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Penford Corporation (Nasdaq: PENX), a global leader in renewable,
natural-based ingredient systems for food and industrial applications,
today reported that consolidated sales for the fiscal year ended August
31, 2008 were $345.6 million compared with $362.4 million a year ago.
For the year, strong nine month results in the Company’s
Industrial Ingredients business and record annual revenues in the North
American Food Ingredients and Australian business segments were
overshadowed by suspended production at the Company’s
Industrial Ingredients facility in Cedar Rapids, Iowa, caused by record
flooding during June 2008. As previously reported, pre-flood industrial
starch production capabilities at the Cedar Rapids facility were
restored after the end of the Company’s 2008
fiscal year.
Higher unit pricing at all three divisions, product mix improvements and
stronger Australian Dollar exchange rates were offset by lower
year-over-year volume comparisons worldwide. Gross margin as a percent
of sales declined to 14.4% from 17.7% last year. The margin reduction
reflects reduced volumes, including the production disruption caused by
the flood, increased input costs (grains, chemicals and energy),
manufacturing variances arising from processing imported raw material
into Australia due to a shortage of physical maize stocks in the first
half of the year, as well as start-up expenses to commence ethanol
production in May.
Operating expenses were $70.5 million versus $40.6 million a year ago,
including $27.6 million of net charges directly related to flood
recovery in Cedar Rapids. These net charges do not include the impact
from profits forfeited during the interruption of operations caused by
the flood. Loss from operations was $20.9 million compared with a profit
of $23.6 million last year. The loss included $1.4 million in severance
costs for employees in the Australian business recorded during the first
half of the fiscal year. The Company also recorded a $1.4 million pretax
charge for litigation expense in the quarter ended on May 31, 2008
arising from the final resolution of a previously disclosed lawsuit
initiated in 2004. Net loss was $12.7 million or $1.20 per diluted share
versus a profit of $13.5 million, or $1.46 per diluted share a year ago.
In the second quarter of fiscal 2008, the Company issued 2.0 million
shares of common stock in a public offering. This transaction increased
weighted average shares by 2.0 million and 1.4 million for the three-
and twelve-month periods ended August 31, 2008, respectively.
Interest expense fell $1.6 million in fiscal 2008 to $4.1 million from
$5.7 million last year on lower average debt outstanding and a decline
in U.S. interest rates. Total debt outstanding at August 31, 2008 was
down $6.1 million to $68.6 million from $74.7 million from a year ago,
primarily on reduced working capital requirements. At August 31, 2008,
the Company had $45.7 million of unused loan commitments from its
lenders under its existing revolving credit facility to finance cash
requirements to recover from the flood and meet other corporate needs.
The revolving credit facility expires on December 31, 2011. Borrowing
requirements are expected to increase as payments are disbursed for
expenses incurred to recover from the flood. Fiscal 2008 income taxes
were a net benefit of $6.9 million compared with an expense of $6.0
million last year. The effective tax rate was 35.1% versus 30.7% a year
ago.
Consolidated fourth quarter sales declined to $60.0 million, or 38%,
from $96.2 million a year ago as the Cedar River flooding shut down
production at the Company’s Cedar Rapids
facility for most of the fourth quarter. Gross margin decreased to $6.3
million from $20.0 million a year ago as pricing improvements worldwide
were more than offset by the reduction in volume in the industrial
ingredients business, higher raw material costs and reduced
manufacturing yields. Non-operating income in the fourth quarter of
fiscal 2008 included $2.9 million in hedge contract gains on corn
positions supporting sales that were originally contracted for delivery
during the fourth quarter but were suspended due to the flooding in
Cedar Rapids. The Company reported a net loss of $20.9 million, or $1.87
per diluted share, for the fourth quarter of fiscal 2008.
Fourth Quarter Fiscal 2008 Segment Results
Food Ingredients – North America
Segment sales rose 8% to $17.4 million in the fourth quarter, primarily
on higher average selling prices. Sales of potato coating applications
were comparable to prior year while revenues from all other segments
increased 15%. While the Company’s potato
starch manufacturing facilities were not impacted by the flood, dextrose
products, which are manufactured at the Cedar Rapids facility, were down
more than 35% from last year due to the flood. Dextrose production has
now resumed at the Cedar Rapids plant.
Total quarterly volumes were slightly above prior year levels. Gross
margin as a percent of revenue was 26.9% compared with 31.4% last year.
The decrease was primarily attributable to rising raw material and
transportation costs. Operating income for the fourth quarter was $2.5
million versus $2.8 million a year ago.
Overall trial activity with customers remains robust and is being driven
by customer needs for the improved performance and lower costs offered
by the Company’s products.
