UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED May 31, 2011
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File No. 0-11488
 PENFORD CORPORATION
  Washington
    
    91-1221360(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer
Identification No.)
 7094 South Revere Parkway,Centennial, Colorado
    
    80112-3932(Address of Principal Executive Offices)
    
    (Zip Code)
 (303) 649-1900
  þ o
  o o
  Large Accelerated Filer o
    
    Accelerated Filer þ
    
    Non-Accelerated Filer o
    
    Smaller Reporting Company o(Do not check if a smaller reporting company)
  o þ




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##### 



PENFORD CORPORATION AND SUBSIDIARIES
 INDEX
 PagePART IFINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets  May 31, 2011 and August 31, 2010
    
    
    3Condensed Consolidated Statements of Operations  Three and Nine Months ended May 31, 2011
and 2010
    
    
    4Condensed Consolidated Statements of Cash Flows  Nine Months ended May 31, 2011 and 2010
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    25PART IIOTHER INFORMATIONItem 1. Legal Proceedings
    
    
    26Item 1A. Risk Factors
    
    
    26Item 6. Exhibits
    
    
    26Signatures
    
    
    27
 2




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##### 



PART I  FINANCIAL INFORMATION
 Item 1:
    
    Financial Statements
 PENFORD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except per share data)
    
    May 31, 2011
    
    
    August 31, 2010(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    227
    
    
    $
    315Trade accounts receivable, net
    
    
    31,446
    
    
    
    26,749Inventories
    
    
    27,026
    
    
    
    19,849Prepaid expenses
    
    
    6,496
    
    
    
    5,237Income tax receivable
    
    
    262
    
    
    
    3,678Other
    
    
    7,044
    
    
    
    5,287Total current assets
    
    
    72,501
    
    
    
    61,115Property, plant and equipment, net
    
    
    107,841
    
    
    
    111,930Restricted cash value of life insurance
    
    
    7,996
    
    
    
    7,951Deferred tax assets
    
    
    15,222
    
    
    
    16,493Other assets
    
    
    2,596
    
    
    
    3,022Goodwill, net
    
    
    7,897
    
    
    
    7,897Total assets
    
    $
    214,053
    
    
    $
    208,408Liabilities and Shareholders EquityCurrent liabilities:Cash overdraft, net
    
    $
    6,453
    
    
    $
    4,385Current portion of long-term debt and capital lease obligations
    
    
    429
    
    
    
    429Accounts payable
    
    
    14,081
    
    
    
    14,650Accrued liabilities
    
    
    8,274
    
    
    
    6,536Total current liabilities
    
    
    29,237
    
    
    
    26,000Long-term debt and capital lease obligations
    
    
    24,713
    
    
    
    21,038Redeemable preferred stock, Series A
    
    
    37,725
    
    
    
    34,104Other postretirement benefits
    
    
    17,373
    
    
    
    16,891Pension benefit liability
    
    
    16,537
    
    
    
    20,597Other liabilities
    
    
    6,782
    
    
    
    6,206Total liabilities
    
    
    132,367
    
    
    
    124,836Shareholders equity:Common stock, par value $1.00 per share, authorized 29,000
shares, issued 13,328 and 13,354 shares, respectively,
including treasury shares
    
    
    13,243
    
    
    
    13,190Preferred stock, Series B
    
    
    100
    
    
    
    100Additional paid-in capital
    
    
    102,815
    
    
    
    102,303Retained earnings
    
    
    12,537
    
    
    
    14,586Treasury stock, at cost, 1,981 shares
    
    
    (32,757
    )
    
    
    (32,757
    )Accumulated other comprehensive loss
    
    
    (14,252
    )
    
    
    (13,850
    )Total shareholders equity
    
    
    81,686
    
    
    
    83,572Total liabilities and shareholders equity
    
    $
    214,053
    
    
    $
    208,408
 The accompanying notes are an integral part of these statements.
 3




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##### 



PENFORD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three months ended
    
    
    Nine months endedMay 31,
    
    
    May 31,(In thousands, except per share data)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Sales
    
    $
    85,233
    
    
    $
    61,909
    
    
    $
    231,802
    
    
    $
    191,272Cost of sales
    
    
    74,815
    
    
    
