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, 2003
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
7094 SOUTH REVERE PARKWAY
ENGLEWOOD, COLORADO 80112
- --------------------------------------------------------------------------------
(Name of issuer and address of issuer's
principal executive office)
Penford Corporation
Savings and Stock Ownership Plan
Index to Financial Statements and Supplemental Schedules
Year Ended August 31, 2003
<Table>
Report of Independent Auditors....................................................................................3
Audited Financial Statements:
Statements of Net Assets Available for Benefits.............................................................4
Statement of Changes in Net Assets Available for Benefits...................................................5
Notes to Financial Statements...............................................................................6
Supplemental Schedules:
Schedule G, Part III - Schedule of Nonexempt Transactions..................................................12
Schedule H, Line 4(i) - Schedule of Assets (Held At End of Year)...........................................13
Schedule H, Line 4(j) - Schedule of Reportable Transactions................................................14
Signatures.......................................................................................................15
Exhibit No. 23: Consent of Ernst & Young LLP, Independent Auditors..............................................16
</Table>
2
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 Penford Corporation Savings and Stock Ownership Plan as of August 31, 2003
and 2002, and the related statement of changes in net assets available for
benefits for the year ended August 31, 2003. 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, 2003 and 2002, and the changes in its net assets available for
benefits for the year ended August 31, 2003, 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, 2003, nonexempt transactions 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.
/s/ Ernst & Young LLP
-----------------------------
ERNST & YOUNG LLP
Denver, Colorado
February 23, 2004.
3
Penford Corporation Savings and Stock Ownership Plan
Statements of Net Assets Available for Benefits
<Table>
<Caption>
AUGUST 31,
2003 2002
--------------- ---------------
ASSETS
Investments, at fair value:
Common trust funds $ 16,939,001 $ 13,898,271
Common stock 11,983,031 10,633,323
Participant loans 326,625 294,916
--------------- ---------------
29,248,657 24,826,510
Receivables:
Due from broker for securities sold 182,231 3,562
Accrued interest and dividends 34,387 36,511
--------------- ---------------
216,618 40,073
--------------- ---------------
Total assets 29,465,275 24,866,583
LIABILITIES
Accrued expenses 58,115 9,306
--------------- ---------------
Net assets available for benefits $ 29,407,160 $ 24,857,277
=============== ===============
</Table>
See accompanying notes.
4
Penford Corporation Savings and Stock Ownership Plan
Statement of Changes in Net Assets Available for Benefits
Year Ended August 31, 2003
<Table>
ADDITIONS
Investment income:
Net appreciation in fair value of investments $ 3,813,794
Interest and dividends 180,369
---------------
3,994,163
Contributions:
Employer, net of forfeitures 713,335
Participants 1,559,482
---------------
2,272,817
---------------
Total additions 6,266,980
---------------
DEDUCTIONS
Benefits paid to participants 1,492,956
Administrative expenses 224,141
---------------
Total deductions 1,717,097
---------------
Net increase 4,549,883
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 24,857,277
---------------
End of year $ 29,407,160
===============
</Table>
See accompanying notes.
5
Penford Corporation Savings and Stock Ownership Plan
Notes to Financial Statements
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. 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
Effective September 1, 2001, participants may contribute a maximum of 16% 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.
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 compensation. The
match dollars are 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 2003.
Forfeitures are used to reduce employer contributions to the Plan for the next
Plan year. In September 2002, $73,282 was applied to reduce employer
contributions. As of August 31, 2003, the Plan had $16,598 in forfeitures
available to offset future employer contributions.
6
Penford Corporation Savings and Stock Ownership Plan
Notes to Financial Statements
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. Participants in the employ of the Company on or after September 1, 2001
are immediately vested in employer matching contributions, plus actual earnings
thereon. Participants who terminated employment prior to September 1, 2001 were
subject to the previous vesting schedule of 20% vesting each year over a
five-year period with respect to employer matching contributions. All employer
profit sharing contributions are also subject to a vesting schedule of 20% per
year over a five-year period.
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 one to five 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's Administrative Committee. Principal and interest are
paid ratably through payroll deductions.
7
Penford Corporation Savings and Stock Ownership Plan
Notes to Financial Statements
1. DESCRIPTION OF THE PLAN (CONTINUED)
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.
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 of America requires management to make
estimates that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATION
Certain amounts from the prior year have been reclassified to conform to the
current year presentation.
8
Penford Corporation Savings and Stock Ownership Plan
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EXPENSES
The Plan's administrative expenses are paid by either the Plan or the Company,
as provided by the Plan document. Expenses paid or accrued by the Plan for 2003
were $224,141.
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 interest rates, market values and
credit ratings in the near term could 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.
3. INVESTMENTS
Individual investments whose fair value was in excess of 5% of Plan net assets
at year-end were as follows:
<Table>
<Caption>
AUGUST 31,
2003 2002
-------------- --------------
Penford Corporation common stock* $ 6,469,708 $ 7,296,070
Penwest Pharmaceuticals Co. common stock* 5,513,323 3,337,253
Frank Russell Trust Company:
Commingled Employee Benefit Funds Trust
Short-Term Investment Fund 4,375,302 3,572,038
Commingled Employee Benefit Funds Trust
Global Aggressive Balanced Fund 5,995,952 5,461,607
Commingled Employee Benefit Funds Trust
Tactical Asset Allocation Fund 2,633,387 2,151,459
Commingled Employee Benefit Funds Trust
Global Equity Fund
2,661,759 2,035,331
</Table>
* Includes nonparticipant-directed investments. See Note 4 for further detail.
