##### Table of Contents



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 February 28, 2009
  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
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ




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##### 



PENFORD CORPORATION AND SUBSIDIARIES
 INDEX
 PagePART IFINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets  February 28, 2009 and August 31, 2008
    
    
    3Condensed Consolidated Statements of Operations  Three and Six Months ended February 28, 2009
and February 29, 2008
    
    
    4Condensed Consolidated Statements of Cash Flow  Six Months ended February 28, 2009 and
February 29, 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    28PART IIOTHER INFORMATIONItem 1. Legal Proceedings
    
    
    29Item 1A. Risk Factors
    
    
    29Item 4. Submission of Matters to a Vote of Security Holders
    
    
    29Item 6. Exhibits
    
    
    29Signatures
    
    
    30EX-31.1EX-31.2EX-32
  2




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PART I  FINANCIAL INFORMATION
 
 Item 1: Financial Statements
 PENFORD CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 February 28,
    
    
    August 31,(In thousands, except per share data)
    
    2009
    
    
    2008(Unaudited)ASSETSCurrent assets:Cash
    
    $
    39
    
    
    $
    534Trade accounts receivable, net
    
    
    41,002
    
    
    
    28,752Inventories
    
    
    40,229
    
    
    
    50,200Prepaid expenses
    
    
    4,102
    
    
    
    4,370Insurance recovery receivable
    
    
    
    
    
    
    8,000Income tax receivable
    
    
    9,722
    
    
    
    10,052Other
    
    
    5,558
    
    
    
    3,881Total current assets
    
    
    100,652
    
    
    
    105,789Property, plant and equipment, net
    
    
    153,127
    
    
    
    169,932Restricted cash value of life insurance
    
    
    10,519
    
    
    
    10,465Deferred tax asset
    
    
    2,051
    
    
    
    6,293Goodwill, net
    
    
    5,833
    
    
    
    26,043Other intangible assets, net
    
    
    665
    
    
    
    760Other assets
    
    
    1,538
    
    
    
    1,151Total assets
    
    $
    274,385
    
    
    $
    320,433LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Cash overdraft, net
    
    $
    6,360
    
    
    $
    1,301Current portion of long-term debt and capital lease obligations
    
    
    10,524
    
    
    
    8,029Short-term borrowings
    
    
    1,340
    
    
    
    676Accounts payable
    
    
    28,572
    
    
    
    46,475Accrued liabilities
    
    
    10,396
    
    
    
    11,195Total current liabilities
    
    
    57,192
    
    
    
    67,676Long-term debt and capital lease obligations
    
    
    70,306
    
    
    
    59,860Other post-retirement benefits
    
    
    13,117
    
    
    
    12,862Other liabilities
    
    
    18,890
    
    
    
    19,673Total liabilities
    
    
    159,505
    
    
    
    160,071Shareholders equity:Preferred stock, par value $1.00 per share, authorized 1,000 shares,
none issued
    
    
    
    
    
    
    Common stock, par value $1.00 per share, authorized 29,000 shares,
issued 13,157 and 13,127 shares, respectively
    
    
    13,157
    
    
    
    13,127Additional paid-in capital
    
    
    92,612
    
    
    
    91,443Retained earnings
    
    
    50,193
    
    
    
    74,092Treasury stock, at cost, 1,981 shares
    
    
    (32,757
    )
    
    
    (32,757
    )Accumulated other comprehensive income (loss)
    
    
    (8,325
    )
    
    
    14,457Total shareholders equity
    
    
    114,880
    
    
    
    160,362Total liabilities and shareholders equity
    
    $
    274,385
    
    
    $
    320,433
 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
    
    
    Six months endedFebruary 28,
    
    
    February 29,
    
    
    February 28,
    
    
    February 29,(In thousands, except per share data)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Sales
    
    $
    79,808
    
    
    $
    87,889
    
    
    $
    160,499
    
    
    $
    182,750Cost of sales
    
    
    83,951
    
    
    
