benefit obligations 158 150 144
Actual investment income
earned on plan assets (358) (257) (233)
Amortization of transition
liability and difference between
actual and expected return
on plan assets 219 133 121
--- --- ---
Pension cost $ 62 $ 80 $ 90
===== ===== =====

The funded status of the plan is as follows:

June 30,
1997 1996
---- ----
(in thousands)
Accumulated benefit obligations,
including vested benefits
of $2,141 and $2,183 $2,151 $2,191
====== ======
Plan assets at fair value $2,349 $2,071
Projected benefit obligations
for participants' service
rendered to date 2,151 2,191
----- -----
Projected benefit obligations
in excess of plan's assets 198 (120)
Unrecognized gains (333) (75)
Unrecognized prior service cost 51 57
Unrecognized net obligation at July 1,
1987 being recognized over the
participants' average remaining
service period 88 106
Adjustment required to recognize
the minimum liability (88)
--- ---
Pension asset (liability) $ 4 $ (120)
====== ======

24

Plan assets are invested in cash equivalents, U.S. Government securities,
corporate bonds, fixed income funds and common stocks. The discount rate used in
determining the actuarial present value of the projected benefit obligation was
7.5%. The expected long-term rate of return on the plan's assets was 8.0%.

Employee Stock Ownership Plans. The Company and its subsidiaries have
employee stock ownership plans covering all employees after certain eligibility
requirements are met. Discretionary contributions to the plans totaled $726,000,
$374,000 and $998,000 for the years ended June 30, 1997, 1996 and 1995,
respectively. Contributions are made in the form of cash and/or additional
shares of common stock.

Post-Retirement Benefit Plan. The Company and its subsidiaries provide
certain post-retirement health care and life insurance benefits to all
employees. The liability for such benefits is unfunded.

The status of the Company's plans at June 30, 1997 and 1996 was as follows:

June 30,
1997 1996
---- ----
(in thousands)
Accumulated post-retirement
benefit obligations
Retirees $3,395 $3,360
Active plan participants 1,650 1,526
----- -----
Unfunded accumulated obligation 5,045 4,886
Unrecognized actuarial gain (loss) 1,200 1,059
----- -----
Accrued post retirement
benefit cost $6,245 $5,945
====== ======

Net post-retirement benefit costs included the following components:

June 30,
1997 1996
---- ----
(in thousands)
Service cost $100 $159
Interest cost 353 424
(Gain) loss amortization (23)
---
$430 $583
==== ====


The weighted average annual assumed rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) is assumed to be 9.75%
(compared to 10.0% assumed for 1996), reducing to 8.0% over eight years and 6.0%
over 16 years. A one percentage point increase in the assumed health care cost
trend rate would have increased the accumulated benefit obligation by $300,000
at June 30, 1997, and the service and interest cost by $42,000 for the year then
ended.

A weighted average discount rate of 8.0% was used in determining the
accumulated benefit obligation.

Stock Options. The Company has two stock option plans, the Stock Incentive
Plan of 1996 ("The 1996 Plan") and the Stock Option Plan for Outside Directors
("The Directors Plan"). These Plans permit the issuance of stock awards, options
and stock appreciation rights to selected employees and outside directors of the
Company. The Company accounts for these plans under APB Opinion No. 25, under
which no compensation cost has been recognized. Had compensation cost been
determined consistent with FASB Statement No. 123, the Company's 1997 net income
and earnings per share would have been reduced to the following pro forma
amounts:

Net Income (loss): As Reported $ 131
Pro Forma $ (82)
Primary Earnings per share: As Reported $ .01
Pro Forma $(.01)
Fully Diluted EPS: As Reported $ .01
Pro Forma $(.01)

Under the 1996 Plan, the Company may grant incentives for up to 450,000
shares of the Company's common stock to certain of the Company's management
personnel. The term of each award shall be determined by the committee of the
Board of Directors charged with administering the 1996 Plan. Under the terms of
the 1996 Plan, options granted may be either nonqualified or incentive stock
options and the exercise price may not be less than the fair value on the date
of the

25
Financial Review
Notes to consolidated financial statements

grant. Through June 30, 1997, the Company has granted options on 176,500
shares becoming exercisable in yearly increments through January, 2001. Options
granted through June 30, 1997 have exercise prices equal to fair market value on
the date of grant.

