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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 quarterly period ended May 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to _______________________
Commission File No. 0-11488
PENWEST, LTD.
________________________________________________________________________________
(Exact name of registrant as specified in its charter)
Washington 91-1221360
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(State of Incorporation) (I.R.S. Employer
Identification No.)
777-108th Avenue N.E., Suite 2390, Bellevue, WA 98004-5193
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number (206) 462-6000
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of June 30, 1994.
Class Outstanding
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Common stock, par value $1.00 6,752,875
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PENWEST, LTD. AND SUBSIDIARIES
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets 3
May 31, 1995 and August 31, 1994
Condensed Consolidated Statements of Income 4
Three Months Ended May 31, 1995
and May 31, 1994
Condensed Consolidated Statements of Income 4
Nine Months Ended May 31, 1995 and
May 31, 1994
Condensed Consolidated Statements of Cash Flow 5
Nine Months Ended May 31, 1995 and
May 31, 1994
Notes to Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of 7-8
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 9
SIGNATURES 10
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PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
PENWEST, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
May 31, August 31,
1995 1994
----------- ----------
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents $ 9,920
Receivables 22,955 $ 20,748
Inventories:
Raw materials 3,348 6,074
Work in progress 526 622
Finished goods 10,554 10,038
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14,428 16,734
Other current assets 5,528 4,593
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Total current assets 52,831 42,075
Property, plant and equipment, net 111,556 99,973
Deferred income taxes 9,571 9,545
Other non-current assets 19,216 12,764
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Total assets $193,174 $164,357
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LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Bank overdraft, net $ 635
Accounts payable $ 10,796 8,131
Current portion of long-term debt 4,270 4,100
Accrued liabilities 9,966 7,847
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Total current liabilities 25,032 20,713
Long-term debt 61,600 42,897
Other postretirement benefit 9,907 10,102
Deferred income taxes and other 24,916 23,480
Shareholders' equity:
Common stock 8,586 8,577
Additional paid-in capital 12,545 12,489
Retained earnings 83,846 79,128
Treasury stock (30,637) (29,327)
Note receivable from PENWEST Savings and
Stock Ownership Plan (2,561) (3,340)
Cumulative translation adjustment (60) (362)
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Total shareholders' equity 71,719 67,165
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Total liabilities and
shareholders' equity $193,174 $164,357
======== ========
See accompanying notes to condensed consolidated financial statements.
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PENWEST, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share data)
(Unaudited)
Three Months Nine Months
Ended May 31 Ended May 31
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1995 1994 1995 1994
---- ---- ---- ----
Sales $43,618 $41,347 $128,818 $115,000
Cost of sales 31,153 30,297 93,197 85,240
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Gross margin 12,465 11,050 35,621 29,760
Operating expenses 8,240 7,783 24,177 22,218
------- ------- -------- --------
Income from operations 4,225 3,267 11,444 7,542
Investment income 201 262 362 685
Interest expense (1,327) (915) (3,593) (2,588)
Other 899
------- ------- -------- --------
Income before taxes 3,099 2,614 9,112 5,639
Income taxes 1,099 840 3,202 1,241
------- ------- -------- --------
Net income $ 2,000 $ 1,774 $ 5,910 $ 4,398
======= ======= ======== ========
Weighted average common shares and
equivalents outstanding 6,957,557 7,080,354 7,057,445 7,095,807
Earnings per common share $ 0.29 $ 0.25 $ 0.84 $ 0.62
====== ====== ====== ======
Dividends declared per common share $ 0.05 $ 0.05 $ 0.15 $ 0.15
====== ====== ====== ======
See accompanying notes to condensed consolidated financial statements.
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PENWEST, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Dollars in Thousands)
(Unaudited)
Nine Months
Ended May 31
------------
1995 1994
---- ----
Operating Activities:
Net income $ 5,910 $ 4,398
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 7,597 7,492
Deferred income taxes 793 2,146
Gain on the sale of assets (899)
Foreign currency translation 103
Change in operating assets and liabilities:
Receivables (2,207) (4,734)
Inventories 2,306 (3,767)
Accounts payable and other 4,629 (385)
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Net cash flow from operating activities 18,129 5,253
Investing Activities:
Additions to plant and equipment (20,117) (9,151)
Proceeds from sale of assets 2,500
Other (3,530) 324
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Net cash used by investing activities (21,147) (8,827)
Financing Activities:
Payments on long-term debt (7,512) (13,823)
Proceeds of long-term debt 26,045 16,825
Purchase of treasury stock (1,310) (1,277)
Exercise of stock options 43 52
Purchase of life insurance for officer's benefit plan (2,501) (1,343)
Payment of dividend (1,192) (1,029)
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Net cash from (used by) financing activities 13,573 (595)
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Net increase in cash and equivalents 10,555 (4,169)
Cash and cash equivalents (bank overdraft) at beginning
of period (635) 5,477
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Cash and cash equivalents at end of period $ 9,920 $ 1,308
======= =======
See accompanying notes to condensed consolidated financial statements.
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PENWEST, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation for
the interim periods presented have been included. Operating results
for the three and nine month periods ended May 31, 1995 are not
necessarily indicative of the results that may be expected for the
year ending August 31, 1995. Certain prior year amounts have been
reclassified to conform to the 1995 classification. For further
information, refer to the consolidated financial statements and
footnotes thereto included in PENWEST's annual report on Form 10-K for
the fiscal year ended August 31, 1994.