    76,384
    
    
    
    159,254
    
    
    
    154,992Gross margin
    
    
    (4,143
    )
    
    
    11,505
    
    
    
    1,245
    
    
    
    27,758Operating expenses
    
    
    7,267
    
    
    
    6,666
    
    
    
    14,534
    
    
    
    13,906Research and development expenses
    
    
    1,562
    
    
    
    2,073
    
    
    
    3,080
    
    
    
    4,095Goodwill impairment
    
    
    13,828
    
    
    
    
    
    
    
    13,828
    
    
    
    Flood related costs, net of
insurance proceeds
    
    
    (3,800
    )
    
    
    
    
    
    
    (8,034
    )
    
    
    Restructure costs
    
    
    
    
    
    
    95
    
    
    
    
    
    
    
    1,329Income (loss) from operations
    
    
    (23,000
    )
    
    
    2,671
    
    
    
    (22,163
    )
    
    
    8,428Non-operating income, net
    
    
    1,924
    
    
    
    791
    
    
    
    1,714
    
    
    
    1,254Interest expense
    
    
    1,349
    
    
    
    601
    
    
    
    2,842
    
    
    
    1,867Income (loss) before income taxes
    
    
    (22,425
    )
    
    
    2,861
    
    
    
    (23,291
    )
    
    
    7,815Income tax expense (benefit)
    
    
    (247
    )
    
    
    546
    
    
    
    (744
    )
    
    
    2,338Net income (loss)
    
    $
    (22,178
    )
    
    $
    2,315
    
    
    $
    (22,547
    )
    
    $
    5,477Weighted average common shares and
equivalents outstanding:Basic
    
    
    11,174
    
    
    
    10,857
    
    
    
    11,165
    
    
    
    9,988Diluted
    
    
    11,174
    
    
    
    11,195
    
    
    
    11,165
    
    
    
    10,381Earnings (loss) per share:Basic
    
    $
    (1.98
    )
    
    $
    0.21
    
    
    $
    (2.02
    )
    
    $
    0.55Diluted
    
    $
    (1.98
    )
    
    $
    0.21
    
    
    $
    (2.02
    )
    
    $
    0.53Dividends declared per common share
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.12
    
    
    $
    0.12
 The accompanying notes are an integral part of these statements.
 4




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PENFORD CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
  Six Months EndedFebruary 28,
    
    
    February 29,(In thousands)
    
    2009
    
    
    2008Cash flows from operating activities:Net income (loss)
    
    $
    (22,547
    )
    
    $
    5,477Adjustments to reconcile net income (loss) to net cash
provided by (used in) operations:Depreciation and amortization
    
    
    9,267
    
    
    
    7,841Stock-based compensation
    
    
    1,453
    
    
    
    989Goodwill impairment
    
    
    13,828
    
    
    
    Gain on sale of dextrose product line
    
    
    (1,562
    )
    
    
    Deferred income taxes
    
    
    2,480
    
    
    
    (2,530
    )Loss on derivative transactions
    
    
    840
    
    
    
    4,085Loss (gain) on foreign currency transactions
    
    
    641
    
    
    
    (1,015
    )Other
    
    
    4
    
    
    
    (12
    )Change in assets and liabilities:Trade accounts receivable
    
    
    (15,968
    )
    
    
    6,295Prepaid expenses
    
    
    (25
    )
    
    
    779Inventories
    
    
    143
    
    
    
    (5,095
    )Accounts payable and accrued liabilities
    
    
    (16,448
    )
    
    
    (11,847
    )Income tax
    
    
    (387
    )
    
    
    (1,874
    )Insurance recovery receivable
    
    
    8,000
    
    
    
    Other
    
    
    2,823
    
    
    
    (368
    )Net cash provided by (used in) operating activities
    
    
    (17,458
    )
    
    
    2,725Cash flows from investing activities:Investment in property, plant and equipment, net
    