Under the Director's Plan each non-employee or "outside" director of the
Company receives on the day after each annual meeting of stockholders an option
to purchase 1,000 shares of the Company's common stock at a price equal to the
fair market value of the Company's common stock on such date. Options become
exercisable on the 184th day following the date of grant and expire not later
than five years after the date of grant. Subject to certain adjustments, a total
of 90,000 shares are reserved for annual grants under the Plan, subject to
certain adjustments. Through June 30, 1997, the Company had granted options on
7,000 shares, all of which became exercisable in April, 1997.

A summary of the status of the Company's two stock option plans at June 30,
1997 and 1996 and changes during the years then ended is presented below:

Years Ended June 30,
1997 1996
---- ----
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
(in thousands)
Outstanding Beginning
of Year 90,000 $14.00
Granted 93,500 15.32 90,000 $14.00
Exercised
- --------------------------------------------------------------------------------
Outstanding End
of Year 183,500 $14.67 90,000 $14.00
======= ====== ====== ======

As of June 30, 1997, 90,000 of the 183,500 options outstanding have an
exercise price of $14 and a remaining contractual life of 3.5 years. Of these
options, 27,750 are exercisable at June 30, 1997. Options outstanding of 86,500
have an exercise price of $15.25 and a remaining contractual life of 4.5 years.
None of these options are exercisable at June 30, 1997. The remaining 7,000
shares have an exercise price of $16.25 and all are exercisable at June 30,
1997. These options must be exercised by October, 2001.

The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model. The following weighted-average
assumptions were used for the year ended June 30, 1997: Risk free interest rate
of 6.13%; expected dividend yield of 0%; expected volatility of 34%.


Note 11: Operating Leases

The Company has several noncancellable operating leases for railcars which
expire from July, 1998 through November, 2001. The leases generally require the
Company to pay all service costs associated with the railcars. Rental payments
include minimum rentals plus contingent amounts based on mileage.

Future minimum lease payments at June 30, 1997 are as follows:

(in thousands)
1998 $1,804
1999 1,566
2000 555
2001 93
2002 56
---- --
Future minimum lease payments $4,074
======

Rental expense for all operating leases with terms longer than one month
totaled $1,438,466, $1,546,000 and $951,000 for the years ended June 30, 1997,
1996 and 1995, respectively.

Minimum future rentals receivable under non-cancellable operating subleases
at June 30, 1997, were $155,500.

26


Note 12: Significant estimates and concentrations

Generally accepted accounting principles require disclosure of certain
significant estimates and current vulnerabilities due to certain significant
concentrations. Those matters include the following:

Substantially all of the Company's labor force is covered by collective
bargaining agreements which expire August 31, 1999 at the Atchison plant
and on November 1, 2000 at the Pekin plant.

Under its self-insurance plan, the Company accrues the estimated expense of
health care and workers' compensation claims costs based on claims
filed subsequent to year-end and an additional amount for incurred but
not yet reported claims based on prior experience. An accrual for such
costs of $723,000 is included in the accompanying 1997 financial
statements. Claims payments based on actual claims ultimately filed
could differ materially from these estimates.

During the years ended June 30, 1997, 1996 and 1995, the Company had sales
to one customer accounting for approximately 8.2%, 10.7% and 10.7%,
respectively of consolidated sales.

Note 13: Additional Cash Flows Information

Years Ended June 30,
1997 1996 1995
---- ---- ----
(in thousands)
Noncash Investing and
Financing Activities:
Purchase of property
and equipment in
accounts payable $ 211 $ 12 $1,407
Dividends declared 1,221
Additional Cash Payment
Information
Interest paid (net of
amount capitalized 1,909 2,585 519
Income taxes paid
(refunded) $(2,986) $(2,105) $4,200
------- ------- ------

Note 14: Contingencies

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.