<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

   (Mark One)

      [X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the quarterly period ended MAY 31, 2003

                                       OR

      [ ]      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
             (Exact name of registrant as specified in its charter)

                WASHINGTON                                        91-1221360
----------------------------------------                    --------------------
         (State of Incorporation)                             (I.R.S. Employer
                                                             Identification No.)

        7094 SOUTH REVERE PARKWAY,
            ENGLEWOOD, COLORADO                                   80112-3932
----------------------------------------                    --------------------
(Address of principal executive offices)                         (Zip Code)

Registrant's telephone number, including area code: (303) 649-1900

Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X]  No [ ]

The number of shares of the Registrant's common stock (the Registrant's only
outstanding class of stock) outstanding as of July 11, 2003 was 8,576,771.


<PAGE>


                      PENFORD CORPORATION AND SUBSIDIARIES

                                      INDEX


<Table>
<Caption>
                                                                                                               Page
                                                                                                               ----
<S>                                                                                                            <C>
PART I--FINANCIAL INFORMATION

   Item 1. Financial Statements

       Condensed Consolidated Balance Sheets - May 31, 2003 and August 31, 2002                                  3

       Condensed Consolidated Statements of Income - Three Months and Nine Months ended
         May 31, 2003 and 2002                                                                                   4

       Condensed Consolidated Statements of Cash Flow - Nine Months ended May 31, 2003 and 2002                  5

       Notes to Condensed Consolidated Financial Statements                                                      6

   Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations               13

PART II--OTHER INFORMATION

   Item 6.  Exhibits and Reports on Form 8-K                                                                    17

   Signatures                                                                                                   18

   Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                     19
</Table>


                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1:           FINANCIAL STATEMENTS

                      PENFORD CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                                                        May 31,          August 31,
(In thousands, except share and per share data)                                          2003               2002
-----------------------------------------------                                       -----------        ----------
                                                                                      (Unaudited)
<S>                                                                                   <C>                <C>
                                                 ASSETS
Current assets:
     Cash                                                                              $   2,933         $     765
     Trade accounts receivable                                                            33,984            29,744
     Inventories                                                                          29,771            27,956
     Prepaid expenses and other                                                            6,364             5,171
                                                                                       ---------         ---------
       Total current assets                                                               73,052            63,636

Property, plant and equipment, net                                                       130,844           132,042
Deferred income taxes                                                                     10,751            10,375
Restricted cash value of life insurance                                                   11,924            11,705
Goodwill, net                                                                             18,727            15,850
Other intangible assets, net                                                               2,704             2,770
Other assets                                                                               3,276             3,592
                                                                                       ---------         ---------
         Total assets                                                                  $ 251,278         $ 239,970
                                                                                       =========         =========

                                           LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Cash overdraft                                                                    $    --           $   1,754
     Accounts payable                                                                     20,845            17,161
     Accrued liabilities                                                                  12,248            10,872
     Current portion of long-term debt                                                    72,052            18,779
                                                                                       ---------         ---------
         Total current liabilities                                                       105,145            48,566

Long-term debt                                                                            10,446            77,632
Other postretirement benefits                                                             11,501            11,240
Deferred income taxes                                                                     19,879            20,474
Other liabilities                                                                         15,128            13,094
                                                                                       ---------         ---------
         Total liabilities                                                               162,099           171,006

Shareholders' equity:
     Preferred stock, par value $1.00 per share, authorized 1,000,000 shares,
         none issued                                                                          --                --
     Common stock, par value $1.00 per share, authorized 29,000,000 shares,
         Issued 10,504,575 and 9,666,149 shares, respectively                             10,505             9,666
     Additional paid-in capital                                                           33,999            26,055
     Retained earnings                                                                    72,703            67,513
     Treasury stock, at cost, 1,981,016 shares                                           (32,757)          (32,757)
     Accumulated other comprehensive income (loss)                                         4,729            (1,513)
                                                                                       ---------         ---------
         Total shareholders' equity                                                       89,179            68,964
                                                                                       ---------         ---------
         Total liabilities and shareholders' equity                                    $ 251,278         $ 239,970
                                                                                       =========         =========
</Table>

The accompanying notes are an integral part of these statements.