    
    (3,270
    )
    
    
    (29,429
    )Proceeds from sale of dextrose product line
    
    
    2,857
    
    
    
    Other
    
    
    (51
    )
    
    
    (60
    )Net cash used in investing activities
    
    
    (464
    )
    
    
    (29,489
    )Cash flows from financing activities:Proceeds from short-term borrowings
    
    
    6,902
    
    
    
    2,424Payments on short-term borrowings
    
    
    (6,063
    )
    
    
    (8,710
    )Proceeds from revolving line of credit
    
    
    38,476
    
    
    
    40,529Payments on revolving line of credit
    
    
    (21,500
    )
    
    
    (25,052
    )Payments of long-term debt
    
    
    (3,250
    )
    
    
    (25,625
    )Exercise of stock options
    
    
    
    
    
    
    69Net proceeds from issuance of common stock
    
    
    
    
    
    
    46,844Payment of loan fees
    
    
    (551
    )
    
    
    Increase (decrease) in cash overdraft
    
    
    5,059
    
    
    
    (723
    )Payment of dividends
    
    
    (1,350
    )
    
    
    (1,100
    )Other
    
    
    (140
    )
    
    
    (9
    )Net cash provided by financing activities
    
    
    17,583
    
    
    
    28,647Effect of exchange rate changes on cash and cash equivalents
    
    
    (156
    )
    
    
    (63
    )Net increase (decrease) in cash and cash equivalents
    
    
    (495
    )
    
    
    1,820Cash and cash equivalents, beginning of period
    
    
    534
    
    
    
    Cash and cash equivalents, end of period
    
    $
    39
    
    
    $
    1,820
 The accompanying notes are an integral part of these statements.
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PENFORD CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1BUSINESS
     2BASIS OF PRESENTATION
 Consolidation
  Use of Estimates
  6




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Accounting Changes
    Recent Accounting Pronouncements
    7




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3CEDAR RAPIDS FLOOD
   Three months ended
    
    Three months ended
    
    Three months endedAugust 31, 2008
    
    November 30, 2008
    
    February 28, 2009
    
    Total(In thousands)Repairs of buildings and equipment
    
    $
    17,082
    
    
    $
    5,790
    
    
    $
    454
    
    
    $
    23,326Site remediation
    
    
    5,389
    
    
    
    348
    
    
    
    
    
    
    
    5,737Write off of inventory and fixed assets
    
    
    4,016
    
    
    
    71
    
    
    
    
    
    
    
    4,087Continuing costs during production shut down
    
    
    9,771
    
    
    
    
    
    
    
    
    
    
    
    9,771Other
    
    
    1,797
    
    
    
    577
    
    
    
    177
    
    
    
    2,55138,055
    
    
    
    6,786
    
    
    
    631
    
    
    
    45,472Insurance recoveries
    
    
    (10,500
    )
    
    
    (11,020
    )
    
    
    (4,431
    )
    
    
    (25,951
    )Net flood costs (recoveries)
    
    $
    27,555
    
    
    $
    (4,234
    )
    
    $
    (3,800
    )
    
    $
    19,521
  Insurance recoveries
  4GOODWILL
   8




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5STOCK-BASED COMPENSATION
 Stock Compensation Plans
  Valuation and Expense Under SFAS No. 123R
  Stock Option Awards
  WeightedWeighted
    
    AverageNumber of
    
    Average
    
    Remaining
    
    AggregateShares
    
    Exercise Price
    
    Term (in years)
    
    Intrinsic ValueOutstanding Balance, August 31, 2008
    
    
    1,376,347
    
    
    $
    15.17Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Cancelled
    
    
    (1,481
    )
    
    
    Outstanding Balance, February 28, 2009
    
    
    1,374,866
    
    
    $
    15.17
    
    
    
    4.79
    
    
    $
    Options Exercisable at February 28, 2009
    
    
    858,991
    
    
    $
    14.08
    
    
    
