<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 May 31, 1999
------------
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
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Penford Corporation
- --------------------------------------------------------------------------------
(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)
(425) 462-6000
(Registrant's telephone number, including area code.)
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 July 6, 1999.
<TABLE>
<CAPTION>
Class Outstanding
----- -----------
<S> <C>
Common stock, par value $1.00 7,428,694
</TABLE>
<PAGE> 2
PENFORD CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets 3
May 31, 1999 and August 31, 1998
Condensed Consolidated Statements of Operations 4
Three Months and Nine Months Ended May 31, 1999
and May 31, 1998
Condensed Consolidated Statements of Cash Flow 5
Nine Months Ended May 31, 1999 and
May 31, 1998
Notes to Condensed Consolidated Financial Statements 6-8
Item 2 - Management's Discussion and Analysis of 9-13
Financial Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures 13
About Market Risk
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 14
Item 2 - Changes in Securities 14
Item 3 - Defaults Upon Senior Securities 14
Item 4 - Submission of Matters to a Vote of Security Holders 14
Item 5 - Other Information 14
Item 6 - Exhibits and Reports on Form 8-K 14-16
SIGNATURES 17
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
PENFORD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
May 31, 1999 August 31, 1998
------------ ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 782 $ 3,200
Trade accounts receivable 18,789 20,957
Inventories:
Raw materials and other 4,093 7,161
Work in progress 534 900
Finished goods 7,031 8,091
--------- ---------
11,658 16,152
Prepaid expenses and other 4,872 5,424
--------- ---------
Total current assets 36,101 45,733
Net property, plant and equipment 110,915 107,049
Deferred income taxes 13,831 13,781
Restricted cash value of life insurance 11,494 11,371
Other assets 3,328 5,274
--------- ---------
Total assets $ 175,669 $ 183,208
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,851 8,509
Accrued liabilities 9,663 5,596
Current portion of long-term debt 3,487 13,697
Accrued liabilities, discontinued operations -- 1,761
--------- ---------
Total current liabilities 21,001 29,563
Long-term debt 58,571 60,199
Other postretirement benefits 10,522 10,383
Deferred income taxes 21,672 21,882
Other liabilities 5,751 7,186
Shareholders' equity:
Common stock 9,196 9,130
Additional paid-in capital 20,640 20,223
Retained earnings 57,792 54,644
Treasury stock (29,334) (29,647)
Note receivable from Savings and
Stock Ownership Plan (142) (355)
--------- ---------
Total shareholders' equity 58,152 53,995
--------- ---------
Total liabilities and shareholders' equity $ 175,669 $ 183,208
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
PENFORD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended May 31 Nine Months Ended May 31
---------------------------- ----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 39,226 $ 40,306 $ 115,146 $ 122,848
Cost of sales 29,008 28,976 85,408 88,709
----------- ----------- ----------- -----------
Gross margin 10,218 11,330 29,738 34,139
Operating expenses 6,234 6,061 17,542 19,354
Restructure costs 1,559 1,931 1,559 1,931
----------- ----------- ----------- -----------
Income from operations 2,425 3,338 10,637 12,854
Interest expense, net (1,343) (1,470) (4,087) (4,350)
----------- ----------- ----------- -----------
Income from continuing
operations before income taxes 1,082 1,868 6,550 8,504
Income taxes 379 654 2,293 2,971
----------- ----------- ----------- -----------
Income from continuing operations 703 1,214 4,257 5,533
Loss from discontinued operations,
net of applicable income tax -- (5,766) -- (8,573)
----------- ----------- ----------- -----------
Net income (loss) $ 703 $ (4,552) $ 4,257 $ (3,040)
=========== =========== =========== ===========
Weighted average common shares
and equivalents outstanding 7,701,498 7,545,607 7,767,554 7,534,001
Earnings per common share from
continuing operations;
Basic $ 0.09 $ 0.17 $ 0.58 $ 0.76
=========== =========== =========== ===========
Diluted $ 0.09 $ 0.16 $ 0.55 $ 0.74
=========== =========== =========== ===========
Earnings per common share;
Basic $ 0.09 $ (0.62) $ 0.58 $ (0.42)
=========== =========== =========== ===========
Diluted $ 0.09 $ (0.60) $ 0.55 $ (0.40)
=========== =========== =========== ===========
Dividends declared per
