CONTACTS: Steven O. Cordier Exhibit 99.1
Vice President and CFO
Penford Corporation
303-649-1900
steve.cordier@penx.com
FOR IMMEDIATE RELEASE
PENFORD CORPORATION REPORTS FISCAL 2003 AND 4Q03 PERFORMANCE
VOLUME GROWTH, NEW PRODUCT INITIATIVES DRIVE 2003 RESULTS
DENVER, CO., OCTOBER 16, 2003 - Penford Corporation (Nasdaq: PENX), a global
leader in natural ingredient systems for food and industrial applications, today
reported financial results for the fourth quarter and fiscal year ending August
31, 2003.
Fourth quarter sales increased $7.5 million or 12.3% to $68.7 million from $61.2
million for the same period last year. Net income for the quarter ended August
31, 2003 rose to $1.8 million, or $0.21 per diluted share versus $1.0 million,
or $0.13 per diluted share, for the fourth quarter of 2002.
For fiscal 2003, sales grew 13.4% percent to $262.5 million from $231.5 million
a year ago. Higher volumes in all three business segments contributed 7% to the
sales gain while favorable foreign exchange rates added 5% and improved product
mix at Industrial Ingredients and Penford Australia provided another 2%. Net
income for fiscal 2003 was $8.4 million or $1.03 per diluted share compared to
net income of $3.8 million or $0.49 per diluted share in fiscal 2002.
Gross margin as a percent of sales declined by 1.7% from the prior year,
primarily due to a $2.9 million increase in the cost of natural gas and a $2.8
million increase in the cost of Australian grain. We were able to moderate the
impact of input price changes greater than the $5.7 million recognized in fiscal
2003 through hedge transactions and by sharing these additional costs with our
customers. These unfavorable factors are expected to continue as natural gas
costs remain significantly above a year ago and the inventory of higher priced
Australian grain will not be depleted until the fiscal third quarter of 2004.
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Non-operating income increased to $3.2 million in fiscal 2003 primarily
reflecting the $1.9 million gain on the sale of certain assets of Penford's
Hi-maize(R) business announced last November as well as $1.2 million from
royalty payments and the amortization of licensing fees related to the
Hi-maize(R) patents. Royalty payments and amortization of license fees are
scheduled to continue at least through fiscal 2007. Income from operations for
fiscal 2002 includes margin related to the Hi-maize(R) business sold during the
first quarter of fiscal 2003.
Penford reported that fourth quarter net income for 2003 included a $0.3 million
reduction in estimated income taxes due to changes in Australian tax
legislation. The reduction revises the estimate of taxes due on the previously
disclosed first quarter $1.9 million gain on the sale of certain assets of
Penford's Hi-maize(R) business and eliminates income tax liability for that
gain. For 2002, net income included a second quarter $0.9 million after-tax
charge related to a corporate restructuring and a $0.3 million after-tax
impairment charge recorded in the fourth quarter related to an investment in a
technology company.
"Fiscal 2003 marked significant change for Penford. Two new Board members and
several senior managers joined Penford in fiscal 2003, greatly strengthening our
capability to build and execute strategies that will improve results," Penford
Chief Executive Officer Thomas Malkoski said. "The existing business expanded
and we introduced several important new applications that will help drive our
future success. Earlier this year we unlocked value when we sold the Hi-maize(R)
resistant starch business. We also placed additional equity with a respected
investment group in March and announced a new credit facility with a group of
leading commercial banks just last week. We are committed to continue to move
relentlessly to increase the values we provide our customers, improving our
competitive positions and thereby creating greater shareholder value."
SEGMENT RESULTS
Sales at Industrial Ingredients increased 8.1% to $36.4 million for the fourth
quarter and rose 11.6% to $140.6 million for the full year. Volumes increased at
double-digit rates across all core product lines during fiscal 2003 and boosted
sales by nearly 9%. The combination of moderate price gains and product mix
improvements added another 3%. New product platforms were strong contributors
with Liquid Natural Additive sales increasing by 60% and export
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volumes reaching record levels. Gross margin as a percent of sales declined to
15.1% from 16.2% for the fourth quarter and to 15.5% from 16.1% for the full
year. The rising cost of natural gas, used in drying industrial starches,
reduced this ratio by 200 basis points for fiscal 2003.
Sales rose 5.5% at the Food Ingredients - North America business to $11.3
million in the fourth quarter. The segment reported a full year sales increase
of 2.7% to $44.7 million for fiscal 2003. A 7% improvement in volumes more than
offset the impact of a 4% deterioration in product mix for the full fiscal year.
Gross margin as a percent of sales decreased to 27.8% in the fourth quarter from
30.7% last year and to 28.2% from 30.8% for the fiscal year, primarily as a
result of softer demand for higher-margin potato coatings products used in
quick-service restaurant applications. New product initiatives targeting the
processed meat category have proven successful with sales excluding French Fry
applications increasing by approximately 20% during fiscal 2003.
Sales at Australia/New Zealand grew 22.2% and 24.7% for the fourth quarter and
fiscal year 2003 respectively. A stronger Australian Dollar boosted reported
annual revenue by 17% and higher volumes added another 4%. The combination of
price gains and product mix improvements further increased fiscal 2003 sales by
4%. A severe regional drought caused raw material grain costs to rise sharply
and gross margin as a percent of sales fell to 11.5% from 12.3% in the fourth
quarter and to 12.0% from 13.9% for the full year. The rising cost of wheat
flour and corn reduced this ratio by 350 basis points for fiscal 2003. We are
experiencing strong demand for products that improve texture functionality and
are encouraged that predictions for a normal grain harvest may improve cost
comparisons in the second half of fiscal 2004.