    4.05
    
    
    $
    
   9




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Restricted Stock Awards
  WeightedAverageNumber of
    
    Grant DateShares
    
    Fair ValueNonvested at August 31, 2008
    
    
    109,365
    
    
    $
    34.15Granted
    
    
    13,832
    
    
    
    10.12Vested
    
    
    (33,615
    )
    
    
    31.84Cancelled
    
    
    
    
    
    
    Nonvested at February 28, 2009
    
    
    89,582
    
    
    $
    31.31
   Compensation Expense
  Three Months Ended
    
    Six Months EndedFebruary 28,
    
    February 29,
    
    February 28,
    
    February 29,2009
    
    2008
    
    2009
    
    2008Cost of sales
    
    $
    74
    
    
    $
    48
    
    
    $
    164
    
    
    $
    86Operating expenses
    
    
    529
    
    
    
    577
    
    
    
    1,258
    
    
    
    897Research and development expenses
    
    
    15
    
    
    
    2
    
    
    
    31
    
    
    
    6Total stock-based compensation expense
    
    $
    618
    
    
    $
    627
    
    
    $
    1,453
    
    
    $
    989Tax benefit
    
    
    235
    
    
    
    238
    
    
    
    552
    
    
    
    376Total stock-based compensation expense,
net of tax
    
    $
    383
    
    
    $
    389
    
    
    $
    901
    
    
    $
    613
 6INVENTORIES
  February 28,
    
    
    August 31,2009
    
    
    2008(In thousands)Raw materials
    
    $
    18,424
    
    
    $
    26,578Work in progress
    
    
    731
    
    
    
    1,139Finished goods
    
    
    21,074
    
    
    
    22,483Total inventories
    
    $
    40,229
    
    
    $
    50,200
 10




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7PROPERTY, PLANT AND EQUIPMENT
  February 28,
    
    
    August 31,2009
    
    
    2008(In thousands)Land
    
    $
    18,139
    
    
    $
    20,993Plant and equipment
    
    
    369,465
    
    
    
    385,632Construction in progress
    
    
    7,800
    
    
    
    6,808395,404
    
    
    
    413,433Accumulated depreciation
    
    
    (242,277
    )
    
    
    (243,501
    )Net property, plant and equipment
    
    $
    153,127
    
    
    $
    169,932
  8DEBT
    11




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9INCOME TAXES
     12




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10STOCKHOLDERS EQUITY
  11OTHER COMPREHENSIVE INCOME (LOSS) (OCI)
  Three months ended
    
    
    Six months endedFebruary
    
    
    February
    
    
    February
    
    
    February28, 2009
    
    
    29, 2008
    
    
    28, 2009
    
    
    29, 2008(In thousands)Net income (loss)
    
    $
    (22,178
    )
    
    $
    2,315
    
    
    $
    (22,547
    )
    
    $
    5,477Foreign currency translation adjustments
    
    
    (1,346
    )
    
    
    5,598
    
    
    
    (20,302
    )
    
    
    11,069Net unrealized gain (loss) on derivative
instruments that qualify as cash flow
hedges,
net of tax
    
    
    (1,890
    )
    
    
    1,294
    
    
    
    (2,480
    )
    
    
    1,355Total comprehensive income (loss)
    
    $
    (25,414
    )
    
    $
    9,207
    
    
    $
    (45,329
    )
    
    $
    17,901
  12NON-OPERATING INCOME, NET
  Three months ended
    
    
    Six months endedFebruary 28,
    
    
    February 29,
    
    
    February 28,
    
    
    February 29,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Royalty and licensing income
    
    $
    377
    
    
    $
    405
    
    
    $
    787
    
    
    $
    855Gain on sale of dextrose product line
    
    
    1,562
    
    
    
    
    
    
    
    1,562
    
    
    
    Gain (loss) on foreign currency
transactions
    
    
    (28
    )
    
    
    434
    
    
    