    58,644
    
    
    
    205,285
    
    
    
    171,317Gross margin
    
    
    10,418
    
    
    
    3,265
    
    
    
    26,517
    
    
    
    19,955Operating expenses
    
    
    6,664
    
    
    
    6,312
    
    
    
    17,093
    
    
    
    18,854Research and development expenses
    
    
    1,248
    
    
    
    1,044
    
    
    
    3,462
    
    
    
    3,165Income (loss) from operations
    
    
    2,506
    
    
    
    (4,091
    )
    
    
    5,962
    
    
    
    (2,064
    )Interest expense
    
    
    (2,380
    )
    
    
    (1,904
    )
    
    
    (6,953
    )
    
    
    (5,324
    )Other non-operating income (expense), net
    
    
    (12
    )
    
    
    (2,606
    )
    
    
    77
    
    
    
    (1,997
    )Income (loss) from continuing operations before income
taxes
    
    
    114
    
    
    
    (8,601
    )
    
    
    (914
    )
    
    
    (9,385
    )Income tax expense (benefit)
    
    
    823
    
    
    
    (2,843
    )
    
    
    1,034
    
    
    
    (2,882
    )Loss from continuing operations
    
    
    (709
    )
    
    
    (5,758
    )
    
    
    (1,948
    )
    
    
    (6,503
    )Income (loss) from discontinued operations, net of tax
    
    
    
    
    
    
    (218
    )
    
    
    
    
    
    
    16,312Net income (loss)
    
    $
    (709
    )
    
    $
    (5,976
    )
    
    $
    (1,948
    )
    
    $
    9,809Weighted average common shares and equivalents
outstanding, basic and diluted:
    
    
    12,262
    
    
    
    11,796
    
    
    
    12,247
    
    
    
    11,396Earnings (loss) per common share, basic and diluted:Loss per share from continuing operations
    
    $
    (0.06
    )
    
    $
    (0.49
    )
    
    $
    (0.16
    )
    
    $
    (0.58
    )Earnings (loss) per share from discontinued operations
    
    $
    
    
    
    $
    (0.02
    )
    
    $
    
    
    
    $
    1.43Earnings (loss) per share
    
    $
    (0.06
    )
    
    $
    (0.51
    )
    
    $
    (0.16
    )
    
    $
    0.85
 The accompanying notes are an integral part of these statements.
 4




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##### 



PENFORD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months EndedMay 31(In thousands)
    
    2011
    
    
    2010Cash flows from operating activities:Net income (loss)
    
    $
    (1,948
    )
    
    $
    9,809Less: Income from discontinued operations
    
    
    
    
    
    
    16,312Net loss from continuing operations
    
    
    (1,948
    )
    
    
    (6,503
    )Adjustments to reconcile net income (loss) from continuing
operations
to net cash provided by (used in) operations:Depreciation and amortization
    
    
    10,859
    
    
    
    11,149Non-cash interest on Series A Preferred Stock
    
    
    2,861
    
    
    
    900Stock-based compensation
    
    
    858
    
    
    
    1,200Deferred income tax expense (benefit)
    
    
    929
    
    
    
    (2,548
    )Non-cash gains on hedging transactions
    
    
    (485
    )
    
    
    (659
    )Foreign currency transaction gain
    
    
    
    
    
    
    (417
    )Loss on early extinguishment of debt
    
    
    
    
    
    
    1,049Other
    
    
    
    
    
    
    (3
    )Changes in assets and liabilities:Trade receivable
    
    
    (4,734
    )
    
    
    4,170Prepaid expenses
    
    
    (1,259
    )
    
    
    (1,271
    )Inventories
    
    
    (6,692
    )
    
    
    909Decrease in margin accounts
    
    
    (1,113
    )
    
    
    (474
    )Accounts payable and accrued liabilities
    
    
    1,190
    
    
    
    33Income tax receivable
    
    
    3,361
    
    
    
    (372
    )Other
    
    
    (4,046
    )
    
    
    2,397Net cash flow provided by (used in) operating activities 
continuing
operations
    
    
    (219
    )
    
