UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended AUGUST 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission File Number 0-11488
PENFORD CORPORATION
SAVINGS AND STOCK OWNERSHIP PLAN
- -------------------------------------------------------------------------------
(Full title of the plan)
PENFORD CORPORATION
777 -- 108TH AVENUE N.E., STE. 2390
BELLEVUE, WASHINGTON 98004-5193
- -------------------------------------------------------------------------------
(Name of issuer and address of issuer's
principal executive office)
PENFORD CORPORATION SAVINGS AND STOCK OWNERSHIP PLAN
INDEX
Page No.
-------
Financial Statements 3-17
Signatures 18
EXHIBIT
Exhibit 23: Consent of Independent Auditors 19
FINANCIAL STATEMENTS
AND SUPPLEMENTAL SCHEDULES
Penford Corporation Savings and Stock Ownership Plan
August 31, 2001 and 2000 and for the Year Ended August 31, 2001
with Report of Independent Auditors
Penford Corporation Savings and Stock Ownership Plan
Financial Statements and Supplemental Schedules
August 31, 2001 and 2000 and for the Year Ended August 31, 2001
CONTENTS
Report of Independent Auditors............................................1
Audited Financial Statements
Statements of Net Assets Available for Benefits...........................2
Statement of Changes in Net Assets Available for Benefits.................3
Notes to Financial Statements.............................................4
Supplemental Schedules
Schedule H, Line 4(i) -- Schedule of Assets (Held At End of Year)........11
Schedule H, Line 4(j) -- Schedule of Reportable Transactions.............12
Report of Independent Auditors
Administrative Committee
Penford Corporation Savings and Stock Ownership Plan
We have audited the accompanying statements of net assets available for benefits
of the Penford Corporation Savings and Stock Ownership Plan as of August 31,
2001 and 2000, and the related statement of changes in net assets available for
benefits for the year ended August 31, 2001. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
August 31, 2001 and 2000, and the changes in its net assets available for
benefits for the year ended August 31, 2001, in conformity with accounting
principles generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedules of assets
(held at end of year) as of August 31, 2001, and reportable transactions for the
year then ended, are presented for purposes of additional analysis and are not a
required part of the financial statements but are supplementary information
required by the Department of Labor's Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974. These
supplemental schedules are the responsibility of the Plan's management. The
supplemental schedules have been subjected to the auditing procedures applied in
our audits of the financial statements and, in our opinion, are fairly stated in
all material respects in relation to the financial statements taken as a whole.
Seattle, Washington ERNST & YOUNG LLP
December 21, 2001
Penford Corporation Savings and Stock Ownership Plan
Statements of Net Assets Available for Benefits
AUGUST 31
2001 2000
----------- -----------
ASSETS
Investments, at fair value:
Common trust funds $13,515,046 $14,660,202
Common stock 12,350,344 14,434,582
Participant loans 264,606 302,102
----------- -----------
26,129,996 29,396,886
Receivables:
Employer contributions 176,889 579,894
Due from broker for securities sold 45,085 102,303
Accrued interest and dividends 43,480 45,025
----------- -----------
265,454 727,222
----------- -----------
Total assets 26,395,450 30,124,108
LIABILITIES
Accrued expenses 39,188 56,000
Due to broker for securities purchased 127,345 25,559
----------- -----------
Net assets available for benefits $26,228,917 $30,042,549
=========== ===========
See accompanying notes.
2
Penford Corporation Savings and Stock Ownership Plan
Statement of Changes in Net Assets Available for Benefits
Year Ended August 31, 2001
ADDITIONS
Investment income:
Interest and dividends $ 263,395
Contributions:
Employer 747,996
Participants 1,518,246
------------
2,266,242
------------
Total additions 2,529,637
DEDUCTIONS
Net depreciation in fair value of investments 4,249,691
Benefits paid to participants 1,913,071
Administrative expenses 180,507
------------
Total deductions 6,343,269
------------
Net decrease (3,813,632)
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 30,042,549
------------
End of year $ 26,228,917
============
See accompanying notes.
3
Penford Corporation Savings and Stock Ownership Plan
Notes to Financial Statements
August 31, 2001
1. DESCRIPTION OF THE PLAN
The following description of the Penford Corporation Savings and Stock Ownership
Plan (the Plan) provides only general information. Participants should refer to
the actual Plan document or the Summary Plan Description for a more complete
description of the Plan's provisions. Copies are available from the Plan's
Administrative Committee.