    (641
    )
    
    
    444Other
    
    
    13
    
    
    
    (48
    )
    
    
    6
    
    
    
    (45
    )Total
    
    $
    1,924
    
    
    $
    791
    
    
    $
    1,714
    
    
    $
    1,254
    13




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13  PENSION AND POST-RETIREMENT BENEFIT PLANS
  Three months ended
    
    
    Six months endedFebruary 28,
    
    
    February 29,
    
    
    February 28,
    
    
    February 29,Defined benefit pension plans
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Service cost
    
    $
    355
    
    
    $
    371
    
    
    $
    710
    
    
    $
    742Interest cost
    
    
    645
    
    
    
    623
    
    
    
    1,290
    
    
    
    1,246Expected return on plan assets
    
    
    (607
    )
    
    
    (663
    )
    
    
    (1,214
    )
    
    
    (1,326
    )Amortization of prior service cost
    
    
    63
    
    
    
    63
    
    
    
    126
    
    
    
    126Amortization of actuarial losses
    
    
    53
    
    
    
    13
    
    
    
    106
    
    
    
    26Net periodic benefit cost
    
    $
    509
    
    
    $
    407
    
    
    $
    1,018
    
    
    $
    814
 Three months ended
    
    
    Six months endedFebruary 28,
    
    
    February 29,
    
    
    February 28,
    
    
    February 29,Post-retirement health care plans
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Service cost
    
    $
    65
    
    
    $
    78
    
    
    $
    130
    
    
    $
    156Interest cost
    
    
    228
    
    
    
    213
    
    
    
    456
    
    
    
    426Amortization of prior service cost
    
    
    (38
    )
    
    
    (38
    )
    
    
    (76
    )
    
    
    (76
    )Net periodic benefit cost
    
    $
    255
    
    
    $
    253
    
    
    $
    510
    
    
    $
    506
 14DERIVATIVE INSTRUMENTS AND FAIR VALUE MEASURMENTS
   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.
  Quoted PricesIn Active
    
    SignificantMarkets for
    
    Other
    
    SignificantIdentical
    
    Observable
    
    UnobservableInstruments
    
    Inputs
    
    Inputs(Level 1)
    
    (Level 2)
    
    (Level 3)
    
    Total(in thousands)Current assets (Other Current Assets):Commodity derivatives
    
    $
    1,329
    
    
    $
    
    
    
    $
    
    
    
    $
    1,329Current liabilities (Accrued Liabilities):Interest rate swaps
    
    $
    
    
    
    $
    1,929
    
    
    $
    
    
    
    $
    1,929Foreign currency contracts
    
    
    
    
    
    
    272
    
    
    
    
    
    
    
    272Total Liabilities
    
    $
    
    
    
    $
    2,201
    
    
    $
    
    
    
    $
    2,201
 Derivative Instruments
  Interest Rate Swap Agreements
  Foreign Currency Contracts
  15




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Commodity Contracts
     Corn Futures
    
    2,895,000 BushelsNatural Gas Futures
    
    1,200,000 mmbtu (millions of British thermal units)Interest Rate Contracts
    
    31,000,000 US DollarsForeign Exchange Contracts
    
    31,420,146 CZK
 16




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##### Table of Contents



Fair Value of Derivative InstrumentsDerivatives Designated as Hedging
    
    as of the Quarter Ended February 28, 2009Instruments under SFAS 133
    
    (in thousands)2009 Asset Derivatives
    
    
    2009 Liability DerivativesBalance Sheet
    
    
    
    
    
    
    Balance SheetLocation
    
    
    Fair Value
    
    
    Location
    
    
    Fair ValueCash Flow Hedges:Corn Futures
    
    Other Current Assets
    
    $
    235
    
    
    Other Current Assets
    
    
    ($2,176
    )Natural Gas Futures
    
    Other Current Assets
    
    
    
    
    
