Penford Corporation (Nasdaq: PENX), a leader in renewable,
natural-based ingredient systems for industrial and food
applications, today reported that consolidated sales for the
quarter ended February 28, 2010 were $62.3 million compared with
$63.9 million a year ago. Diluted income per share, including
discontinued operations, was $0.99. Net loss from continuing
operations was $1.8 million, or $0.17 per diluted share, compared
to a net loss of $4.2 million, or $0.38 per diluted share last
year. A table summarizing second quarter results from continuing
operations is shown below:
Penford Corporation – Financial Highlights Quarter
Ended (In thousands except per share data) 2/28/10 2/28/09 %
Change
Industrial Ingredients: Sales $ 46,065 $
47,315 (3)% Gross margin 1,229 (7,410) NA Operating loss (1,721)
(6,651)
(1)
74%
Food Ingredients: Sales $ 16,228 $ 16,623 (2)%
Gross margin 4,833 4,829 - Operating income 2,848 2,813 1%
Consolidated: Sales $ 62,293 $ 63,939 (3)% Gross margin
6,062 (2,580) NA Operating loss (1,116) (6,069)
(1)
82% Net Loss from continuing operations (1,801) (4,205) 57% Diluted
loss per share – continuing operations $ (0.17) $ (0.38) 55%
Diluted income per share – discontinued operations
$
1.16 $ (1.61) NA Diluted income (loss) per
share
$ 0.99 $ (1.99) NA
(1) Includes $3.8 million of net
insurance recoveries in the quarter ended 2/28/09
Second Fiscal Quarter Consolidated Financial Results
- Consolidated sales were $62.3
million. Improved results from ethanol operations as well as volume
gains in specialty Liquid Natural Additives and selected food
applications nearly offset the impact from lower selling prices
across most product categories.
- Lower costs and higher
productivity improved results. Absolute costs decreased more than
$10 million from last year. Unit manufacturing costs declined by
20% on lower input prices, higher throughput rates and improved
production yields. Unit operating expenses fell by 9% from a year
ago primarily due to lower compensation costs.
- Quarterly operating losses were
$1.1 million compared with a loss of $6.1 million last year.
- Cash flow from continuing
operations and collections from Australia during the first six
months of fiscal 2010 were applied to reduce outstanding bank debt
by $31.0 million in the second quarter.
- Net assets of discontinued
operations in Australia, excluding $2.0 million of sale proceeds
held in escrow, were $1.2 million at the end of February. As a
result of the substantial liquidation of the net assets of the
Australian operation, the Company reclassified $13.8 million of
currency translation adjustments in accumulated other comprehensive
income to earnings in the second quarter. This reclassification is
a non-cash item.
Industrial Ingredients Second Quarter Results
- Sales of Liquid Natural Additive
applications grew 20% as the business added customers.
- Ethanol volume represented just
under half of the Industrial product mix. Ethanol spot prices
declined from a high of $2.19 per gallon to $1.71 per gallon at the
end of the quarter on supply/demand imbalances due to the recession
and weather. Higher blending standards and seasonal factors are
expected to increase demand over the next several months.
- Average prices for industrial
starches fell during the quarter. Based upon published reports some
paper end-market fundamentals appear to be improving.
Food Ingredients Second Quarter Results
- Sales decreased $0.4 million
from a year ago due to the divestiture of the non-core dextrose
business in the second quarter of fiscal 2009. The dextrose
business contributed $1.0 million in sales during the second
quarter last year.
- Revenue from coating
applications decreased as same-store-sales at quick-service
restaurant customers declined.
- Sales of formulations for bakery
and pet categories improved at double-digit rates from the prior
year.
Preferred Stock
- On April 7, 2010 the Company
issued a total of $40 million of Series A 15% cumulative
non-voting, non-convertible preferred stock and 100,000 shares of
Series B voting convertible preferred stock to Zell Credit
Opportunities Master Fund, L.P., which is managed by Equity Group
Investments.
- 6% of the Series A 15%
cumulative non-voting non-convertible preferred stock’s dividend is
payable in cash and the remaining 9% may accrue or paid currently
at the option of the Company. This preferred stock is subject to
mandatory redemption in April 2017 and may be redeemed at the
option of the Company, in whole or in part, after April 7, 2012 at
the original issue price plus accrued and unpaid dividends.
- The holders of the Series A
preferred stock are entitled to elect one director to the Company's
Board of Directors. It is expected that Matthew Zell, a Managing
Director of EGI, will join the Board of Directors as the designee
of the Series A holders. He currently serves on the Boards of two
New York Stock Exchange listed companies: Anixter (NYSE: AXE), a
leading global provider of communications and security products,
wire and cable, and other products and Homex (NYSE: HXM), Mexico’s
leading homebuilder. Mr. Zell was the Chief Executive Officer of
Prometheus Technologies, Inc. until he rejoined EGI in 2001.
- Each share of the Series B
voting convertible preferred stock may be converted at any time at
no cost into ten shares of Penford common stock, subject to
adjustment in the event of stock dividends, distributions, splits,
reclassifications and the like. The holder is entitled to voting
rights and dividends on an as-converted basis. The preferred stock
is not redeemable and automatically converts into common stock
after ten years.
Revolving Credit Facility
- On April 7, 2010 the Company
entered into a five year, $60 million, secured revolving line of
credit with a syndicate of banks that includes Bank of Montreal,
Bank of America and Rabobank Nederland, replacing the existing $145
million loan facility.
- In connection with the
refinancing of its credit facility, the Company expects to record a
non-cash charge of $1.0 million in the third quarter of fiscal 2010
representing previously deferred loan transaction costs. Also in
the third quarter, the Company expects to terminate its interest
rate swaps and reclassify approximately $1.7 million of losses from
accumulated other comprehensive income to earnings.