GENERAL
The Plan is a defined-contribution plan available to all U.S. employees,
including part-time employees, who have worked a specified period of time for
Penford Corporation (the Company). Employees who have completed one month of
service with the Company are eligible to participate in the Plan. Prior to March
1, 2001, the service requirement was three months. The Plan was created
effective September 1, 1984. It is subject to the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA).
CONTRIBUTIONS
Through August 31, 2001, participants could contribute a maximum of 12% of their
eligible annual compensation. Participants may elect to invest their
contribution in any of the Plan's fund options, with the exception of the
Penwest Pharmaceuticals Co. (PPCO) Stock Fund. Following the initial investment
in the PPCO Stock Fund on September 1, 1998, which was a result of the tax-free
distribution of the Company's pharmaceuticals subsidiary, Penwest
Pharmaceuticals Co., no additional investments are allowed to this fund. At any
time, but limited to once per month, participants have the opportunity to change
their investment option previously elected.
Until March 1, 2001, the Company contributed 75% of the first 6% of base
compensation that a participant contributed to the Plan, and the match was made
in Company common stock. Beginning on March 1, 2001, the Plan provides a 100%
match on the first 3% of salary deferrals and a 50% match on the next 3% up to a
maximum of 6% of the employee's contribution. Effective March 1, 2001, the match
dollars are now invested in the funds to which the participant directs his
contributions. The Company may also make annual discretionary profit-sharing
contributions to the Plan. Profit-sharing contributions are allocated based on
participant compensation. There were no profit-sharing contributions paid to the
Plan for fiscal year 2001. Forfeitures are used to reduce employer contributions
to the Plan for the next Plan year.
Effective September 1, 2001, participants may contribute up to 16% of their
eligible annual compensation.
4
Penford Corporation Savings and Stock Ownership Plan
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
PARTICIPANT ACCOUNTS
Individual accounts are maintained for all Plan participants. These accounts
reflect participants' contributions and related Company matching and
profit-sharing contributions to the Plan as well as allocations of earnings or
losses on the Plan's investments. Allocations of Plan earnings are based on each
participant's account balance.
VESTING
Participants are immediately vested in their contributions, plus actual earnings
thereon. Through August 31, 2001, Company matching and profit-sharing
contributions and related earnings vested in accordance with the following
schedule:
PERCENT
CREDITED SERVICE VESTED
- ---------------- -------
Less than one year 0%
One year 20%
Two years 40%
Three years 60%
Four years 80%
Five years or more 100%
In the event of disability, attainment of age 65, or death, the participant is
fully vested.
Participants employed or reemployed with the Company on or after September 1,
2001 are immediately vested in employer matching contributions, plus actual
earnings thereon. Participants who have terminated employment prior to September
1, 2001 will remain under the previous vesting schedule with respect to employer
matching contributions.
5
Penford Corporation Savings and Stock Ownership Plan
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
PAYMENT OF BENEFITS
Distributions to terminated participants for vested account balances are made in
cash, unless elected to be made in Penford Corporation common stock, as soon as
practicable after termination. Participants are eligible for distribution of
100% of their vested account balance, including both participant and employer
contributions, as soon as practicable after their normal or postponed retirement
date, at death, or at total disability, as defined by the Plan document.
Participants with a vested balance of $5,000 or more may elect to maintain their
account balance in the Plan until otherwise required to receive a distribution.
PARTICIPANT LOANS
Participants may borrow from their fund accounts a minimum of $1,000 up to a
maximum equal to the lesser of $50,000 or 50% of their vested account balance.
Loan terms range from 1 to 5 years or up to 15 years for the purchase of a
primary residence. The loans are secured by the balance in the participant's
account and bear interest at a rate commensurate with local prevailing rates as
determined by the Plan Administrative Committee. Principal and interest are paid
ratably through payroll deductions.
PLAN TERMINATION
Although the Company has not expressed any intent to do so, it has the right
under the Plan to discontinue its contributions at any time and to terminate the
Plan subject to the provisions of ERISA. In the event of Plan termination,
participants will become 100% vested in their accounts.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accounting records of the Plan are maintained on the accrual basis of
accounting.
6
Penford Corporation Savings and Stock Ownership Plan
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT VALUATION AND INCOME RECOGNITION
Assets of the Plan are invested in nine funds, including seven common trust
funds and two common stock funds. The common stock funds are comprised of the
Company's common stock and the common stock of PPCO to the extent participants
received PPCO shares in connection with the spin-off of PPCO in 1998. The unit
value of each common trust fund is stated at fair value, determined on a daily
basis by reference to the market values of the underlying assets.