    Other Current Assets
    
    
    (4,902
    )Interest Rate Contracts
    
    Other Current Assets
    
    
    
    
    
    Accrued Liabilities
    
    
    (1,929
    )Foreign Exchange Contracts
    
    Other Current Assets
    
    
    
    
    
    Accrued Liabilities
    
    
    (272
    )Total Cash Flow Hedges
    
    
    
    
    
    
    235
    
    
    
    
    
    
    
    (9,279
    )Fair Value Hedges:Corn Futures
    
    Other Current Assets
    
    
    2,954
    
    
    Other Current Assets
    
    
    (339
    )Total Fair Value Hedges
    
    
    
    
    
    
    2,954
    
    
    
    
    
    
    
    (339
    )Total Derivatives
Designated as Hedging
Instruments under SFAS
133
    
    
    
    
    
    $
    3,189
    
    
    
    
    
    
    
    ($9,618
    )
 Derivatives in SFAS 133 Cash
    
    The Effect of Derivative Instruments on the Statement of Financial PerformanceFlow Hedging Relationships
    
    for the Quarter Ended February 28, 2009(in thousands)Amount of Gain orLocation of Gain or
    
    
    Amount of Gain or
    
    
    
    
    
    
    (Loss) RecognizedAmount of Gain or
    
    
    (Loss) Reclassified
    
    
    (Loss) Reclassified
    
    
    Location of Gain or (Loss)
    
    
    in Income on(Loss)
    
    
    from Accum OCI into
    
    
    from Accum OCI into
    
    
    Recognized in Income on
    
    
    DerivativeRecognized in OCI
    
    
    Income
    
    
    Income (Effective
    
    
    Derivative (Ineffective
    
    
    (Ineffective(Effective Portion)
    
    
    (Effective Portion)
    
    
    Portion)
    
    
    Portion)
    
    
    Portion)Income Statement
    
    
    
    
    
    
    Income StatementLocation
    
    
    
    
    
    
    LocationCash Flow Hedging
Relationships:Corn Futures
    
    $
    (905
    )
    
    Cost of goods sold
    
    $
    6,981
    
    
    Cost of goods sold
    
    $
    618Natural Gas Futures
    
    
    (4,902
    )
    
    Cost of goods sold
    
    
    (795
    )
    
    Cost of goods sold
    
    
    Interest Rate Contracts
    
    
    (1,929
    )
    
    Interest expense
    
    
    (47
    )
    
    Interest Expense
    
    
    Foreign Exchange Contracts
    
    
    (290
    )
    
    Cost of goods sold
    
    
    
    
    
    Cost of goods sold
    
    
    Total
    
    $
    (8,026
    )
    
    
    
    
    
    $
    6,139
    
    
    
    
    
    
    $
    618Derivatives in SFAS 133 Fair
    
    The Effect of Derivative Instruments on the Statement of Financial PerformanceValue Hedging Relationships
    
    for the Quarter Ended February 28, 2009(in thousands)Location ofAmount of Gain
    
    
    
    
    
    
    Location of
    
    
    Gain/(Loss)Location of Gain /
    
    
    / (Loss)
    
    
    Hedged Item in
    
    
    Gain/(Loss)
    
    
    Recognized in(Loss) Recognized
    
    
    Recognized in
    
    
    SFAS 133 Fair
    
    
    Recognized in
    
    
    Income onin Income on
    
    
    Income on
    
    
    Value Hedge
    
    
    Income on Related
    
    
    Related HedgedDerivative
    
    
    Derivative
    
    
    Relationships
    
    
    Hedged Item
    
    
    ItemIncome Statement
    
    
    
    
    
    
    
    
    
    
    Income StatementLocation
    
    
    
    
    
    
    
    
    
    
    LocationFair Value Hedge
Relationships:Corn Futures
    
    Cost of goods sold
    
    
    
    
    