9
Penford Corporation Savings and Stock Ownership Plan
Notes to Financial Statements
3. INVESTMENTS (CONTINUED)
During the year ended August 31, 2003, the Plan's investments (including
investments bought and sold, as well as held, during the year) appreciated in
fair value as determined by quoted market prices as follows:
<Table>
<Caption>
NET REALIZED
AND UNREALIZED
APPRECIATION
IN FAIR VALUE
OF INVESTMENTS
---------------
Common trust funds $ 1,509,026
Common stock 2,304,768
---------------
$ 3,813,794
===============
</Table>
4. NONPARTICIPANT-DIRECTED INVESTMENTS
The Penford Corporation Stock Fund and the PPCO Stock Fund both contain amounts,
representing assets held under the ESOP portion of the Plan, which are subject
to certain ESOP diversification rules, and therefore, may be restricted with
regard to participant investment direction. Accordingly, we are considering the
Penford Corporation Stock and PPCO stock funds held in the ESOP portion of the
Plan 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:
<Table>
<Caption>
AUGUST 31
2003 2002
-------------- --------------
Investments, at fair value:
Penford Corporation common stock $ 1,690,690 $ 1,914,921
Penwest Pharmaceuticals Co. common stock 1,300,731 762,841
-------------- --------------
$ 2,991,421 $ 2,677,762
============== ==============
</Table>
10
Penford Corporation Savings and Stock Ownership Plan
Notes to Financial Statements
4. NONPARTICIPANT-DIRECTED INVESTMENTS (CONTINUED)
<Table>
<Caption>
YEAR ENDED
AUGUST 31, 2003
-----------------
Changes in net assets:
Net appreciation in fair value of investments $ 496,747
Interfund transfers (19,741)
Benefits paid to participants (163,347)
-----------------
$ 313,659
=================
</Table>
5. INCOME TAX STATUS
The Plan has received a determination letter from the Internal Revenue Service
dated April 1, 2003, 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. 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 is qualified and the related trust
is tax exempt.
11
Penford Corporation Savings and Stock Ownership Plan
Schedule G, Part III--Schedule of Nonexempt Transactions
EIN: 91-1221360 Plan Number: 003
For the Year Ended August 31, 2003
<Table>
<Caption>
(b) (i) (j)
(a) RELATIONSHIP TO (h) CURRENT NET GAIN
IDENTITY OF PLAN, EMPLOYER, OR (c) COST OF VALUE OF (REPAID
PARTY INVOLVED OTHER PARTY-IN-INTEREST DESCRIPTION OF TRANSACTIONS ASSET ASSET INTEREST)
- ------------------- ------------------------ ----------------------------------------------- -------- -------- ---------
Penford Corporation Employer/Plan Sponsor Forfeitures available under the Plan $ 43,227 $ 43,312 $ 85
were inadvertently dispersed to the plan
sponsor on September 12, 2002, resulting in
a prohibited transaction. The prohibited
transaction was remedied on October 4, 2002,
when the final repayment, including $85 in lost
interest, was made to the Plan.
</Table>
12
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, 2003
<Table>
<Caption>
(c)
(b) DESCRIPTION OF INVESTMENT INCLUDING
IDENTITY OF ISSUE, BORROWER, MATURITY RATE, RATE OF INTEREST, PAR, (d) (e)
(a) LESSOR, OR SIMILAR PARTY OR MATURITY VALUE COST CURRENT VALUE
- --- ------------------------------ ------------------------------------- ----------- -------------
COMMON TRUST FUNDS
* Frank Russell Trust Company 4,375,302 units of the Commingled $ 4,375,302
Employee Benefit Funds Trust
Short-Term Investment Fund (1)
* Frank Russell Trust Company 263,558 units of the Commingled 5,995,952
Employee Benefit Funds Trust
Global Aggressive Balanced Fund (1)
* Frank Russell Trust Company 21,063 units of the Commingled 563,437
Employee Benefit Funds Trust Growth
Fund (1)
* Frank Russell Trust Company 29,628 units of the Commingled 615,070
Employee Benefit Funds Trust Small
Capitalization Fund (1)
* Frank Russell Trust Company 4,752 units of the Commingled 94,094
Employee Benefit Funds Trust All
International Fund (1)
* Frank Russell Trust Company 93,283 units of the Commingled 2,633,387
Employee Benefit Funds Trust
Tactical Asset Allocation Fund (1)
* Frank Russell Trust Company 92,809 units of the Commingled 2,661,759
Employee Benefit Funds Trust Global
Equity Fund (1)
-------------
16,939,001
COMMON STOCK
* Penford Corporation 482,454 common shares $6,300,857 6,469,708
* Penwest Pharmaceuticals Co. 251,980 common shares 2,126,929 5,513,323
-------------
11,983,031
326,625
* PARTICIPANT LOANS Interest rates range from 5.25% to
10.50% maturing through 2018
-------------
$ 29,248,657
=============
</Table>
* Denotes party-in-interest to the Plan.
(1) Cost information is omitted as investments are participant directed.
13
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, 2003
<Table>
<Caption>
(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 $ 1,807,639 $ -- $1,807,639 $ 1,807,639 $ --
Frank Russell Trust Company Penford Corporation common stock -- 2,322,231 2,375,824 2,322,231 (53,593)
</Table>
There were no Category (i), (ii), or (iv) reportable transactions during the
year ended August 31, 2003. Columns (e) and (f) have not been presented, as this
information is not applicable.
14
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, 2004 By: /s/ Steven O. Cordier
--------------------------------
Steven O. Cordier
Penford Corporation
Vice President and Chief
Financial Officer
15
Index to Exhibits
<Table>
<Caption>
Exhibit
Number Description
- ------- -----------
EX-23 Consent of Independent Auditors.
</Table>