<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 the quarterly period ended November 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to _______________________
Commission File No. 0-11488
PENWEST, LTD.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 91-1221360
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(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, including area code: (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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of January 8, 1997:
Class Outstanding
----- -----------
Common stock, par value $1.00 6,883,499
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PENWEST, LTD. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets 3
November 30, 1996 and August 31, 1996
Condensed Consolidated Statements of Income 4
Three Months Ended November 30, 1996
and November 30, 1995
Condensed Consolidated Statements of Cash Flow 5
Three Months Ended November 30, 1996 and
November 30, 1995
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
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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,
1996 1996
--------- ---------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,708
Trade accounts receivable 23,485 $ 26,766
Inventories:
Raw materials, supplies and other 6,707 7,750
Work in progress 604 685
Finished goods 13,525 13,676
--------- ---------
20,836 22,111
Prepaid expenses and other 5,648 3,774
--------- ---------
Total current assets 51,677 52,651
Net property, plant and equipment 126,838 121,173
Deferred income taxes 9,940 9,940
Cash value of life insurance 11,315 11,432
Other assets 7,322 7,322
--------- ---------
Total assets $ 207,092 $ 202,518
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft, net $ 847
Accounts payable $ 13,022 10,344
Accrued liabilities 7,840 7,943
Current portion of long-term debt 4,127 4,127
--------- ---------
Total current liabilities 24,989 23,261
Long-term debt 64,258 62,636
Other postretirement benefits 10,068 10,306
Deferred income taxes and other 28,475 28,177
Commitments and contingencies
Shareholders' equity:
Common stock 8,684 8,677
Additional paid-in capital 13,752 13,633
Retained earnings 89,705 88,640
Treasury stock (30,637) (30,637)
Note receivable from PENWEST Savings and
Stock Ownership Plan (1,566) (1,742)
Cumulative translation adjustment (636) (433)
--------- ---------
Total shareholders' equity 79,302 78,138
--------- ---------
Total liabilities and shareholders' equity $ 207,092 $ 202,518
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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PENWEST, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Three Months
Ended November 30
-----------------
1996 1995
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<S> <C> <C>
Sales $ 49,310 $ 45,624
Cost of sales 38,454 33,456
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Gross margin 10,856 12,168
Operating expenses 8,636 8,567
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Income from operations 2,220 3,601
Other income 1,200
Interest expense, net (1,298) (1,054)
----------- -----------
Income before income taxes 2,122 2,547
Income taxes 715 799
----------- -----------
Net income $ 1,407 $ 1,748
=========== ===========
Weighted average common shares and
equivalents outstanding 6,993,058 7,043,460
Earnings per common share $ 0.20 $ 0.25
=========== ===========
Dividends declared per common share $ 0.05 $ 0.05
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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PENWEST, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months
Ended November 30
------------------------
1996 1995
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<S> <C> <C>
Operating Activities:
Net income $ 1,407 $ 1,748
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 2,926 2,728
Deferred income taxes 97
Foreign currency transactions 21 90
Change in operating assets and liabilities:
Trade receivables 3,260 (1,485)
Inventories 1,275 (1,230)
Accounts payable and other 1,160 1,134
-------- --------
Net cash from operating activities 10,049 3,082
Investing Activities:
Additions to property, plant and equipment (8,540) (2,845)
Other (360) 336
-------- --------
Net cash used by investing activities (8,900) (2,509)
Financing Activities:
Proceeds from unsecured line of credit 19,035 8,375
Payments on unsecured line of credit (22,094) (7,055)
Proceeds from long-term debt 5,000
Payments on long-term debt (318) (318)
Exercise of stock options 125 273
Purchase of life insurance for officers' benefit plans (1,343)
Payment of dividends (342) (334)
-------- --------
Net cash from (used by) financing activities 1,406 (402)
-------- --------
Net increase in cash and cash equivalents 2,555 171
Cash (bank overdrafts) and cash equivalents at
beginning of period (847) 5,334
-------- --------
Cash and cash equivalents at end of period $ 1,708 $ 5,505
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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PENWEST, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
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, 1996 are not necessarily
indicative of the results that may be expected for the year ending
August 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in PENWEST LTD.'s
("the Company") annual report on Form 10-K for the fiscal year ended
August 31, 1996.
2. OTHER INCOME
During the quarter ended November 30, 1996, the Company sold its
remaining Southern California air credits that related to the
operations of Great Western Malting Co., a division of the Company sold
in 1989. The sale of the credits resulted in a pretax gain of $1.2
million that is included in other income for the quarter.
3. RECENTLY ADOPTED ACCOUNTING STANDARDS
Effective September 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". The
adoption of Statement No. 121 had no effect on the Company's financial
position and results of operations as of the date of adoption and for
the period ended November 30, 1996.