"Every business unit has been able to overcome significant challenges to record
solid results this year. High volumes across key product lines were a primary
driver of performance - the resulting sustainable increase in sales was assisted
by the Strategic Customer Management Process introduced last year," Mr. Malkoski
said. "We intend to leverage this success by building our pipeline of
proprietary, differentiated products and expanding our presence in entirely new
markets."
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CONFERENCE CALL
Penford will host a conference call to discuss fourth quarter and annual
financial and operational results today, October 16, 2003 at 9:00 a.m. Mountain
time (11:00 a.m. Eastern time). Access information for the call and web-cast can
be found at www.penx.com. A replay will be available at www.penx.com until
October 24, 2003.
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.
For automated shareholder information, please call 1-888-317-2013.
This press release contains forward-looking statements concerning new product
initiatives and the realization of benefits by the Company from strategic
resources in research, market position and specialty manufacturing. Further,
this press release contains forward-looking statements that unfavorable natural
gas and grain costs will continue, that we have expectations of a normal grain
harvest in late fiscal 2004, that new applications will drive our future success
and that we will be able to build and expand in new markets. There are a variety
of factors (some of which are set forth below) that could adversely affect the
Company's ability to deliver new product initiatives or to capitalize on the
Company's strategic resources in research, market position and specialty
manufacturing. Among the factors that could adversely affect the performance
described in the forward-looking statements are the performance of the economy
as a whole (including the economies in markets served by the Company, such as
North America and Asia) and the impact of such performance on the Company's
customers, customer acceptance of new products or technologies at less than
anticipated rates, issues related to lack of increases in or decreases or delays
in customer demand or orders, increased competition timing and other issues
related to introduction of new technologies, decreases in market share,
unfavorable changes in product mix, disappointments in product development
efforts and introductions, interest rate and energy cost volatility, increases
in grain prices in Australia due to drought conditions, foreign exchange rate
fluctuations and those listed in the Company's SEC reports, including the report
on Form 10-K for the year ended August 31, 2002.
# # #
CHARTS TO FOLLOW
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Penford Corporation Reports Fourth Quarter Results, p.4
<Table>
<Caption>
PENFORD CORPORATION Three months ended Year ended
FINANCIAL HIGHLIGHTS August 31, August 31,
------------------------------ ------------------------------
(In thousands except per share data) 2003 2002 2003 2002
- ------------------------------------ ------------ ------------ ------------ ------------
CONSOLIDATED RESULTS
Sales $ 68,698 $ 61,170 $ 262,467 $ 231,450
Net income $ 1,797 $ 1,012 $ 8,436 $ 3,816
Earnings per share, diluted $ 0.21 $ 0.13 $ 1.03 $ 0.49
RESULTS BY SEGMENT
INDUSTRIAL INGREDIENTS:
Sales $ 36,365 $ 33,637 $ 140,637 $ 126,053
Gross margin 15.1% 16.2% 15.5% 16.1%
Operating income 2,161 2,571 9,551 9,058
FOOD INGREDIENTS - NORTH AMERICA:
Sales $ 11,276 $ 10,688 $ 44,694 $ 43,533
Gross margin 27.8% 30.7% 28.2% 30.8%
Operating income 1,417 1,563 5,915 6,552
AUSTRALIA/NEW ZEALAND:
Sales $ 21,131 $ 17,292 $ 77,682 $ 62,311
Gross margin 11.5% 12.3% 12.0% 13.9%
Operating income 1,114 951 4,796 4,555
</Table>
<Table>
<Caption>
August 31, August 31,
2003 2002
------------ ------------
Current assets $ 75,043 $ 63,636
Property, plant and equipment, net 128,776 132,042
Other assets 46,635 44,292
------------ ------------
Total assets $ 250,454 $ 239,970
============ ============
Current portion of debt* 3,000 18,779
Other current liabilities 36,320 29,787
Long-term debt 76,696 77,632
Other liabilities 46,553 44,808
Shareholders' equity 87,885 68,964
------------ ------------
Total liabilities and equity $ 250,454 $ 239,970
============ ============
</Table>
* Represents current portion of debt as refinanced on October 8, 2003.
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<Table>
<Caption>
Three months ended Year ended
PENFORD CORPORATION August 31, August 31,
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) ------------------------------ ------------------------------
(In thousands except share and per share data) 2003 2002 2003 2002
- ---------------------------------------------- ------------ ------------ ------------ ------------
Sales $ 68,698 $ 61,170 $ 262,467 $ 231,450
Cost of sales 57,643 50,317 218,784 189,067
------------ ------------ ------------ ------------
Gross margin 11,055 10,853 43,683 42,383
Operating expenses 6,651 6,087 24,620 21,940
Research and development expenses 1,363 1,441 5,399 5,992
Restructure costs, net (48) -- (165) 1,383
------------ ------------ ------------ ------------
Income from operations 3,089 3,325 13,829 13,068
Non-operating income, net 396 (446) 3,205 (397)
Interest expense 1,246 1,653 5,495 7,107
------------ ------------ ------------ ------------
Income before income taxes 2,239 1,226 11,539 5,564
Income taxes 442 214 3,103 1,748
------------ ------------ ------------ ------------
Net income $ 1,797 $ 1,012 $ 8,436 $ 3,816
============ ============ ============ ============
Weighted average common shares and equivalents
outstanding, diluted 8,621,558 7,933,150 8,227,549 7,794,304
Earnings per share, diluted $ 0.21 $ 0.13 $ 1.03 $ 0.49
Dividends declared per common share $ 0.06 $ 0.06 $ 0.24 $ 0.24
</Table>
# # #
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