Australia/New Zealand Operations
Quarterly revenue of $29.0 million was comparable to last year. Volume
decreased from a year ago consistent with a planned shift to
applications with better expected long-term returns. Average selling
prices rose 15% in local currency, reflecting improved pricing and a
better product mix. Gross margin as a percent of revenue was 2.4%
compared with 11.9% last year. This change reflects unprecedented grain
costs which were $3.9 million higher than the same period a year ago due
to drought conditions in the region. Higher input costs, increased
manufacturing expenses and higher freight charges were only partly
offset by increased prices, lower labor expense and mix improvements.
The business reported an operating loss of $1.6 million for the fourth
quarter of fiscal 2008.
Recent events in global economic and financial markets have contributed
to a sharp decline in the Australian Dollar exchange rate. This decline
will result in lower U.S. Dollar translated results, but it creates a
more attractive price environment for Australian exports, and an
improved competitive position for domestic products vis-à-vis
imports into Australian and New Zealand.
Industrial Ingredients – North America
Financial and operating results for the fourth quarter were dominated by
the impact from the record flooding of the Cedar River during June 2008.
This unprecedented natural disaster resulted in a mandatory evacuation
of the plant and surrounding areas. Plant operations remained closed for
several weeks during the clean-up and restoration of the facility.
Manufacturing of selected Liquid Natural Additive products resumed in
mid-July using the pilot plant facility, which was not heavily damaged
during the flood. Limited starch production resumed in late August, and
effective September 15, 2008, the Company announced termination of the
force majeure event that had shut down industrial starch operations.
Production of ethanol recommenced in late September.
Flood remediation costs of $27.6 million, net of $10.5 million in
insurance recoveries, were recorded during the fourth quarter of fiscal
2008. Direct expenses and profit interruption will extend into the first
half of fiscal 2009. The Company estimates that the direct costs of the
flood will total $45 to $47 million, which includes ongoing expenses
during the time the plant was shut down. This estimate does not include
lost profits or the receipt of any insurance recoveries. The Company
continues to process its flood insurance claim through property
insurance carriers but does not expect to complete the submission of
documentation until December. The Company intends to claim for all
covered losses, including $15 million in business interruption losses
identified through August 31, 2008. The amount ultimately recovered from
insurers may be materially more or less than the Company’s
estimate of total losses. Since the Company’s
insurers have not affirmed coverage for all material aspects of the
claim, the Company cannot provide assurance as to the amount or timing
of the ultimate recoveries under its policies. Insurance proceeds will
be recognized in the financial statements when realization of the
recoveries is deemed probable.
Effective on July 9, 2008, the Company obtained an amendment to its
credit facility agreement which temporarily adjusted the calculation of
selected covenant formulas for the costs of flood damage and associated
insurance reimbursements.
Fourth quarter Industrial segment sales were $14.2 million. Gross margin
as a percent of sales was 6.4%, reflecting the impact on cost and
efficiency levels from lower plant throughput rates due to the flood.
Operating loss for the quarter ended August 31, 2008 was $31.9 million,
including the $27.6 million flood charges described above as well as
$5.2 million in operating and R&D expenditures.
The plant is now operating substantially at manufacturing levels
achieved before the flood. Customers are being transitioned back to
Penford, and, subject to overall business conditions, this business
expects to return to normal supply conditions by the end of the calendar
year.
Tom Malkoski, Penford Corporation President and Chief Executive Officer,
said that, “The exceptionally
difficult circumstances this year have tested the capacity and character
of all of our employees. They have responded with remarkable resolve and
focus. It has also confirmed the commitment and support that our Company
enjoys from our valued customers and suppliers.”
Mr. Malkoski also noted that, “The Industrial
business successfully commissioned the largest facility expansion in
many years, only weeks before catastrophic floodwaters engulfed the
entire site. The immediate and determined response resulted in an
extraordinary achievement – the safe restart
of operations in ten weeks. Our Australia/New Zealand business faced the
continuing challenge caused by two major droughts over the past four
years by improving efficiencies and working with customers to recover
high input costs while developing innovative product platforms that will
establish strong opportunities for the future. Our food business in
North America continues to strengthen, and we remain confident in its
growth prospects. I look forward to continued improvements, higher
returns and additional gains in our markets.”
Conference Call
Penford will host a conference call to discuss fourth quarter financial
and operational results today, November 13, 2008 at 9:00 a.m. Mountain
time (11:00 a.m. Eastern Standard time). Access information for the call
and web-cast can be found at www.penx.com.
To participate in the call on November 13, 2008, please phone
1-877-407-9205 at 8:50 a.m. Mountain time. A replay will be available at www.penx.com.
