<PAGE> 1
UNITED STATES
Securities and Exchange Commission
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended November 30, 1995 Commission File No. 0-11488
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
PENWEST, LTD.
(Exact name of registrant as specified in its charter)
Washington 91-1221360
(State of Incorporation) (I.R.S. Employer
Identification No.)
777-108th Avenue N.E., Suite 2390, Bellevue, WA 98004-5193
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (206) 462-6000
Indicate by a 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 such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of December 31, 1995.
<TABLE>
<CAPTION>
Class Outstanding
----- -----------
<S> <C>
Common stock, par value $1.00 6,773,496
</TABLE>
<PAGE> 2
PENWEST, LTD. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets 3
November 30, 1995 and August 31, 1995
Condensed Consolidated Statements of Income 4
Three Months Ended November 30, 1995
and November 30, 1994
Condensed Consolidated Statements of Cash Flow 5
Three Months Ended November 30, 1995 and
November 30, 1994
Notes to Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of 7-8
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 9
SIGNATURES 10
INDEX TO EXHIBITS 11
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
PENWEST, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
November 30, August 31,
1995 1995
------------ ----------
(Unaudited)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 5,505 $ 5,334
Trade accounts receivable 25,427 23,943
Inventories:
Raw materials, supplies and other 4,354 3,828
Work in progress 475 483
Finished goods 10,610 9,898
-------- --------
15,439 14,209
Prepaid expenses and other 4,400 5,447
-------- --------
Total current assets 50,771 48,933
Property, plant and equipment, net 111,556 111,440
Deferred income taxes 9,578 9,927
Other assets 17,467 16,460
-------- --------
Total assets $189,372 $186,760
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 8,473 $ 8,749
Accrued liabilities 6,576 6,728
Current portion of long-term debt 4,270 4,270
-------- --------
Total current liabilities 19,319 19,747
Long-term debt 59,630 58,628
Other postretirement benefits 10,155 10,155
Deferred income taxes and other 25,996 26,248
Shareholders' equity:
Common stock 8,606 8,591
Additional paid-in capital 12,807 12,550
Retained earnings 86,363 84,949
Treasury stock (30,637) (30,637)
Note receivable from PENWEST Savings and
Stock Ownership Plan (2,463) (2,978)
Cumulative translation adjustment (404) (493)
-------- --------
Total shareholders' equity 74,272 71,982
-------- --------
Total liabilities and
shareholders' equity $189,372 $186,760
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
PENWEST, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended November 30
-----------------
1995 1994
---- ----
<S> <C> <C>
Sales $ 45,624 $ 42,771
Cost of sales 33,456 31,527
-------- --------
Gross margin 12,168 11,244
Operating expenses 8,567 7,528
-------- --------
Income from operations 3,601 3,716
Interest expense, net (1,054) (1,042)
-------- --------
Income before taxes 2,547 2,674
Income taxes 799 917
-------- --------
Net income $ 1,748 $ 1,757
======== ========
Weighted average common shares and
equivalents outstanding 7,043,460 7,115,122
Earnings per common share $ 0.25 $ 0.25
======== ========
Dividends declared per common share $ 0.05 $ 0.05
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
PENWEST, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended November 30
-----------------
1995 1994
---- ----
<S> <C> <C>
Operating Activities:
Net income $ 1,748 $ 1,757
Adjustments to reconcile net income to net cash
from operations:
Depreciation and amortization 2,728 2,580
Deferred income taxes 97 117
Foreign currency transactions 90 81
Change in operating assets and liabilities:
Receivables (1,485) (1,718)
Inventories (1,230) 1,978
Accounts payable and other 1,134 1,287
------- -------
Net cash flow from operating activities 3,082 6,082
Investing Activities:
Additions to plant and equipment (2,845) (6,770)
Other 336 (381)
------- -------
Net cash used by investing activities (2,509) (7,151)
Financing Activities:
Proceeds from unsecured line of credit 8,375 4,890
Payments on unsecured line of credit (7,055)
Proceeds of long-term debt
Payments on long-term debt (318) (983)
Purchase of treasury stock (585)
Exercise of stock options 273
Purchase of life insurance for officers' benefit plan (1,343) (1,342)
Payment of dividend (334) (341)
------- -------
Net cash from financing activities (402) 1,639
------- -------
Net increase in cash and cash equivalents 171 570
Cash (bank overdrafts) and equivalents at beginning of period 5,334 (635)
------ -------
Cash (bank overdrafts) and equivalents at end of period $ 5,505 $ (65)
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
PENWEST, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation for
the interim period presented have been included. Operating results
for the three month period ended November 30, 1995 are not necessarily
indicative of the results that may be expected for the year ending
August 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in PENWEST's
annual report on Form 10-K for the fiscal year ended August 31, 1995.