Investments in common stock are stated at fair value based on closing market
prices on the last business day of the year.
Participant loans are recorded at their outstanding balances, which approximate
fair value.
Purchases and sales of investments are recorded on the trade dates. Interest
income is recorded on the accrual basis. Dividends are recorded on the
ex-dividend date.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
RISKS AND UNCERTAINTIES
The Plan provides for various investment options. Investment securities are
exposed to various risks, such as interest rate, market, and credit. Due to the
level of risk associated with certain investment securities and the level of
uncertainty related to changes in the value of investment securities, it is at
least reasonably possible that changes in risks in the near term would
materially affect the value of participants' account balances, and the amounts
reported in the statements of net assets available for benefits and the
statement of changes in net assets available for benefits.
7
Penford Corporation Savings and Stock Ownership Plan
Notes to Financial Statements (continued)
3. INVESTMENTS
Individual investments whose fair value was in excess of 5% of Plan net assets
at year-end were as follows:
AUGUST 31
2001 2000
--------- ----------
Penford Corporation common stock* $6,475,962 $9,674,227
Penwest Pharmaceuticals Co. common stock* 5,874,382 4,760,355
Frank Russell Trust Company Commingled Employee
Benefit Funds Trust Short-Term Investment Fund 2,288,487 2,102,968
Frank Russell Trust Company Commingled Employee
Benefit Funds Trust Global Aggressive Balanced Fund 6,098,580 6,738,399
Frank Russell Trust Company Commingled Employee
Benefit Funds Trust Tactical Asset Allocation Fund 2,217,927 2,317,839
Frank Russell Trust Company Commingled Employee
Benefit Funds Trust Global Equity Fund 2,585,886 3,500,996
*Nonparticipant directed
During the year ended August 31, 2001, the Plan's investments (including
investments bought and sold, as well as held, during the year) depreciated in
fair value as determined by quoted market prices as follows:
NET REALIZED
AND UNREALIZED
DEPRECIATION
IN FAIR VALUE
OF INVESTMENTS
--------------
Common trust funds $(1,885,602)
Common stock (2,364,089)
-----------
$(4,249,691)
===========
8
Penford Corporation Savings and Stock Ownership Plan
Notes to Financial Statements (continued)
4. NONPARTICIPANT-DIRECTED INVESTMENTS
The Penford Corporation Stock Fund and the PPCO Stock Fund both contain amounts
in which participants are not yet vested and, therefore, cannot be directed into
other investment funds by the participants. As the breakdown between amounts
that are participant directed and nonparticipant directed cannot be readily
determined, the funds are considered to be nonparticipant directed. Information
about the net assets and the significant components of changes in net assets
related to the nonparticipant-directed investments is as follows:
AUGUST 31
2001 2000
----------- -----------
Investments, at fair value:
Common trust funds $ 182,167 $ 569,012
Penford Corporation common stock 6,475,962 9,674,227
Penwest Pharmaceuticals Co. common stock 5,874,382 4,760,355
Employer contributions receivable 176,889 579,894
Due from broker for securities sold 45,085 --
Accrued interest and dividends 36,716 35,171
----------- -----------
$12,791,201 $15,618,659
=========== ===========
YEAR ENDED
AUGUST 31,
2001
-----------
Changes in net assets:
Contributions:
Employer $ 589,079
Participants 147,094
Interfund transfers 1,227,673
Interest and dividends 85,066
Net depreciation in fair value of investments (2,364,089)
Benefits paid to participants (2,512,281)
-----------
$(2,827,458)
===========
9
Penford Corporation Savings and Stock Ownership Plan
Notes to Financial Statements (continued)
5. RECONCILIATION TO FORM 5500
The following provides a reconciliation of net assets available for benefits per
the financial statements to the Form 5500:
AUGUST 31
2001 2000
----------- -----------
Net assets available for benefits per the financial
statements $26,228,917 $30,042,549
Less: Benefit claims payable per Form 5500 46,106 35,118
----------- -----------
Net assets available for benefits per Form 5500 $26,182,811 $30,007,431
=========== ===========
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500:
YEAR ENDED
AUGUST 31,
2001
-----------
Benefits paid to participants per the financial statements $ 1,913,071
Less: Benefit claims payable at the beginning of the year per
Form 5500 (35,118)
Plus: Benefit claims payable at the end of the year per Form 5500 46,106
-----------
Benefits paid to participants per Form 5500 $ 1,924,059
===========
Benefit claims payable are recorded on the Form 5500 for benefit claims that
have been processed and approved for payment prior to year-end but are not
recorded in the financial statements until benefit claims are paid.