2. INCOME TAXES
The effective tax rate for the nine-month period ended May 31, 1994
was 22% compared to the statutory rate of 34%. The effective rate was
lower due to a federal tax benefit related to research and development
expenditures recorded during the first quarter of fiscal 1994.
3. DEBT
On December 15, 1994 the Company received the proceeds from a $20
million private placement of debt. The debt has an average fixed
interest rate of 7.97%, with $10 million due on December 15, 1998, and
$10 million due on December 15, 2006. The interest rate on the $10
million due on December 15, 1998 was swapped to a LIBOR-based floating
rate. The new debt agreement includes certain restrictions related to
limitations on indebtedness, minimum net worth, and working capital
ratios, which are similar to restrictions on previously existing debt.
4. SALE OF COGENERATION ASSETS
On December 31, 1994, the power and thermal contracts at the Company's
cogeneration facility in Vancouver, Washington expired. The Company
completed a sale of the turbine and the boilers constituting the
assets of the facility upon expiration of the contracts. A pretax
gain on the sale was recorded in the second quarter of $899,000, or
$0.08 per share, and is shown as other income.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity
PENWEST's cash and cash equivalents were 5.1% of total assets at quarter end.
Long-term debt consists of borrowings under private placements of debt ($40
million), an unsecured term loan agreement ($17.5 million), and two unsecured
notes ($4.0 million and $3.2 million). In addition, $15 million of an
unsecured revolving line of credit was unused and available at May 31, 1995.
Cash flow from operations for the nine months ended May 31, 1995 was $18.1
million compared to $5.3 million in the corresponding period a year ago. The
increase is primarily due to improved profitability, a decrease in receivables
and inventory levels and an increase in accounts payable.
Working capital increased to $27.8 million at May 31, 1995 from $21.4 million
at August 31, 1994 primarily the result of the cash proceeds from the $20
million private placement of debt funded in December 1994.
The Board of Directors declared a $0.05 per share dividend which was paid on
June 2, 1995, to shareholders of record as of May 19, 1995.
In April 1994, the Board of Directors authorized a stock repurchase program for
the purchase of up to 500,000 shares of the outstanding common stock of the
Company. The Company did not purchase any shares during the third quarter.
Capital Resources
Additions to property, plant and equipment during the nine months ended May 31,
1995 were $20.1 million. The additions were primarily for the completion of
the expansion of the Penwest Foods' facility in Richland, Washington, a
capacity conversion at Penford Products, and the completion of laboratory
facilities for the Penwest Pharmaceuticals Group.
Results of Operations
Net income was $2.0 million, or $0.29 per share for the third quarter, compared
to net income of $1.8 million or $0.25 per share for the corresponding period a
year ago. The prior year period included approximately $0.03 per share of
earnings from Pacific Cogeneration, a PENWEST subsidiary whose assets were sold
earlier this fiscal year. Net income for the nine months was $5.9 million, or
$0.84 per share, compared with $4.4 million, or $0.62 per share in the year
earlier period.
Sales increased in the third quarter and the first nine months of fiscal year
1995 to $43.6 million and $128.8 million, respectively, representing a 5.5% and
12.0% increase respectively, from the corresponding periods a year ago. The
increase is due to increased volumes across all three of PENWEST's basic
businesses. Penford Products increased volumes from a year ago primarily due
to the improving economic conditions and the conversion of alkaline-based
chemistry in the paper industry. Penwest Pharmaceuticals Group continued to
grow volumes out of its microcrystalline cellulose plant in Cedar Rapids.
Penwest Foods also grew volumes over a year ago. The gross margin for the
three month
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period increased to 28.6% compared to 26.7% last year. The improvement
in overall gross margins is primarily the result of improved volumes and
product mix at Penford and improving margins at Penwest Foods due to increasing
potato starch volumes.
Operating expenses in the third quarter rose $457,000, or 5.9% compared to the
same period in the previous year. The increase is primarily due to increased
investment in research and development, especially in pharmaceuticals.
Operating expenses for the nine months increased $2.0 million, or 8.8% over the
same period of the previous year. Previous year operating expenses were
impacted by the curtailment of postretirement health benefits which was
recorded as a $900,000 reduction of operating expenses. The remaining current
year increase is primarily due to increased spending on research and
development.
Net interest expense for the third quarter of fiscal 1995 was $1.1 million
compared to $653,000 for the corresponding period a year ago. The increase
reflects higher debt levels and overall higher interest rates.
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PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K.
(a) Exhibit 3.2 - Amended and Restated Bylaws
Exhibit 11 - Statement re: Computation of earnings
per share.
Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter
for which this report is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PENWEST, LTD.
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(Registrant)
7/14/95 /S/ TOD R. HAMACHECK
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Date Tod R. Hamachek
President and
Chief Executive Officer
7/14/95 /S/ JEFFREY T. COOK
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Date Jeffrey T. Cook
Vice President, Finance
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EXHIBIT INDEX
EXHIBIT PAGE
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3.2 Amended and Restated Bylaws
11 Statement re: Computation of Earnings
Per Share
27 Financial Data Schedule