    
    9,560Cash flows from investing activities:Acquisition of property, plant and equipment, net
    
    
    (5,595
    )
    
    
    (4,342
    )Net proceeds received from sale of discontinued operations
and other
    
    
    (45
    )
    
    
    20,779Net cash provided by (used in) investing activities  continuing
operations
    
    
    (5,640
    )
    
    
    16,437Cash flows from financing activities:Proceeds from revolving line of credit
    
    
    31,000
    
    
    
    23,200Payments on revolving line of credit
    
    
    (27,000
    )
    
    
    (51,833
    )Proceeds from issuance of long-term debt
    
    
    
    
    
    
    2,000Payments of long-term debt
    
    
    (150
    )
    
    
    (45,942
    )Proceeds from issuance of preferred stock
    
    
    
    
    
    
    40,000Issuance costs of preferred stock
    
    
    
    
    
    
    (1,995
    )Payments under capital lease obligation
    
    
    (185
    )
    
    
    (182
    )Payment of loan fees
    
    
    
    
    
    
    (1,227
    )Increase in cash overdraft
    
    
    2,068
    
    
    
    4,442Other
    
    
    38
    
    
    
    Net cash provided by (used in) financing activities  continuing
operations
    
    
    5,771
    
    
    
    (31,537
    )Cash flows from discontinued operations:Net cash provided by operating activities
    
    
    
    
    
    
    6,330Net cash used in investing activities
    
    
    
    
    
    
    (2,848
    )Net cash used in financing activities
    
    
    
    
    
    
    (3,399
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    (353
    )
 5




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##### 



Nine Months EndedMay 31(In thousands)
    
    2011
    
    
    2010Net cash used in discontinued operations
    
    
    
    
    
    
    (270
    )Decrease in cash and cash equivalents
    
    
    (88
    )
    
    
    (5,810
    )Cash and cash equivalents of continuing operations, beginning of
period
    
    
    315
    
    
    
    5,540Cash balance of discontinued operations, beginning of period
    
    
    
    
    
    
    634Cash and cash equivalents, end of period
    
    
    227
    
    
    
    364Less: cash balance of discontinued operations, end of period
    
    
    
    
    
    
    Cash and cash equivalents of continuing operations, end of period
    
    $
    227
    
    
    $
    364
 The accompanying notes are an integral part of these statements.
 6




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##### 



PENFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1BUSINESS
    Discontinued Operations
   2BASIS OF PRESENTATION
 Consolidation
  7




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##### 



Use of Estimates
  3INVENTORIES
  May 31,
    
    
    August 31,2011
    
    
    2010(In thousands)Raw materials
    
    $
    12,750
    
    
    $
    8,708Work in progress
    
    
    6,910
    
    
    
    1,299Finished goods
    
    
    7,366
    
    
    
    9,842Total inventories
    
    $
    27,026
    
    
    $
    19,849
 4PROPERTY, PLANT AND EQUIPMENT
  May 31,
    
    
    August 31,2011
    
    
    2010(In thousands)Land
    
    $
    10,435
    
    
    $
    10,307Plant and equipment
    
    
    328,902
    
    
    
    324,904Construction in progress
    
    
    5,304
    
    
    
    4,272344,641
    
    
    
    339,483Accumulated depreciation
    
    
    (236,800
    )
    
    
    (227,553
    )Net property, plant and equipment
    
    $
    107,841
    
    
    $
    111,930
 5PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION
  Shares Issued andOutstandingSeries A 15% Cumulative Non-Voting
Non-Convertible Preferred Stock, redeemable
    
    
    100,000Series B Voting Convertible Preferred Stock
    
    
    100,000
  8




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##### 



6DEBT
     7INCOME TAXES
  9




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##### 



10




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##### 



8OTHER COMPREHENSIVE INCOME (LOSS) (OCI)
  Three months ended
    
    
    Nine months endedMay 31,
    
    
    May 31,2011
    
    
    2010
    
    
    2011
    
    
    2010(In thousands)Net income (loss)
    
    $
    (709
    )
    
    $
    (5,976
    )
    
    $
    (1,948
    )
    