2. SUBSEQUENT EVENT
Debt
On December 22, 1995, the Company completed an unsecured $35 million
revolving line of credit agreement with four banks expiring on
December 30, 1998. Borrowing rates available to the Company under the
agreement are based on prime rate or the interbank offered rate
depending on the selection of borrowing options. The agreement
replaces an unsecured term agreement which at December 22, 1995, had
$15.25 million of borrowings outstanding with four banks. It also
replaces an unsecured $15 million revolving line of credit of which
there were no outstanding borrowings at quarter-end.
The new debt agreement includes, among other terms, certain
restrictions related to limitations on indebtedness and minimum net
worth, which are similar to restrictions on previously existing debt.
In addition, the Company is required to maintain a minimum fixed
charge coverage ratio.
3. INCOME TAXES
The effective tax rate for the first quarter of fiscal 1996 was 31%
compared to the statutory rate of 34%. The effective rate is lower
than the statutory rate due to state tax refunds received by the
Company.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity
PENWEST used operating cash flow and short-term borrowings to finance capital
expenditures and operations during the quarter. The Company maintains a highly
liquid position. Liquidity at November 30, 1995 consisted of the following:
cash and cash equivalents of $5.5 million, working capital of approximately
$31.5 million, several uncommitted lines with various banks that may be used
for overnight borrowings under which there was $1.3 million outstanding, and a
$15 million revolving credit agreement under which there were no borrowings
outstanding. On December 22, 1995, the Company completed a new $35 million
credit agreement with four banks, replacing both the $15 million revolving
credit agreement and a $16 million unsecured term agreement.
Cash flow from operations for the three months ended November 30, 1995 was $3.1
million compared to $6.1 million in the corresponding period a year ago. The
decrease is primarily due to an increase in inventories.
The Board of Directors declared a $0.05 per share dividend which was paid on
December 1, 1995, to shareholders of record as of November 17, 1995.
Capital Resources
Additions to property, plant and equipment during the three months ended
November 30, 1995 were $2.8 million. The additions were primarily for various
capital projects at the Penford facility in Cedar Rapids, Iowa.
Results of Operations
Net income was $1.7 million, or $0.25 per share for the first quarter, compared
to net income of $1.8 million, or $0.25 per share for the corresponding period
a year ago. The first quarter of fiscal year 1995 included the operations of
Pacific Cogeneration, Inc., a PENWEST subsidiary whose assets were sold in the
second quarter of fiscal year 1995. These operations generated approximately
$240,000 of earnings net of tax effect, or $0.03 per share in the first quarter
of fiscal year 1995.
Sales increased in the first quarter of fiscal year 1996 to $45.6 million,
representing a 6.7% increase from the corresponding period a year ago. The
increase is attributed to all three of PENWEST's basic businesses. Recent new
business and alkaline-based conversions for Penford allayed the impact of the
current weakness in the overall paper industry resulting in customer downtime
during the quarter. Higher revenues at Penford are also partly due to higher
corn costs, a key component used in pricing Penford's paper chemicals products.