common share $ 0.05 $ 0.05 $ 0.15 $ 0.15
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 5
PENFORD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended May 31
------------------------
1999 1998
---- ----
<S> <C> <C>
Operating Activities:
Income from continuing operations $ 4,257 $ 5,533
Adjustments to reconcile income from continuing
operations to net cash from continuing operations:
Depreciation 9,250 9,040
Deferred income taxes (260) 176
Change in operating assets and liabilities of
continuing operations:
Trade receivables 2,168 1,291
Inventories 4,494 (3,179)
Accounts payable, prepaids and other 4,610 (2,814)
-------- --------
Net cash flow from continuing operations 24,519 10,047
Net cash used by discontinued operations (1,133) (5,088)
-------- --------
Net cash from operating activities 23,386 4,959
Investing Activities:
Additions to property, plant and equipment, net (13,064) (8,228)
Other 475 931
-------- --------
Net cash used by investing activities (12,589) (7,297)
Financing Activities:
Proceeds from unsecured line of credit 26,320 68,885
Payments on unsecured line of credit (30,671) (64,728)
Proceeds of long-term debt 10,000 5,000
Payments on long-term debt (17,487) (5,746)
Exercise of stock options 645 451
Purchase of treasury stock (919) --
Purchase of life insurance for officers' benefit plan -- (1,158)
Payment of dividends (1,103) (1,096)
-------- --------
Net cash from (used by) financing activities (13,215) 1,608
-------- --------
Net decrease in cash and cash equivalents (2,418) (730)
Cash and cash equivalents (bank overdraft)
at beginning of period 3,200 (1,019)
-------- --------
Cash and cash equivalents (bank overdraft) at end of period $ 782 $ (1,749)
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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PENFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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
periods presented have been included. The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates. Operating results for
the three and nine month periods ended May 31, 1999 are not necessarily
indicative of the results that may be expected for the year ending
August 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in Penford
Corporation's ("Penford" or the "Company") annual report on Form 10-K
for the fiscal year ended August 31, 1998.
Certain prior year amounts have been reclassified to conform with
current year presentation. These reclassifications had no effect on
previously reported net income.
2. INCOME TAXES
The effective tax rate for the three and nine months ended May 31, 1999
was 35%, the same as in the prior year. The effective rate is higher
than the federal statutory rate of 34% due primarily to the effects of
state income taxes.
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3. EARNINGS PER COMMON SHARE
The following table presents the computation of basic and diluted
earnings per share under SFAS No. 128 (dollars in thousands, except per
share data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31 May 31
------ ------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income from continuing operations $ 703 $ 1,214 $ 4,257 $ 5,533
========== ========== ========== ==========
Net income (loss) $ 703 $ (4,552) $ 4,257 $ (3,040)
========== ========== ========== ==========
Weighted average common
shares outstanding 7,416,605 7,314,759 7,389,852 7,291,809
Net effect of dilutive
stock options 284,893 230,848 377,702 242,192
---------- ---------- ---------- ----------
Weighted average common shares
outstanding assuming dilution 7,701,498 7,545,607 7,767,554 7,534,001
========== ========== ========== ==========
Continuing operations:
Earnings per common share $ 0.09 $ 0.17 $ 0.58 $ 0.76
========== ========== ========== ==========
Earnings per common share,
assuming dilution $ 0.09 $ 0.16 $ 0.55 $ 0.74
========== ========== ========== ==========
Net income (loss):
Earnings (loss) per common share $ 0.09 $ (0.62) $ 0.58 $ (0.42)
========== ========== ========== ==========
Earnings (loss) per common share,
assuming dilution $ 0.09 $ (0.60) $ 0.55 $ (0.40)
========== ========== ========== ==========
</TABLE>
4. RESTRUCTURE COSTS
On March 22, 1999, the Company announced a plan to reduce the
administrative workforce at Penford Products Co. by approximately 15% in
an effort to align operating costs with current market conditions. The
workforce reduction of approximately 20 employees was implemented
through a combination of a voluntary retirement incentive program and
involuntary layoffs.