    $
    9,809Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    930Gain from foreign currency translation
reclassified into earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,420
    )Net unrealized gain (loss) on derivative instruments that qualify as cash flow
hedges, net of tax
    
    
    2,378
    
    
    
    318
    
    
    
    (402
    )
    
    
    1,509Total comprehensive income (loss)
    
    $
    1,669
    
    
    $
    (5,658
    )
    
    $
    (2,350
    )
    
    $
    (1,172
    )
  9  DISCONTINUED OPERATIONS
   10STOCK-BASED COMPENSATION
 Stock Compensation Plans
  11




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##### 



General Option Information
  WeightedWeighted
    
    
    AverageNumber of
    
    
    Average
    
    
    Remaining
    
    
    AggregateShares
    
    
    Exercise Price
    
    
    Term (in years)
    
    
    Intrinsic ValueOutstanding Balance, August 31, 2010
    
    
    1,264,564
    
    
    $
    15.07Granted
    
    
    98,000
    
    
    
    6.59Exercised
    
    
    
    
    
    
    Cancelled
    
    
    (17,551
    )
    
    
    13.02Outstanding Balance, May 31, 2011
    
    
    1,345,013
    
    
    
    14.48
    
    
    
    2.94
    
    
    $
    12,200Options Exercisable at May 31, 2011
    
    
    1,081,013
    
    
    $
    14.78
    
    
    
    2.43
    
    
    $
    
  Expected volatility
    
    
    71
    %Expected life (years)
    
    
    4.3Interest rate
    
    
    1.1-2.8
    %Weighted-average fair value
    
    $
    3.62
   Restricted Stock Awards
  WeightedAverageGrant DateNumber of Shares
    
    
    Fair ValueNonvested at August 31, 2010
    
    
    154,707
    
    
    $
    15.67Granted
    
    
    
    
    
    
    Vested
    
    
    (70,475
    )
    
    
    16.87Cancelled
    
    
    
    
    
    
    Nonvested at May 31, 2011
    
    
    84,232
    
    
    $
    14.67
  12




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##### 



Compensation Expense
  Three Months Ended
    
    
    Nine Months EndedMay 31,
    
    
    May 31,2011
    
    
    2010
    
    
    2011
    
    
    2010Cost of sales
    
    $
    30
    
    
    $
    39
    
    
    $
    92
    
    
    $
    125Operating expenses
    
    
    204
    
    
    
    374
    
    
    
    739
    
    
    
    1,053Research and development expenses
    
    
    8
    
    
    
    7
    
    
    
    27
    
    
    
    22Income (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25
    )Total stock-based compensation expense
    
    $
    242
    
    
    $
    420
    
    
    $
    858
    
    
    $
    1,175Income tax benefit
    
    
    92
    
    
    
    160
    
    
    
    326
    
    
    
    447Total stock-based compensation expense, net of tax
    
    $
    150
    
    
    $
    260
    
    
    $
    532
    
    
    $
    728
 11NON-OPERATING INCOME (LOSS), NET
  Three months ended
    
    
    Nine months endedMay 31,
    
    
    May 31,2011
    
    
    2010
    
    
    2011
    
    
    2010(In thousands)Loss on extinguishment of debt
    
    $
    
    
    
    $
    (1,049
    )
    
    $
    
    
    
    $
    (1,049
    )Loss on interest rate swap termination
    
    
    
    
    
    
    (1,562
    )
    
    
    
    
    
    
    (1,562
    )Gain on foreign currency transactions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    417Other
    
    
    (12
    )
    
    
    5
    
    
    
    77
    
    
    
    197Total
    
    $
    (12
    )
    
    $
    (2,606
    )
    
    $
    77
    
    
    $
    (1,997
    )
   13




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##### 



12  PENSION AND POST-RETIREMENT BENEFIT PLANS
  Three months ended
    
    
    Nine months endedMay 31,
    
    
    May 31,Defined benefit pension plans
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010(In thousands)Service cost
    
    $
    404
    
    
    $
    389
    
    
    $
    1,213
    
    
    $
    1,167Interest cost
    
    
    674
    
    
    
    641
    
    
    
    2,022
    
    
    
    1,923Expected return on plan assets
    
    
    (558
    )
    
