-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I4Z3TK/bklfwH1LZ+bnkcHaKi5JWyUodKr4TPJNd4Qg1tyqq2SN7pWeF2pmO+EQe tbnqjgv91VRfWahRLXZ8eQ== 0000891020-99-001180.txt : 19990714 0000891020-99-001180.hdr.sgml : 19990714 ACCESSION NUMBER: 0000891020-99-001180 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990531 FILED AS OF DATE: 19990713 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENFORD CORP CENTRAL INDEX KEY: 0000739608 STANDARD INDUSTRIAL CLASSIFICATION: GRAIN MILL PRODUCTS [2040] IRS NUMBER: 911221360 STATE OF INCORPORATION: WA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11488 FILM NUMBER: 99663740 BUSINESS ADDRESS: STREET 1: 777 108TH N E STE 2390 CITY: BELLEVUE STATE: WA ZIP: 98004-5193 BUSINESS PHONE: 4254626000 MAIL ADDRESS: STREET 1: 777 108TH N E STE 2390 CITY: BELLEVUE STATE: WA ZIP: 98009 FORMER COMPANY: FORMER CONFORMED NAME: PENWEST LTD DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED MAY 31, 1999 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 ------- 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.
Class Outstanding ----- ----------- Common stock, par value $1.00 7,428,694
2 PENFORD CORPORATION AND SUBSIDIARIES INDEX
Page No. -------- 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
2 3 PART I - FINANCIAL INFORMATION Item 1 Financial Statements PENFORD CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)
May 31, 1999 August 31, 1998 ------------ --------------- 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 ========= =========
See accompanying notes to condensed consolidated financial statements. 3 4 PENFORD CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands except per share data)
Three Months Ended May 31 Nine Months Ended May 31 ---------------------------- ---------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- 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 =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements. 4 5 PENFORD CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Dollars in Thousands)
Nine Months Ended May 31 ------------------------ 1999 1998 ---- ---- 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) ======== ========
See accompanying notes to condensed consolidated financial statements. 5 6 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. 6 7 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):
Three Months Ended Nine Months Ended May 31 May 31 ------ ------ 1999 1998 1999 1998 ---- ---- ---- ---- 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) ========== ========== ========== ==========
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. 7 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 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 9 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 10 11 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 11 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 12 13 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. 13 14 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: (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)
14 15 (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
15 16 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
(b) There were no filings on Form 8-K in the quarter ended May 31, 1999. 16 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 EX-27 2 FINANCIAL DATA SCHEDULE
5 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. 3-MOS AUG-31-1999 MAR-01-1999 MAY-31-1999 782 0 18,789 0 11,658 36,101 110,915 0 175,669 21,001 0 0 0 9,196 48,956 175,669 39,226 39,226 29,008 29,008 7,793 0 1,343 1,082 379 703 0 0 0 703 0.09 0.09
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