    Firm Commitments/Inventory
    
    Cost of goods sold
    
    $
    337Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    337
 17




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##### Table of Contents



15RESTRUCTURING COSTS
  16SEGMENT REPORTING
  Three months ended
    
    
    Six months endedFebruary
    
    
    February
    
    
    February
    
    
    February28, 2009
    
    
    29, 2008
    
    
    28, 2009
    
    
    29, 2008(In thousands)Sales:Industrial IngredientsNorth America
    
    $
    47,315
    
    
    $
    49,076
    
    
    $
    89,157
    
    
    $
    98,286Food IngredientsNorth America
    
    
    16,623
    
    
    
    15,642
    
    
    
    34,365
    
    
    
    31,718Australia/New Zealand Operations
    
    
    16,068
    
    
    
    23,458
    
    
    
    37,428
    
    
    
    53,402Intercompany sales
    
    
    (198
    )
    
    
    (287
    )
    
    
    (451
    )
    
    
    (656
    )$
    79,808
    
    
    $
    87,889
    
    
    $
    160,499
    
    
    $
    182,750Income (loss) from operations:Industrial IngredientsNorth America
    
    $
    (6,652
    )
    
    $
    4,568
    
    
    $
    (4,852
    )
    
    $
    10,265Food IngredientsNorth America
    
    
    2,813
    
    
    
    2,207
    
    
    
    6,211
    
    
    
    4,859Australia/New Zealand Operations
    
    
    (16,787
    )
    
    
    (2,045
    )
    
    
    (18,320
    )
    
    
    (2,120
    )Corporate and other
    
    
    (2,374
    )
    
    
    (2,059
    )
    
    
    (5,202
    )
    
    
    (4,576
    )$
    (23,000
    )
    
    $
    2,671
    
    
    $
    (22,163
    )
    
    $
    8,428
 18




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##### Table of Contents



February 28,
    
    
    August 31,2009
    
    
    2008(In thousands)Total assets:Industrial Ingredients-North America
    
    $
    144,830
    
    
    $
    141,618Food IngredientsNorth America
    
    
    33,530
    
    
    
    35,100Australia/New Zealand Operations
    
    
    64,192
    
    
    
    111,255Corporate and other
    
    
    31,833
    
    
    
    32,460$
    274,385
    
    
    $
    320,433
 17EARNINGS (LOSS) PER SHARE
 .
 Three months ended
    
    Six months endedFebruary
    
    February
    
    February
    
    February28, 2009
    
    29, 2008
    
    28, 2009
    
    29, 2008(In thousands)Weighted average common shares
outstanding
    
    
    11,174
    
    
    
    10,857
    
    
    
    11,165
    
    
    
    9,988Dilutive stock options and awards
    
    
    
    
    
    
    338
    
    
    
    
    
    
    
    393Weighted average common shares
outstanding,
assuming dilution
    
    
    11,174
    
    
    
    11,195
    
    
    
    11,165
    
    
    
    10,381
  18LEGAL PROCEEDINGS
  19GUARANTEE
  19




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##### Table of Contents



Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-looking Statements
 This Quarterly Report on Form 10-Q (Quarterly Report), including, but not limited, to
statements found in the Notes to Consolidated Financial Statements and in Item 2  Managements
Discussion and Analysis of Financial Condition and Results of Operations, contains statements that
are forward-looking statements within the meaning of the federal securities laws. In particular,
statements pertaining to anticipated operations and business strategies contain forward-looking
statements. Likewise, statements regarding anticipated changes in the Companys business and
anticipated market conditions are forward-looking statements. Forward-looking statements involve
numerous risks and uncertainties and should not be relied upon as predictions of future events.
Forward-looking statements depend on assumptions, dates or methods that may be incorrect or
imprecise, and the Company may not be able to realize them. Forward-looking statements can be
identified by the use of forward-looking terminology such as believes, expects, may, will,
should, seeks, approximately, intends, plans, estimates, or anticipates, or the
negative use of these words and phrases or similar words or phrases. Forward-looking statements
can be identified by discussions of strategy, plans or intentions. Among the factors that could
cause actual results to differ materially are the risks and uncertainties discussed in this
Quarterly Report, including those referenced in Item 1A in this Quarterly Report, and those
described from time to time in other filings with the Securities and Exchange Commission, including
the Companys Annual Report on Form 10-K for the year ended August 31, 2008, 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 expenditures for flood restoration costs and related
insurance recoveries;§
    