    
    (506
    )
    
    
    (1,676
    )
    
    
    (1,518
    )Amortization of prior service cost
    
    
    57
    
    
    
    61
    
    
    
    171
    
    
    
    183Amortization of actuarial losses
    
    
    360
    
    
    
    304
    
    
    
    1,081
    
    
    
    912Net periodic benefit cost
    
    $
    937
    
    
    $
    889
    
    
    $
    2,811
    
    
    $
    2,667
 Three months ended
    
    
    Nine months endedMay 31,
    
    
    May 31,Post-retirement health care plans
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010(In thousands)Service cost
    
    $
    68
    
    
    $
    88
    
    
    $
    204
    
    
    $
    264Interest cost
    
    
    243
    
    
    
    269
    
    
    
    729
    
    
    
    807Amortization of prior service cost
    
    
    (38
    )
    
    
    (38
    )
    
    
    (114
    )
    
    
    (114
    )Amortization of actuarial losses
    
    
    16
    
    
    
    74
    
    
    
    49
    
    
    
    222Net periodic benefit cost
    
    $
    289
    
    
    $
    393
    
    
    $
    868
    
    
    $
    1,179
  13FAIR VALUE MEASURMENTS AND DERIVATIVE INSTRUMENTS
 Fair Value Measurements
  As of May 31, 2011
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Total(in thousands)Current assets (Other Current Assets):Commodity derivatives (1)
    
    $
    (732
    )
    
    $
    
    
    
    $
    
    
    
    $
    (732
    )
 
 (1)
    
    On the condensed consolidated balance sheet, commodity derivative assets and liabilities have been offset by
cash collateral due and paid under master netting arrangements which are recorded together in Other Current Assets.
The cash collateral offset was $3.0 million at May 31, 2011. As of August 31, 2010
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    Total(in thousands)Current assets (Other Current Assets):Commodity derivatives (1)
    
    $
    (2,789
    )
    
    $
    
    $
    
    $
    (2,789
    )
 
 (1)
    
    On the condensed consolidated balance sheet, commodity derivative assets and liabilities have been offset by
cash collateral due and paid under master netting arrangements which are recorded together in Other Current Assets.
The cash collateral offset was $4.5 million at August 31, 2010. 14




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##### 




    
    Level 1 inputs are quoted prices (unadjusted) in active markets for identical
assets or liabilities that the entity has the ability to access at the measurement date.
    
    Level 2 inputs are other than quoted prices included within Level 1 that are observable
for assets and liabilities such as (1) quoted prices for similar assets or liabilities in
active markets, (2) quoted prices for identical or similar assets or liabilities in markets
that are not active, or (3) inputs that are derived principally or corroborated by
observable market date by correlation or other means.
    
    Level 3 inputs are unobservable inputs to the valuation methodology for the assets or
liabilities.
 Other Financial Instruments
    Interest Rate Swap Agreements
  Commodity Contracts
    15




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##### 



Corn Futures
    
    1,460,000 BushelsNatural Gas Futures
    
    1,020,000 mmbtu (millions of British thermal units)Ethanol Swaps
    
    6,960,000 Gallons
  Asset Derivatives
    
    
    Liability DerivativesFair Value
    
    
    
    
    
    
    Fair ValueBalance Sheet
    
    
    May 31
    
    
    Aug. 31
    
    
    Balance Sheet
    
    
    May 31
    
    
    Aug. 31In thousands
    
    Location
    
    2011
    
    
    2010
    
    
    Location
    
    2011
    
    
    2010Cash Flow Hedges:Corn Futures
    
    Other Current Assets
    
    $
    180
    
    
    $
    
    
    
    Other Current Assets
    
    $
    
    
    
    $
    Natural Gas Futures
    
    Other Current Assets
    
    
    7
    
    
    
    
    
    
    Other Current Assets
    
    
    51
    
    
    
    1,082Ethanol Gas Futures
    
    Other Current Assets
    
    
    
    
    
    
    
    
    
    Other Current Assets
    
    
    784
    
    
    
    Fair Value Hedges:Corn Futures
    
    Other Current Assets
    
    
    4
    
    
    