Penwest Foods' revenues increased significantly over the same period a year ago
primarily due to increased volume of food grade potato starches. Penwest
Pharmaceuticals Group grew volumes through continued success of its
microcrystalline cellulose family of products.
7
<PAGE> 8
The gross margin for the three month period ended November 30, 1995 was 26.7%
compared to 26.3% for the corresponding period a year ago. Gross margin in the
first quarter of fiscal 1996 was negatively impacted by rising corn costs and a
less favorable product mix at Penford. Gross margin in the same period a year
ago was down from historical levels as a result of higher chemicals and
transportation costs at Penford. Net corn costs have continued to rise in the
second quarter and are expected to negatively impact second quarter gross
margin.
Operating expenses in the first quarter rose $1.0 million, or 13.8%. The
increase was primarily due to increased investment in research and development,
especially in the Penwest Pharmaceuticals Group, and to a lesser extent higher
human resource expenses.
Net interest expense for the first quarter of fiscal 1996 was $1,054,000
compared to $1,042,000 for the corresponding period a year ago. This increase
results from higher debt levels offset by overall lower interest rates.
The effective tax rate for the first quarter of fiscal 1996 was 31.4% compared
to 34.3% in the corresponding period a year ago. The effective tax rate in the
current quarter is lower than the statutory rate primarily due to state tax
refunds received by the Company. The effective tax rate for the remainder of
fiscal year 1996 is expected to approximate the statutory rate.
8
<PAGE> 9
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K.
(a) Exhibit 11 - Statement re: Computation of earnings
per share.
Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter
for which this report is filed.
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements 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.
PENWEST, LTD.
---------------------------------------
(Registrant)
- ---------------- ---------------------------------------
Date Tod R. Hamachek
President and
Chief Executive Officer (Principal
Executive Officer)
- ---------------- ---------------------------------------
Date Jeffrey T. Cook
Vice President, Finance and
Chief Financial Officer (Principal
Financial Officer)
10
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No.
<S> <C>
11. Statement Regarding Computation of Per Share Earnings
27. Financial Data Schedule
</TABLE>
11
<PAGE> 1
PENWEST, LTD. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
November 30
-----------
1995 1994
---- ----
<S> <C> <C>
PRIMARY:
Net income $1,748,000 $1,757,000
========== ==========
Weighted average number of
shares outstanding 6,763,208 6,793,393
Net effect of dilutive stock options 280,252 321,729
---------- -----------
Adjusted shares outstanding 7,043,460 7,115,122
========== ==========
Earnings per share $0.25 $0.25
===== =====
FULLY DILUTED:
Net income $1,748,000 $1,757,000
========== ==========
Weighted average number of
shares outstanding 6,763,208 6,793,393
Net effect of dilutive stock options 308,166 311,862
---------- ----------
Adjusted shares outstanding 7,071,374 7,105,255
========== ==========
Earnings per share $0.25 $0.25
===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets at November 30, 1995 (unaudited), the Condensed
Consolidated Statements of Income at November 30, 1995 (unaudited), and the
Condensed Consolidated Statements of Cash Flow at November 30, 1995 (unaudited)
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> NOV-30-1995
<EXCHANGE-RATE> 1
<CASH> 5,505
<SECURITIES> 0
<RECEIVABLES> 25,427
<ALLOWANCES> 0
<INVENTORY> 15,439
<CURRENT-ASSETS> 50,771
<PP&E> 111,558
<DEPRECIATION> 0
<TOTAL-ASSETS> 189,372
<CURRENT-LIABILITIES> 19,319
<BONDS> 0
<COMMON> 8,606
0
0
<OTHER-SE> 65,666
<TOTAL-LIABILITY-AND-EQUITY> 189,372
<SALES> 45,624
<TOTAL-REVENUES> 45,624
<CGS> 33,456
<TOTAL-COSTS> 33,456
<OTHER-EXPENSES> 8,567
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,054
<INCOME-PRETAX> 2,547
<INCOME-TAX> 799
<INCOME-CONTINUING> 1,748
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,748
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