6. INCOME TAX STATUS
The Plan has received a determination letter from the Internal Revenue Service
dated December 13, 1995, stating that the Plan is qualified under Section 401(a)
of the Internal Revenue Code (the Code) and, therefore, the related trust is
exempt from taxation. Subsequent to this issuance of the determination letter,
the Plan was amended. Once qualified, the Plan is required to operate in
conformity with the Code to maintain its qualification. The plan administrator
believes the Plan is being operated in compliance with the applicable
requirements of the Code and, therefore, believes that the Plan, as amended, is
qualified and the related trust is tax exempt.
10
SUPPLEMENTAL SCHEDULES
Penford Corporation Savings and Stock Ownership Plan
Schedule H, Line 4(i) -- Schedule of Assets (Held At End of Year)
EIN: 91--1221360
Plan Number: 003
August 31, 2001
(c)
(b) DESCRIPTION OF INVESTMENT
IDENTITY OF ISSUE, INCLUDING MATURITY RATE,
BORROWER, LESSOR, OR RATE OF INTEREST, (d) (e)
(a) SIMILAR PARTY PAR, OR MATURITY VALUE COST CURRENT VALUE
- -----------------------------------------------------------------------------------------------------
COMMON TRUST FUNDS
* Frank Russell Trust 2,288,487 units of the Commingled
Company Employee Benefit Funds Trust
Short-Term Investment Fund $ (1) $2,288,487
* Frank Russell Trust 275,953 units of the Commingled
Company Employee Benefit Funds Trust
Global Aggressive Balanced Fund (1) 6,098,580
* Frank Russell Trust 4,370 units of the Commingled
Company Employee Benefit Funds Trust
Growth Fund (1) 129,400
* Frank Russell Trust 7,923 units of the Commingled
Company Employee Benefit Funds Trust
Small Capitalization Fund (1) 149,272
* Frank Russell Trust 2,295 units of the Commingled
Company Employee Benefit Funds Trust
All International Fund (1) 45,494
* Frank Russell Trust 78,957 units of the Commingled
Company Employee Benefit Funds Trust
Tactical Asset Allocation Fund (1) 2,217,927
* Frank Russell Trust 87,955 units of the Commingled
Company Employee Benefit Funds Trust
Global Equity Fund (1) 2,585,886
------------
13,515,046
COMMON STOCK
* Penford Corporation 602,976 common shares 8,045,369 6,475,962
* Penwest Pharmaceuticals Co. 321,180 common shares 2,672,962 5,874,382
------------
12,350,344
* PARTICIPANT LOANS Interest rates range from 10.3%
to 9.2% 264,606
------------
$26,129,996
============
* Denotes party-in-interest to the Plan.
(1) Cost information is omitted as investments are participant directed.
11
Penford Corporation Savings and Stock Ownership Plan
Schedule H, Line 4(j) -- Schedule of Reportable Transactions
EIN: 91--1221360
Plan Number: 003
For the Year Ended August 31, 2001
(h)
CURRENT
VALUE OF
(a) (c) (d) (g) ASSET ON (i)
IDENTITY OF PARTY INVOLVED (b) PURCHASE SELLING COST OF TRANSACTION NET GAIN
AND DESCRIPTION OF ASSET DESCRIPTION OF TRANSACTION PRICE PRICE ASSETS DATE OR (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Category (iii) -- A series of transactions in excess of 5% of Plan assets.
Frank Russell Trust Company Penford Corporation common stock $ -- $1,591,295 $1,722,807 $1,591,295 $(131,512)
Frank Russell Trust Company Penford Corporation common stock 2,513,353 -- 2,513,353 2,513,353 --
There were no Category (i), (ii), or (iv) reportable transactions during the year ended August 31, 2001.
Columns (e) and (f) have not been presented, as this information is not applicable.
12
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of
1934, the trustees (or other persons who administer the employee benefit plan)
have duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
Penford Corporation Savings and Stock Ownership Plan
February 26, 2002 By: /s/ Jacqueline L. Davidson
--------------------------
Jacqueline L. Davidson
Penford Corporation, Vice President of Finance