In connection with the workforce reduction plan, restructuring costs
totaling $1.6 million were charged to continuing operations in the third
quarter of fiscal 1999. The restructuring costs included an increase to
the actuarial liability of the Company's retirement pension plan,
severance and other actual and estimated expenses related to the overall
workforce reduction plan. The Company has disbursed approximately
$210,000 of the total charge as of May 31, 1999. In addition, the
Company's retirement plan will fund approximately 60% of the total
charge with existing assets.
Prior year restructure costs of $1.9 million are described under
discontinued operations below.
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<PAGE> 8
5. DISCONTINUED OPERATIONS
At the end of fiscal 1998, Penford completed a tax-free distribution to
its shareholders of the Company's pharmaceuticals subsidiary, PPCO. On
August 31, 1998, Penford shareholders of record on August 10, 1998
received PPCO shares on a basis of three shares of PPCO for every two
shares of the Company. Prior to the spin-off, PPCO entered into a $15
million revolving credit facility that is guaranteed by Penford. As of
May 31, 1999 there was $3.0 million owed by PPCO under the facility.
The consolidated financial statements of the Company reflect the
spin-off of PPCO. Accordingly, PPCO's operating results and cash flows
for the three and nine months ended May 31, 1998 have been excluded from
their respective captions in the accompanying financial statements.
These items have been reported as Loss from Discontinued Operations
(including disposal costs) and Net Cash Flows Used by Discontinued
Operations.
In the third quarter of the prior fiscal year, PPCO generated total
revenues and pre-tax losses of $7.9 million and $3.6 million,
respectively. For the nine month period ended May 31, 1998, total
revenues and pre-tax losses of PPCO were $21.4 million and $7.9 million,
respectively. Included in PPCO's pre-tax losses in both periods were
approximately $1.7 million in costs incurred in connection with a
previously planned initial public offering.
In addition to PPCO's operating results, the prior year loss from
discontinued operations included one time charges totaling $5.3 million
($3.4 million after tax, or $0.45 per share) reflecting the disposal
costs of separating the two businesses which approximated $3.3 million
and estimated operating losses through the spin-off date, August 31,
1998, which approximated $2.0 million.
Restructuring costs of $1.9 million were charged to continuing
operations reflecting other costs associated with implementing the
spin-off including adjustments to the corporate infrastructure and other
facilities charges.
8
<PAGE> 9
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPIN-OFF OF PENWEST PHARMACEUTICALS CO.
At the end of fiscal 1998, Penford effected a tax-free distribution to its
shareholders of the Company's pharmaceuticals subsidiary, Penwest
Pharmaceuticals Co. ("PPCO"). The distribution was completed on August 31, 1998
representing the culmination of the plan to foster the growth potential of the
Company's specialty paper chemical and food ingredients businesses, and
separately, the pharmaceuticals business.
PPCO's operating results from the prior fiscal year are reflected as
discontinued operations. For the quarter ended May 31, 1998, PPCO generated
total revenues and pre-tax losses of $7.9 million and $3.6 million,
respectively. Total revenues and pre-tax losses for the nine months ended May
31, 1998 were $21.4 million and $7.9 million, respectively.
In fiscal 1998, the Company recorded certain restructuring costs consisting
primarily of estimated costs associated with implementing the spin-off including
adjustments to the corporate office infrastructure, severance costs and other
facilities charges. The obligation related to the spin-off as of August 31, 1998
of approximately $1.8 million has been paid as of May 31, 1999. Prior to the
spin-off, PPCO entered into a $15 million revolving credit facility, which is
guaranteed by Penford. As of May 31, 1999 there was $3.0 million owed by PPCO
under the facility.
The financial results discussed below are comprised of the Company's operations
in the carbohydrate-based specialty paper chemical and food ingredients
businesses.
RESULTS OF OPERATIONS
Income from continuing operations for the quarter ended May 31, 1999 was
$703,000, or $0.09 per share assuming dilution, compared to income from
continuing operations of $1.2 million, or $0.16 per share assuming dilution, for
the corresponding period a year ago. Income from continuing operations for the
nine months ended May 31, 1999 was $4.3 million, or $0.55 per share assuming
dilution, compared to $5.5 million, or $0.74 per share assuming dilution, in the
corresponding period in fiscal 1998. The three and nine month periods in fiscal
1999 include $1.6 million ($1.0 million after-tax, or $0.13 per share assuming
dilution) of restructure costs primarily related to the previously announced
plan to reduce the administrative workforce at Penford Products Co. The three
and nine month periods in fiscal 1998 include $1.9 million ($1.3 million
after-tax, or $0.17 per share assuming dilution) of restructure costs associated
with implementing the spin-off of PPCO described above.