    28
    
    
    Other Current Assets
    
    
    88
    
    
    
    1,735Total Derivatives
Designated as Hedging
Instruments
    
    
    
    
    
    $
    191
    
    
    $
    28
    
    
    
    
    
    
    $
    923
    
    
    $
    2,817
  Amount of Gain (Loss)Amount of Gain (Loss)
    
    Reclassified from
    
    Amount of Gain (Loss)Recognized in OCI
    
    AOCI into Income
    
    Recognized in IncomeQuarter Ended May 31
    
    Quarter Ended May 31
    
    Quarter Ended May 31In thousands
    
    2011
    
    2010
    
    2011
    
    2010
    
    2011
    
    2010Cash Flow Hedges:Corn Futures (1)
    
    $
    (601
    )
    
    $
    40
    
    
    $
    (3,862
    )
    
    $
    594
    
    
    $
    60
    
    
    $
    288Natural Gas Futures (1)
    
    
    415
    
    
    
    (845
    )
    
    
    (249
    )
    
    
    (618
    )
    
    
    
    
    
    
    Ethanol Futures (1)
    
    
    (596
    )
    
    
    
    
    
    
    (506
    )
    
    
    (75
    )
    
    
    
    
    
    
    Interest Rate Contracts(2)
    
    
    
    
    
    
    61
    
    
    
    
    
    
    
    (93
    )
    
    
    
    
    
    
    (1,562
    )$
    (782
    )
    
    $
    (744
    )
    
    $
    (4,617
    )
    
    $
    (192
    )
    
    $
    60
    
    
    $
    (1,274
    )Fair Value Hedges:Corn Futures (1) (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (6
    )
    
    $
    (117
    )
 16




---



##### 



Amount of Gain (Loss)Amount of Gain (Loss)
    
    
    Reclassified from
    
    
    Amount of Gain (Loss)Recognized in OCI
    
    
    AOCI into Income
    
    
    Recognized in Income9 Months Ended May 31
    
    
    9 Months Ended May 31
    
    
    9 Months Ended May 31In thousands
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Cash Flow Hedges:Corn Futures (1)
    
    $
    (7,358
    )
    
    $
    384
    
    
    $
    (6,125
    )
    
    $
    1,690
    
    
    $
    85
    
    
    $
    113Natural Gas Futures (1)
    
    
    (135
    )
    
    
    (2,088
    )
    
    
    (1,305
    )
    
    
    (1,724
    )
    
    
    
    
    
    
    Ethanol Futures (1)
    
    
    (910
    )
    
    
    (590
    )
    
    
    (323
    )
    
    
    (514
    )
    
    
    
    
    
    
    Interest Rate Contracts(2)
    
    
    
    
    
    
    (395
    )
    
    
    
    
    
    
    (662
    )
    
    
    
    
    
    
    (1,562
    )FX Contracts (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26
    )
    
    
    
    
    
    
    -$
    (8,403
    )
    
    $
    (2,689
    )
    
    $
    (7,753
    )
    
    $
    (1,236
    )
    
    $
    85
    
    
    $
    (1,449
    )Fair Value Hedges:Corn Futures (1) (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (229
    )
    
    $
    (56
    )
 
 (1)
    
    Gains and losses reported in cost of goods sold(2)
    
    Gains and losses reported in interest expense(3)
    
    Hedged items are firm commitments and inventory 14SEGMENT REPORTING
  Three months ended
    
    
    Nine months endedMay 31,
    
    
    May 31,2011
    
    
    2010
    
    
    2011
    
    
    2010(In thousands)Sales:Industrial IngredientsIndustrial Starch
    
    $
    33,535
    
    
    $
    27,409
    
    
    $
    93,721
    
    
    $
    87,740Ethanol
    
    
    28,061
    
    
    
    14,601
    
    
    
    78,395
    
    
    
    50,64361,596
    
    
    
    42,010
    
    
    
    172,116
    
    
    
    138,383Food Ingredients
    
    
    23,637
    
    
    
    19,899
    
    
    
    59,686
    
    
    