Strategic Process
- The Company’s Board of Directors
has determined that, due to the successful recapitalization of the
Company, its previously announced exploration of strategic
alternatives has concluded. This recapitalization provides the
Company with funding and flexibility to pursue growth in specialty
products and return opportunities designed to enhance shareholder
value.
- The addition of Matthew Zell and
Ed Ryan to the Board of Directors will add fresh perspective and
strategic expertise. Matt Zell serves as a board member of two
companies on the NYSE. Mr. Ryan will add an entrepreneurial view as
Penford expands into new areas of food and industrial specialty
ingredients.
- The net proceeds from new
preferred stock will be used to further reduce debt. Approximately
$15 million in bank loans will be outstanding after the completion
of the recapitalization transactions.
- The new credit agreement
provides additional flexibility to fund investments in promising,
high-value growth initiatives as well as productivity projects in
manufacturing facilities.
Conference Call
Penford will host a conference call to discuss second quarter
financial and operational results today, April 8, 2010 at 9:00 a.m.
Mountain Time (11:00 a.m. Eastern Time). Access information for the
call and webcast can be found at www.penx.com. To participate in
the call on April 8, 2010, 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 a variety of
industrial and food applications. Penford has five manufacturing
and/or research locations in the United States.
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 “believes,” “may,” “will,” “looks,” “should,” “could,”
“anticipates,” “expects,” 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 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; the amount and timing of flood insurance recoveries;
the Company’s inability to comply with the terms of instruments
governing the Company’s debt; the effects of the current economic
recession as well as other 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; interest rate, chemical and energy cost volatility; foreign
currency exchange rate fluctuations; changes in returns on pension
plan assets and/or assumptions used for determining employee
benefit expense and obligations; 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 endedFebruary 28
Six months endedFebruary 28
(In thousands except per share data) 2010 2009 2010
2009 (unaudited)
Consolidated Results Sales $
62,293 $ 63,939 $ 129,363 $ 123,522 Loss from continuing
operations (1,801 ) (4,205 ) (745 ) (3,642 )
Income (loss) from discontinued
operations
13,048 (17,973
) 16,531
(18,905 ) Net income (loss) $ 11,247 $
(22,178 ) $ 15,786 $ (22,547 ) Loss per share, diluted –
continuing operations $ (0.17 ) $ (0.38 ) $ (0.08 ) $ (0.33 )
Income (loss) per share, diluted – discontinued operations
$ 1.16 $
(1.61 ) $ 1.48
$ (1.69 ) Income
(loss) per share, diluted $ 0.99 $ (1.99 ) $ 1.40 $ (2.02 )
Cash Flows Cash flow provided by (used in) continuing
operations: Operating activities $ 10,631 $ (8,532 ) $ 31,465 $
(16,751 ) Investing activities (1,873 ) 1,304 (2,950 ) 6 Financing
activities
(28,136 )
7,228 (34,055
) 16,745 (19,378 ) - (5,540
) - Net cash flow provided (used in) by discontinued operations
(5,249 )
(1,649 ) 620
(495 ) Total cash used $ (24,627 )
$ (1,649 ) $ (4,920 ) (495 )
Balance Sheets
February 28, August 31, 2010 2009 (unaudited)
Current assets $ 58,685 $ 68,336 Current assets of discontinued
operations 3,673 38,486 Property, plant and equipment, net 115,350
119,049 Other assets 30,019 28,147 Non-current assets of
discontinued operations - 4,227 Total assets
207,727 258,245 Current liabilities 24,850 44,958
Current liabilities of discontinued operations 451 16,028 Long-term
debt 55,530 71,141 Other liabilities 42,663 43,908 Non-current
liabilities of discontinued operations - 2,851 Shareholders’ equity
84,233 79,359 Total liabilities and equity $ 207,727
$ 258,245
Penford Corporation
Consolidated Statements of
Operations
Three months endedFebruary 28
Six months endedFebruary 28
(In thousands except per share data) 2010 2009 2010
2009 (unaudited) Sales $ 62,293 $ 63,939 $ 129,363 $ 123,522
Cost of sales 56,231 66,519
112,673 120,698 Gross margin 6,062
(2,580 ) 16,690 2,824 Operating expenses 6,054 6,121 12,542
12,164 Research and development expenses 1,124 1,168 2,121 2,291
Flood related costs, net of insurance recoveries -
(3,800 ) - (8,034 ) Income
(loss) from operations (1,116 ) (6,069 ) 2,027 (3,597 )
Non-operating income, net (27 ) 1,554 609 948 Interest expense
1,621 1,177 3,420
2,447 Loss before income taxes (2,764 ) (5,692 ) (784
) (5,096 ) Income tax benefit (963 ) (1,487 )
(39 ) (1,454 ) Loss from continuing operations
(1,801 ) (4,205 ) (745 ) (3,642 ) Income (loss) from
discontinued operations, net of tax 13,048 (17,973 ) 16,531 (18,905
) Net income (loss) $ 11,247
$ (22,178 ) $ 15,786 $ (22,547 )
Weighted average common shares and
equivalents outstanding, diluted
11,204 11,174 11,193 11,165 Loss per share, diluted –
continuing operations $ (0.17 ) $ (0.38 ) $ (0.08 ) $ (0.33 )
Income (loss) per share, diluted – discontinued operations $ 1.16
$ (1.61 ) $ 1.48 $ (1.69 ) Income (loss) per share,
diluted $ 0.99 $ (1.99 ) $ 1.40 $ (2.02 ) Dividends declared
per common share $ - $ 0.06 $ - $ 0.12
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