Net income for the quarter ended May 31, 1999 was $703,000, or $0.09 per share
assuming dilution, compared to a net loss of $4.6 million, or $0.60 per share
assuming
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<PAGE> 10
dilution, for the corresponding period a year ago. Net income for the nine
months ended May 31, 1999 was $4.3 million, or $0.55 per share assuming
dilution, compared to a net loss of $3.0 million, or $0.40 per share assuming
dilution, in the corresponding period in fiscal 1998. Net income for the quarter
and nine months ended May 31, 1998 include the losses from the discontinued
operations of PPCO.
Total company sales decreased in the third quarter and first nine months of
fiscal 1999 to $39.2 million and $115.1 million, respectively, representing
decreases of 2.7% and 6.3%, respectively, from the corresponding periods in the
prior year. The decrease in sales was attributed to lower sales volumes at
Penford Products Co., the Company's specialty paper chemicals business. The
North American paper markets served by Penford Products Co. stabilized during
the current fiscal quarter, but continued to be negatively affected by the
import imbalance stemming from Asian and worldwide economic conditions.
On a consolidated basis, strong sales volume at Penford Food Ingredients Co.
(PFI) driven by continued market penetration of specialty potato-based food
starches lessened the impact of the volume and revenue declines at Penford
Products Co. Sales volume of specialty starches for food applications increased
by approximately 68% and 50% for the three and nine month periods ended May 31,
1999 compared to the same periods a year ago.
Gross margin in the third quarter declined to 26.1% from 28.1% in the
corresponding quarter a year earlier. Gross margin for the nine months ended May
31, 1999 decreased to 25.8% from 27.8% in the same period last year. The
decreases in gross margin percentage were primarily the result of increased
margin pressure from competitive pricing in the North American paper markets
served by Penford Products Co. and lower capacity utilization related to its
specialty carbohydrate-based paper chemicals. However, Penford Products Co.
experienced modest improvement in operating rates and a shift in product mix
towards higher value-added paper forming products during the third fiscal
quarter. Increased sales and production of higher margin specialty food-grade
starches at PFI partially offset the gross margin decrease.
Operating expenses from continuing operations for the third quarter increased by
$173,000, or 2.9%, compared to the prior year period. For the nine months ended
May 31, 1999, operating expenses decreased $1.8 million, or 9.4%. The increase
in the third quarter reflects efforts in research and development at Penford
Products Co. and increases in marketing activities and product development at
PFI. The year-to-date decrease in operating expenses is primarily due to the
results of company-wide cost containment efforts and reductions in corporate
office expenses associated with the spin-off of PPCO.
As noted above, in connection with the workforce reduction program,
restructuring costs totaling $1.6 million were charged to continuing operations
in the third quarter. The administrative workforce at Penford Products Co. was
reduced by approximately 15%, consistent with the plan announced in March, 1999.
The restructuring costs included an increase in the actuarial liability of the
Company's retirement pension plan, severance and other actual and estimated
expenses related to the overall workforce reduction plan. Approximately $210,000
of the total charge has been paid as of the end of the third fiscal
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year, and approximately 60% of the total charge will be funded through the
Company's retirement plan with existing assets.
Net interest expense for the third quarter and first nine months of fiscal 1999
was $1.3 million and $4.1 million, respectively, compared to $1.5 million and
$4.4 million in the corresponding periods a year ago. The decreases are a result
of lower debt levels in the current year.
The effective tax rate for the third quarter and first nine months of fiscal
1999 was 35.0%, compared to 35.0% in the corresponding periods a year ago. The
effective tax rate is higher than the federal statutory rate of 34% due to the
impact of state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1999, Penford had working capital of $15.1 million, an unsecured
credit agreement of $75.0 million under which there was $40.0 million
outstanding, and several uncommitted lines of credit aggregating $15.0 million
under which there were no amounts outstanding. The Company used available cash
and operating cash flow primarily to pay down $11.8 million of debt and to
finance investing activities of $12.6 million during the first nine months of
fiscal 1999.
