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-�-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
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