Effective September 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," using the intrinsic-value method prescribed by
Accounting Principles Board Opinion No.25, as allowed for in the
statement. The adoption of Statement No. 123 had no effect on the
Company's financial position and results of operations as of the date
of adoption and for the period ended November 30, 1996.
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Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY
The Company's liquidity position consisted of the following at November 30,
1996: cash and cash equivalents of $1.7 million, working capital of $26.7
million, an unsecured credit agreement of $35 million under which there was $15
million outstanding, and several uncommitted lines of credit aggregating $10
million with various banks that may be used for overnight borrowings under which
there was $2.8 million outstanding. The Company used operating cash flow and
debt to finance capital expenditures and operating activities during the
quarter.
Cash flow from operations for the three months ended November 30, 1996 was $10.0
million compared to $3.1 million in the corresponding period of the prior year.
The increase in cash flow is due to decreases in trade receivables and
inventories at November 30, 1996. The decreases are primarily due to a lower
cost of corn associated with the new crop harvest late in the Company's first
fiscal quarter.
The Company paid a $0.05 per share dividend on December 6, 1996, to shareholders
of record as of November 15, 1996.
CAPITAL RESOURCES
Additions to property, plant and equipment during the three months ended
November 30, 1996 were $8.5 million. The additions were primarily for
improvements to Penford Product Co.'s manufacturing facility in Cedar Rapids,
Iowa and the commencement of a capacity expansion project for Penwest Foods'
facility in Richland, Washington.
RESULTS OF OPERATIONS
Net income was $1.4 million, or $0.20 per share, for the quarter ended November
30, 1996, compared to net income of $1.7 million, or $0.25 per share, for the
corresponding period a year ago. The first quarter of fiscal year 1997 included
other income of $1.2 million ($800,000 after tax, or $0.11 per share) from the
sale of the remaining Southern California air credits related to Great Western
Malting Co. which was sold in 1989.
Sales increased in the three months ended November 30, 1996 to $49.3 million
from $45.6 million, or 8.1%, from the corresponding period a year ago. The
increase is primarily due to higher corn costs through the first two months of
the quarter, a key component used in pricing Penford's paper chemical products.
Corn costs and changes in those costs are generally passed through to customers.
Volumes of Penford Gums were down slightly from the same period in the prior
year reflecting a weaker paper industry than a year ago. Paper industry analysts
are forecasting modest industry growth in 1997. Penwest Foods Co.'s sales
improved 31% primarily due to increased volumes of starches for french fry
coatings. The division was profitable for the three months ended November 30,
1996.
Gross margin for the first quarter of fiscal year 1997 was 22.0% compared to
26.7% for the corresponding period a year ago. The majority of the margin
percentage difference compared to the prior year is due to higher corn prices,
and to a lesser extent, lower overall gross margins on
7
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two major Penford contracts. The Company expects margins to improve in the
second quarter as the new crop is harvested and corn prices moderate.
Net interest expense for the quarter ended November 30, 1996 was $1.3 million
compared to $1.1 million for the corresponding period a year ago due to slightly
higher debt levels.
The effective tax rate for the first quarter of fiscal 1997 was 34.0% compared
to 31.4% in the corresponding period a year ago. The effective tax rate
approximates the statutory rate and is higher than in the same period in the
prior year primarily due to state tax refunds received by the Company in the
previous year.
FORWARD-LOOKING STATEMENTS
The above discussion contains forward-looking statements. There are certain
important factors that could cause results to differ materially from those
anticipated by the statements made above. These factors include, but are not
limited to, the economic condition of the paper industry, the market price of
corn and corn prices, competition, product development risks, patent and
intellectual property matters, and regulatory and manufacturing issues.
Additional information on these and other factors which could affect the
Company's financial results is included in the Company's 1996 Annual Report to
Shareholders and its Form 10-K for the fiscal year ended August 31, 1996 on file
with the Securities and Exchange Commission.
8
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PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K.
(a) Exhibits:
11 Statement re: Computation of Earnings Per Share
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
9
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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)
January 10, 1996 /s/ Tod R. Hamachek
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Date Tod R. Hamachek
President and
Chief Executive Officer (Principal
Executive Officer)
January 10, 1996 /s/ Jeffrey T. Cook
- ---------------- --------------------
Date Jeffrey T. Cook
Vice President, Finance and
Chief Financial Officer (Principal
Financial Officer)
10
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INDEX TO EXHIBITS
Exhibits identified in parentheses below, on file with the Securities and
Exchange Commission, are incorporated by reference.