Cash flow from continuing operations for the nine months ended May 31, 1999 was
$24.5 million compared to $10.0 million in the corresponding period of the prior
year. The increase in operating cash flow is due to fluctuations in the
components of working capital including decreases in accounts receivable and
inventory.
The Company began paying a quarterly cash dividend of $0.05 per share in 1992
and has paid such dividends each quarter since.
In November of 1998, the Board of Directors authorized a stock repurchase
program for the purchase of up to 500,000 shares of the outstanding stock of the
company. The Company repurchased 70,800 shares of its common stock in the first
nine months of fiscal 1999 for approximately $919,000.
Net additions to property, plant and equipment during the nine months ended May
31, 1999 were $13.1 million. Third quarter additions of $3.7 million were
primarily for various improvements to the Penford Products Co. manufacturing
facility in Cedar Rapids, Iowa and equipment additions at the PFI facility in
Plover, Wisconsin, and to a lesser extent, computer upgrades. Capital
expenditures for the Company's specialty paper chemicals and food ingredients
businesses for fiscal 1999 are expected to be approximately $15 million,
including several new project initiatives. See "Forward-looking Statements."
YEAR 2000
The Company has undergone an assessment of its information systems for
compliance with the Year 2000 issue. The assessment and resulting remediation
efforts are addressing all facets of the Company including plant automation
software including
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<PAGE> 12
embedded controllers and process control devices, materials management,
engineering, laboratory, business systems and general user software. In
connection with the Company's ongoing capital program, and as part of the Year
2000 remediation, a series of technology related expenditures are planned, many
of which have been, or are currently being implemented. The Company anticipates
that internal Year 2000 compliance issues will be substantially remediated by
August, 1999. See "Forward-looking Statements."
It is anticipated that total expenses for Year 2000 remediation efforts may
range from $500,000 to $700,000, approximately 80% of which had been expended as
of May 31, 1999. See "Forward-looking Statements."
The Company does not anticipate significant delays in finalizing internal Year
2000 remediation efforts. See "Forward-looking Statements." However, third
parties having a material relationship with the Company may be a potential risk
based on their Year 2000 preparedness, which is not within the Company's
control. The Company has identified and evaluated the Year 2000 preparedness of
critical customers, suppliers and service providers. Based on the results of the
review, no alternative courses of action to the initial remediation plan were
warranted.
Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. As noted above, the Company has
not yet fully completed all necessary phases of the Year 2000 program. The
failure to correct a material Year 2000 problem could result in an interruption
in, or a failure of certain normal business activities. Such failures could
adversely affect the Company's results of operations, liquidity and financial
condition. In addition, disruptions in the economy generally resulting from Year
2000 issues could also materially adversely affect the Company. Although there
is uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the full extent of the readiness of critical third-parties, and
the Company is unable to determine all of the consequences of Year 2000
failures, the impact on the Company is not expected to be material.
The Company has contingency plans for its critical applications. These
contingency plans involve, among other actions, manual workarounds, increasing
inventories, and adjusting staffing strategies.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements concerning the estimated capital
expenditures, estimated expenses related to year 2000 issues and year 2000
preparedness, the information in Item 3 of this report and the anticipated
results of the Company. Certain forward-looking statements are identified with a
cross-reference to this section. There are a variety of factors which could
cause actual events or results to differ materially from those projected in the
forward-looking statements, including without limitation, competition; the
possibility of interruption of business activities due to equipment problems,
accidents, strikes, weather or other factors; product development risk; changes
in corn and other raw material prices; changes in general economic conditions or
developments with respect to specific industries or customers affecting
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demand for the Company's products; unanticipated costs, expenses or third party
claims; the risk that results may be effected by construction delays, cost
overruns, technical difficulties, nonperformance by contractors or changes in
capital improvement project requirements or specifications; the possibility of
technical difficulties or cost overruns in the Company's Year 2000 compliance
program; or other unforeseen developments in the industries in which the Company
operates. Accordingly, there can be no assurance that future activities or
results will be as anticipated.