About Penford Corporation
Penford Corporation develops, manufactures and markets specialty
natural-based ingredient systems for various applications, including
papermaking, textiles and food products. Penford has nine locations in
the United States, Australia and New Zealand.
The statements contained in this release that are not historical
facts are forward-looking statements that represent management’s
beliefs and assumptions based on currently available information.
Forward-looking statements can be identified by the use of words such as
"anticipates," “believes,”
“may,” “will,”
“plans,” or
comparable terminology or by discussions of strategies or trends.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it cannot give any assurances
that these expectations will prove to be correct. Such statements by
their nature involve substantial risks and uncertainties that could
significantly affect expected results. Actual future results could
differ materially from those described in such forward-looking
statements, and the Company does not intend to update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise. Among the factors that could cause actual
results to differ materially are the risks and uncertainties discussed
in this release and those described from time to time in other filings
made by the Company with the Securities and Exchange Commission which
include, but are not limited to, 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 and availability;
expectations regarding the ethanol facility; changes in general economic
conditions or developments with respect to specific industries or
customers affecting demand for the Company’s
products, including unfavorable shifts in product mix; unanticipated
costs, expenses or third party claims; the risk that results may be
affected by construction delays, cost overruns, technical difficulties,
nonperformance by contractors or changes in capital improvement project
requirements or specifications; interest rate, chemical and energy cost
volatility; foreign currency exchange rate fluctuations; increases in
pension expense due to the decline in the value of plan assets;
changes in assumptions used for determining employee benefit expense and
obligations; other unforeseen developments in the industries in which
Penford operates; and other factors described in the “Risk
Factors” section in reports filed by the
Company with the Securities and Exchange Commission.
Penford Corporation
Financial Highlights
Three months endedAugust 31
Year endedAugust 31
(In thousands except per share data)
2008
2007
2008
2007
(unaudited)
Consolidated Results
Sales
$ 60,026
$ 96,217
$ 345,576
$ 362,364
Net income (loss)
$ (20,883)
$ 4,283
$(12,700)
$ 13,517
Earnings (loss) per share, diluted
$ (1.87)
$ 0.45
$ (1.20)
$ 1.46
Results by Segment
Industrial Ingredients:
Sales
$ 14,173
$ 51,307
$ 173,320
$ 194,957
Gross margin
6.4%
22.4%
15.1%
18.0%
Operating income (loss)
(31,899)
5,354
(16,541)
19,251
Food Ingredients – North America:
Sales
$ 17,403
$ 16,094
$ 66,261
$ 62,987
Gross margin
26.9%
31.4%
27.7%
30.1%
Operating income
2,490
2,753
10,178
10,684
Australia/New Zealand:
Sales
$ 29,035
$ 28,948
$ 107,532
$ 105,244
Gross margin
2.4%
11.9%
4.7%
9.6%
Operating income (loss)
(1,562)
1,662
(4,556)
3,269
August 31,
August 31,
2008
2007
Current assets
$ 96,835
$ 105,279
Property, plant and equipment, net
169,932
146,663
Other assets
44,712
36,446
Total assets
311,479
288,388
Current liabilities
59,420
66,246
Long-term debt
59,860
63,403
Other liabilities
31,837
33,063
Shareholders’ equity
160,362
125,676
Total liabilities and equity
$ 311,479
$ 288,388
Penford Corporation
Consolidated Statements of Operations
Three months endedAugust 31
Year endedAugust 31
(In thousands except per share data)
2008
2007
2008
2007
(unaudited)
Sales
$60,026
$96,217
$345,576
$362,364
Cost of sales
53,727
76,220
295,979
298,203
Gross margin
6,299
19,997
49,597
64,161
Operating expenses
11,088
8,583
32,262
31,391
Research and development expenses
1,834
1,926
7,933
6,812
Flood related costs, net
27,555
-
27,555
-
Restructure costs
-
-
1,356
-
Other costs
-
2,400
1,411
2,400
Income (loss) from operations
(34,178)
7,088
(20,920)
23,558
Non-operating income, net
3,844
550
5,434
1,645
Interest expense
1,434
1,274
4,083
5,711
Income (loss) before income taxes
(31,768)
6,364
(19,569)
19,492
Income tax expense (benefit)
(10,885)
2,081
(6,869)
5,975
Net income (loss)
$(20,883)
$ 4,283
$(12,700)
$ 13,517
Weighted average common shares and equivalents outstanding, diluted
11,144
9,462
10,565
9,283
Earnings (loss) per share, diluted
$ (1.87)
$ 0.45
$ (1.20)
$ 1.46
Dividends declared per common share
$ 0.06
$ 0.06
$ 0.24
$ 0.24