Exhibit No. Item
- ----------- ----
(3.1) Restated Articles of Incorporation of Registrant (filed as an
Exhibit to Registrant's Form 10-K for fiscal year ended August
31, 1995)
(3.2) Bylaws of Registrant as amended and restated as of June 27,
1995 (filed as an Exhibit to Registrant's Form 10-K for the
fiscal year ended August 31, 1995)
(4.1) PENWEST, LTD. Common Stock Purchase Rights, dated June 3, 1988
(filed on Form 8-A dated June 3, 1988)
(10.1) Senior Note Agreement among PENWEST, LTD. as Borrower and
Mutual of Omaha and Affiliates as lenders, dated November 1,
1992 (filed as an Exhibit to Registrant's Form 10-Q for the
quarter ended February 28, 1993)
(10.2) Term Loan Agreement among Penford Products Co., and PENWEST,
LTD. as Borrowers, and First Interstate Bank of Washington,
N.A. as Lender, dated September 27, 1990 (Registrant agrees to
furnish a copy of this instrument to the Commission on request)
(10.3) Loan Agreement among PENWEST, LTD. as Borrower and
Seattle-First National Bank as Lender, dated December 1, 1989
(Registrant agrees to furnish a copy of this instrument to the
Commission on request)
(10.4) PENWEST, LTD. Supplemental Executive Retirement Plan, dated
March 19, 1990 (filed as an Exhibit to Registrant's Form 10-K
for the fiscal year ended August 31, 1991)
(10.5) PENWEST, LTD. Supplemental Survivor Benefit Plan, dated January
15, 1991 (filed as an Exhibit to Registrant's Form 10-K for the
fiscal year ended August 31, 1991)
(10.6) PENWEST, LTD. Deferred Compensation Plan, dated January 15,
1991 (filed as an Exhibit to Registrant's Form 10-K for the
fiscal year ended August 31, 1991)
(10.7) Change of Control Agreements with Messrs. Hamachek, Reed, Cook,
Widmaier, Talley, Horn, Rydzewski and Belsheim (a
representative copy of these agreements is filed as an exhibit
to Registrant's Form 10-K for the fiscal year ended August 31,
1995)
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(10.8) PENWEST, LTD. 1993 Non-Employee Director Restricted Stock Plan
(filed as an Exhibit to Registrant's Form 10-Q for the quarter
ended November 30, 1993)
(10.9) Note Agreement dated as of October 1, 1994 among PENWEST, LTD.,
Principal Mutual Life Insurance Company and TMG Life Insurance
Company (filed as an Exhibit to Registrant's Form 10-Q for the
quarter ended February 28, 1995)
(10.10) PENWEST, LTD. 1994 Stock Option Plan as amended and restated as
of January 23, 1996 (filed as an Exhibit to Registrant's Form
10-Q for the quarter ended May 31, 1996)
(10.11) Credit Agreement dated as of December 22, 1995 among PENWEST,
LTD., and its subsidiaries, Bank of America National Trust and
Savings Association, ABN-AMRO Bank, N.V., The Bank of Nova
Scotia, and Seattle-First National Bank (filed as an Exhibit to
Registrant's Form 10-Q for the quarter ended February 29, 1996)
(10.12) PENWEST, LTD. Stock Option Plan for Non-Employee Directors
(filed as an Exhibit to the Registrant's Form 10-Q for the
quarter ended May 31, 1996)
11 Statement re: Computation of Earnings Per Share
27 Financial Data Schedule
12
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PENWEST, LTD. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Quarter Ended
November 30
---------------------------
1996 1995
---------- ----------
<S> <C> <C>
PRIMARY:
Net income $1,407,000 $1,748,000
========== ==========
Weighted average number of
shares outstanding 6,851,257 6,763,208
Net effect of dilutive stock options 141,801 280,252
---------- ----------
Adjusted shares outstanding 6,993,058 7,043,460
========== ==========
Earnings per share $ 0.20 $ 0.25
========== ==========
FULLY DILUTED:
Net income $1,407,000 $1,748,000
========== ==========
Weighted average number of
shares outstanding 6,851,257 6,763,208
Net effect of dilutive stock options 141,801 308,166
---------- ----------
Adjusted shares outstanding 6,993,058 7,071,374
========== ==========
Earnings per share $ 0.20 $ 0.25
========== ==========
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets at November 30, 1996 (unaudited), the Condensed
Consolidated Statements of Income at November 30, 1996 (unaudited), and the
Condensed Consolidated Statements of Cash Flow at November 30, 1996 (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-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> NOV-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,708
<SECURITIES> 0
<RECEIVABLES> 23,485
<ALLOWANCES> 0
<INVENTORY> 20,836
<CURRENT-ASSETS> 51,677
<PP&E> 126,838
<DEPRECIATION> 0
<TOTAL-ASSETS> 207,092
<CURRENT-LIABILITIES> 24,989
<BONDS> 0
0
0
<COMMON> 8,684
<OTHER-SE> 70,618
<TOTAL-LIABILITY-AND-EQUITY> 207,092
<SALES> 49,310
<TOTAL-REVENUES> 49,310
<CGS> 38,454
<TOTAL-COSTS> 38,454
<OTHER-EXPENSES> 8,636
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,298
<INCOME-PRETAX> 2,122
<INCOME-TAX> 715
<INCOME-CONTINUING> 1,407
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,407
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