    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;§
    
    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, or§
    
    other factors described in Part I, Item 1A Risk Factors.
 Overview
  20




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##### Table of Contents



Impact of Cedar Rapids Flood
     Goodwill
  Accounting Changes
  21




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##### Table of Contents



Results of Operations
 Executive Overview
   Industrial IngredientsNorth America
   22




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##### Table of Contents



Food IngredientsNorth America
    Australia/New Zealand Operations
   23




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##### Table of Contents



Corporate operating expenses
  Interest expense
  Income taxes
     24




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##### Table of Contents



Non-operating income, net
  Three months ended
    
    
    Six months endedFebruary 28,
    
    
    February 29,
    
    
    February 28,
    
    
    February 29,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Royalty and licensing income
    
    $
    377
    
    
    $
    405
    
    
    $
    787
    
    
    $
    855Gain on sale of dextrose product line
    
    
    1,562
    
    
    
    
    
    
    
    1,562
    
    
    
    Gain (loss) on foreign currency transactions
    
    
    (28
    )
    
    
    434
    
    
    
    (641
    )
    
    
    444Other
    
    
    13
    
    
    
    (48
    )
    
    
    6
    
    
    
    (45
    )Total
    
    $
    1,924
    
    
    $
    791
    
    
    $
    1,714
    
    
    $
    1,254
   Liquidity and Capital Resources
   25




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##### Table of Contents



Guaranteed Obligations
  26




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##### Table of Contents



Contractual Obligations
  Pension Contributions
  Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
    Critical Accounting Policies and Estimates
  27




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##### Table of Contents



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
  28




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1: Legal Proceedings
    
 Item 1A: Risk Factors
  
 Item 4: Submission of Matters to a Vote of Security Holders
  Director
    
    Votes For
    
    Votes WithheldR. Randolph Devening
    
    
    7,883,117
    
    
    
    2,391,745Paul H. Hatfield
    
    
    8,779,781
    
    
    
    1,495,081
   VotesVotes For
    
    Against
    
    Abstain10,017,888
    
    256,974
    
    0
 
 Item 6: Exhibits.
  10.1
    
    Second Amendment to Second Amended and Restated Credit, Resignation of Agent and Appointment of
Successor Agent dated as of February 26, 2009 (filed as an exhibit to Registrants File No.
000-11488, Form 8-K dated February 26, 2009, filed March 3, 2009)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
 29




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##### Table of Contents



SIGNATURES
  Penford Corporation(Registrant)April 9, 2009
    /s/ Steven O. CordierSteven O. CordierSenior Vice President and Chief Financial Officer 30




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EXHIBIT INDEX
  
    
    should not in all instances be treated as categorical statements of fact, but rather as
a means of allocating the risk to one of the parties if those statements prove to be
inaccurate;
    
    may have been qualified by disclosures that were made to the other party or parties in
connection with the negotiation of the applicable agreement, which disclosures are not
necessarily reflected in the agreement;
    
    may apply standards of materiality in a manner that is different from what may be
viewed as material to investors; and
    
    were made only as of the date of the applicable agreement or other date or dates that
may be specified in the agreement and are subject to more recent developments.
  Exhibit No.
    
    Description10.1
    
    
    Second Amendment to Second Amended and Restated Credit,
Resignation of Agent and Appointment of Successor Agent dated
as of February 26, 2009 (filed as an exhibit to Registrants
File No. 000-11488, Form 8-K dated February 26, 2009, filed
March 3, 2009)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
 31