Forward-looking statements are based on the estimates and opinions of management
on the date the statements are made. The Company assumes no obligation to update
any forward-looking statements if circumstances or management's estimates or
opinions should change.
Additional information, which could affect the Company's financial results, is
included in the Company's 1998 Annual Report to Shareholders and its Form 10-K
for the fiscal year ended August 31, 1998 on file with the Securities and
Exchange Commission.
Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
The market risk associated with the Company's market risk sensitive instruments
is the potential loss from adverse changes in interest rates and commodities
prices.
The Company is unaware of any material changes to the market risk disclosures
referred to in the Company's Report on Form 10-K for the year ended August 31,
1998.
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PART II - OTHER INFORMATION
Item 1 Legal Proceedings
The Registrant is unaware of any material developments in the legal
proceedings referred to in the Registrant's Report on Form 10-K for the
fiscal year ended August 31, 1998.
Item 2 Changes in Securities
Not applicable
Item 3 Defaults Upon Senior Securities
Not applicable
Item 4 Submission of Matters to a Vote of Security Holders
Not applicable
Item 5 Other Information
Not applicable
Item 6 Exhibits and Reports on Form 8-K.
(a) Exhibits:
<TABLE>
<S> <C>
(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) Articles of Amendment to Restated Articles of Incorporation of
Registrant (filed as an exhibit to Registrant's Form 10-K for
fiscal year ended August 31, 1997)
(3.3) Bylaws of Registrant as amended and restated as of October 20,
1997 (filed as an exhibit to Registrant's Form 10-K for fiscal
year ended August 31, 1997)
(4.1) Amended and Restated Rights Agreement dated as of April 30,
1997 (filed as an Exhibit to Registrant's Amendment to
Registration Statement on Form 8-A/A dated May 5, 1997)
(10.1) Senior Note Agreement among Penford Corporation 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) Loan Agreement among Penford Corporation 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)
(10.3) Penford Corporation 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)
</TABLE>
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<TABLE>
<S> <C>
(10.4) Penford Corporation 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)
(10.5) Penford Corporation 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)
(10.6) Change of Control Agreements between Penford Corporation and
Messrs. Cook, Widmaier, Talley, Horn, and Rydzewski (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)
(10.7) Penford Corporation 1993 Non-Employee Director Restricted Stock
Plan (filed as an Exhibit to Registrant's Form 10-Q for the
quarter ended November 30, 1993)
(10.8) Note Agreement dated as of October 1, 1994 among Penford
Corporation, 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)
(10.9) Penford Corporation 1994 Stock Option Plan as amended and
restated as of January 21, 1997 (filed on Form S-8 dated March
17, 1997)
(10.10) Penford Corporation 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)
(10.11) Separation Agreement dated as of July 31, 1998 between
Registrant and Penwest Pharmaceuticals Co. (filed as an exhibit
to Registrant's Form 8-K dated August 31, 1998)
(10.12) Services Agreement dated as of July 31, 1998 between Registrant
and Penwest Pharmaceuticals Co. (filed as an exhibit to
Registrant's Form 8-K dated August 31, 1998)
(10.13) Employee Benefits Agreement dated as of July 31, 1998 between
Registrant and Penwest Pharmaceuticals Co. (filed as an exhibit
to Registrant's Form 8-K dated August 31, 1998)
(10.14) Tax Allocation Agreement dated as of July 31, 1998 between
Registrant and Penwest Pharmaceuticals Co. (filed as an exhibit
to Registrant's Form 8-K dated August 31, 1998)
(10.15) Excipient Supply Agreement dated as of July 31, 1998 between
Registrant and Penwest Pharmaceuticals Co. (filed as an exhibit
to Registrant's Form 8-K dated August 31, 1998)
(10.16) Restatement and Exchange Agreement amending the Senior Note
Agreement among Penford Corporation as Borrower and Mutual of
Omaha and Affiliates as lenders, dated as of August 1, 1998
(filed as an exhibit to Registrant's Form 10-K for the fiscal
year ended August 31, 1998)
(10.17) Guaranty Agreement dated as of August 1, 1998 by Penford
Products Co., a wholly-owned subsidiary of Registrant, of the
Restatement and Exchange Agreement among Registrant and Mutual
of Omaha and
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C>
Affiliates (filed as an exhibit to Registrant's Form 10-K for
the fiscal year ended August 31, 1998).