    52,889$
    85,233
    
    
    $
    61,909
    
    
    $
    231,802
    
    
    $
    191,272Income (loss) from operations:Industrial Ingredients
    
    $
    (734
    )
    
    $
    (6,847
    )
    
    $
    (1,695
    )
    
    $
    (6,414
    )Food Ingredients
    
    
    5,517
    
    
    
    5,018
    
    
    
    13,902
    
    
    
    11,447Corporate and other
    
    
    (2,277
    )
    
    
    (2,262
    )
    
    
    (6,245
    )
    
    
    (7,097
    )$
    2,506
    
    
    $
    (4,091
    )
    
    $
    5,962
    
    
    $
    (2,064
    )
 May 31,
    
    
    August 31,2011
    
    
    2010(In thousands)Total assets:Industrial Ingredients
    
    $
    140,909
    
    
    $
    133,738Food Ingredients
    
    
    40,479
    
    
    
    36,542Corporate and other
    
    
    32,665
    
    
    
    38,128$
    214,053
    
    
    $
    208,408
 17




---



##### 



15EARNINGS (LOSS) PER SHARE
   Three months ended
    
    
    Nine months endedMay 31,
    
    
    May 31,2011
    
    
    2010
    
    
    2011
    
    
    2010(In thousands)
    
    
    (In thousands)Numerator:Loss from continuing operations
    
    $
    (709
    )
    
    $
    (5,758
    )
    
    $
    (1,948
    )
    
    $
    (6,503
    )Less: Allocation to participating securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (110
    )Loss from continuing operations applicable
to common shares
    
    $
    (709
    )
    
    $
    (5,758
    )
    
    $
    (1,948
    )
    
    $
    (6,613
    )Income (loss) from discontinued operations
    
    $
    
    
    
    $
    (218
    )
    
    $
    
    
    
    $
    16,312Less: Allocation to participating securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) from discontinued operations
applicable to common shares
    
    $
    
    
    
    $
    (218
    )
    
    $
    
    
    
    $
    16,312Net income (loss)
    
    $
    (709
    )
    
    $
    (5,976
    )
    
    $
    (1,948
    )
    
    $
    9,809Less: Allocation to participating securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (110
    )Net income (loss) applicable to common shares
    
    $
    (709
    )
    
    $
    (5,976
    )
    
    $
    (1,948
    )
    
    $
    9,699Denominator:Weighted average common shares outstanding, basic
    
    
    12,262
    
    
    
    11,796
    
    
    
    12,247
    
    
    
    11,396Dilutive stock options and awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average common shares outstanding,
diluted
    
    
    12,262
    
    
    
    11,796
    
    
    
    12,247
    
    
    
    11,396
  18




---



##### 



16LEGAL PROCEEDINGS
   19




---



##### 



Item 2: Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Overview
     Results of Operations
 Executive Overview
      20




---



##### 



Industrial Ingredients
     Food Ingredients
   21




---



##### 



Corporate operating expenses
  Interest expense
  Income taxes
       22




---



##### 



Liquidity and Capital Resources
  Operating Activities
  Investing Activities
  Financing Activities
     23




---



##### 



Contractual Obligations
  Off-Balance Sheet Arrangements
  Critical Accounting Policies and Estimates
  Forward-looking Statements
  
    
    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;
 24




---



##### 




    
    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;
    
    changes in returns on pension plan assets and/or assumptions used for determining
employee benefit expense and obligations;
    
    other unforeseen developments in the industries in which Penford operates,
    
    the Companys ability to successfully operate under and comply with the terms of its
debt instruments;
    
    other factors described in the Companys Form 10-K Part I, Item 1A Risk Factors.
 Item 3: Quantitative and Qualitative Disclosures about Market Risk.
  Item 4: Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
  25




---



##### 



PART II  OTHER INFORMATION
 Item 1: Legal Proceedings
   Item 1A: Risk Factors
  Item 6: Exhibits.
  31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 26




---



##### 



SIGNATURES
  Penford Corporation(Registrant)July 7, 2011
    /s/ Steven O. CordierSteven O. CordierSenior Vice President and Chief Financial Officer 27




---



##### 



EXHIBIT INDEX
 Exhibit No.
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 200232
    
    Certifications of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 28