(10.18) Intercreditor Agreement dated as of August 1, 1998 among the
parties to the Credit Agreement dated July 2, 1998 and the
parties to the Senior Note Agreements dated as of August 1,
1998 (filed as an exhibit to Registrant's Form 10-K for the
fiscal year ended August 31, 1998).
(10.19) Restatement and Exchange Agreement amending the Note Agreement
among Penford Corporation as Borrower, and Principal Mutual
Life Insurance Company and TMG Life Insurance Company as
lenders, dated as of August 1, 1998 (filed as an exhibit to
Registrant's Form 10-K for the fiscal year ended August 31,
1998).
(10.20) Guaranty Agreement dated as of August 1, 1998 by Penford
Products Co., a wholly-owned subsidiary of Registrant, of the
Restatement and Exchange Agreement among Registrant, Principal
Mutual Life Insurance Company, and TMG Life Insurance Company
(filed as an exhibit to Registrant's Form 10-K for the fiscal
year ended August 31, 1998)
(10.21) Credit Agreement dated as of July 2, 1998 among Penford
Corporation and Penford Products Co. as borrowers, and certain
commercial lending institutions as the lenders, and The Bank of
Nova Scotia, as agent for the lenders (filed as an exhibit to
Registrant's Form 10-K for the fiscal year ended August 31,
1998)
(10.22) Specific Guarantee made by Penford Corporation in favor of The
Bank of Nova Scotia (the "Bank") in respect to the indebtedness
and liability of Penwest Pharmaceuticals Co. to the Bank under
a letter loan agreement dated as of July 2, 1998 (filed as an
exhibit to Registrant's Form 10-K for the fiscal year ended
August 31, 1998)
(10.23) Specific Guarantee made by Penford Products Co. in favor of The
Bank of Nova Scotia (the "Bank") in respect to the indebtedness
and liability of Penwest Pharmaceuticals Co. to the Bank under
a letter loan agreement dated as of July 2, 1998 (filed as an
exhibit to Registrant's Form 10-K for the fiscal year ended
August 31, 1998)
(10.24) Revolving Term Credit Facility in Favor of Penwest
Pharmaceuticals Co. as borrowers and The Bank of Nova Scotia as
lender dated as of July 2, 1998 (filed as an exhibit to
Registrant's Form 10-K for the fiscal year ended August 31,
1998)
27 Financial Data Schedule
</TABLE>
(b) There were no filings on Form 8-K in the quarter ended May 31, 1999.
16
<PAGE> 17
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.
Penford Corporation
----------------------------------------
(Registrant)
July 12, 1999 /s/ Jeffrey T. Cook
- ------------- ----------------------------------------
Date Jeffrey T. Cook
President and
Chief Executive Officer (Principal
Executive Officer)
July 12, 1999 /s/ Keith T. Fujinaga
- ------------- ----------------------------------------
Date Keith T. Fujinaga
Corporate Controller
(Chief Accounting Officer)
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT MAY 31, 1999, THE CONDENSED CONSOLIDATED
STATEMENT OF INCOME AT MAY 31, 1999, AND THE CONDENSED CONSOLIDATED STATEMENT OF
CASH FLOW AT MAY 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> MAR-01-1999
<PERIOD-END> MAY-31-1999
<CASH> 782
<SECURITIES> 0
<RECEIVABLES> 18,789
<ALLOWANCES> 0
<INVENTORY> 11,658
<CURRENT-ASSETS> 36,101
<PP&E> 110,915
<DEPRECIATION> 0
<TOTAL-ASSETS> 175,669
<CURRENT-LIABILITIES> 21,001
<BONDS> 0
0
0
<COMMON> 9,196
<OTHER-SE> 48,956
<TOTAL-LIABILITY-AND-EQUITY> 175,669
<SALES> 39,226
<TOTAL-REVENUES> 39,226
<CGS> 29,008
<TOTAL-COSTS> 29,008
<OTHER-EXPENSES> 7,793
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,343
<INCOME-PRETAX> 1,082
<INCOME-TAX> 379
<INCOME-CONTINUING> 703
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 703
<EPS-BASIC> 0.09
<EPS-DILUTED> 0.09
</TABLE>