                                       3
<PAGE>

                      PENFORD CORPORATION AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                                   (Unaudited)


<Table>
<Caption>
                                                                      Three months ended                 Nine months ended
                                                                            May 31,                            May 31,
                                                                ------------------------------     -------------------------------
(In thousands except share and per share data)                     2003                2002           2003                2002
----------------------------------------------                  -----------        -----------     -----------         -----------
<S>                                                             <C>                <C>             <C>                 <C>
Sales                                                           $    66,035        $    59,137     $   193,769         $   170,280

Cost of sales                                                        55,839             47,870         161,141             138,750
                                                                -----------        -----------     -----------         -----------
   Gross margin                                                      10,196             11,267          32,628              31,530

Operating expenses                                                    5,786              5,795          17,969              15,854
Research and development expenses                                     1,290              1,526           4,036               4,550
Restructure costs, net                                                   --                 --            (117)              1,383
                                                                -----------        -----------     -----------         -----------

   Income from operations                                             3,120              3,946          10,740               9,743

Non-operating income, net                                               627                  5           2,809                  50
Interest expense                                                      1,265              1,633           4,249               5,455
                                                                -----------        -----------     -----------         -----------

   Income before income taxes                                         2,482              2,318           9,300               4,338

Income taxes                                                            727                898           2,661               1,534
                                                                -----------        -----------     -----------         -----------

Net income                                                      $     1,755        $     1,420     $     6,639         $     2,804
                                                                ===========        ===========     ===========         ===========

Weighted average common shares and equivalents outstanding:
   Basic                                                          8,404,001          7,626,851       7,974,076           7,571,369
   Diluted                                                        8,489,320          7,907,213       8,098,943           7,748,022

Earnings per share:
   Basic                                                        $      0.21        $      0.19     $      0.83         $      0.37
   Diluted                                                      $      0.21        $      0.18     $      0.82         $      0.36

Dividends declared per common share                             $      0.06        $      0.06     $      0.18         $      0.18
</Table>


The accompanying notes are an integral part of these statements.


                                       4
<PAGE>

                      PENFORD CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
                        FOR THE NINE MONTHS ENDED MAY 31

                                   (Unaudited)

<Table>
<Caption>
(In thousands)                                                        2003            2002
--------------                                                      --------         --------
<S>                                                                 <C>              <C>
Cash flows from operating activities:
   Net income                                                       $  6,639         $  2,804
   Adjustments to reconcile net income to net cash provided
      by operations:
         Depreciation and amortization                                13,131           13,337
         Deferred income tax benefit                                  (1,159)            (684)
         Gain on sale of Hi-maize(R) assets                           (1,916)              --
         Other                                                           500               --
   Change in assets and liabilities:
         Trade receivables                                            (3,182)           1,134
         Inventories                                                     727           (3,718)
         Accounts payable, prepaids and other                          3,220            3,386
                                                                    --------         --------

   Net cash provided by operating activities                          17,960           16,259
                                                                    --------         --------

Cash flow provided by (used in) investing activities:
   Investment in property, plant and equipment, net                   (5,868)          (4,855)
   Proceeds from sale of Hi-maize(R) assets, net                       2,054               --
   Proceeds from Hi-maize(R) licensing agreement, net                  1,653               --
   Other                                                                (302)             501
                                                                    --------         --------

   Net cash used in investing activities                              (2,463)          (4,354)
                                                                    --------         --------

Cash flow provided by (used in) financing activities:
   Borrowings on revolving lines of credit                            22,783           11,538
   Repayments on revolving lines of credit                           (19,001)         (10,559)
   Repayments of long-term debt                                      (22,419)         (11,354)
   Exercise of stock options                                           1,276              918
   Net proceeds from issuance of common stock                          6,976               --
   Increase (decrease) in cash overdraft                              (1,754)            (472)
   Payment of dividends                                               (1,398)          (1,361)
                                                                    --------         --------

   Net cash used in financing activities                             (13,537)         (11,290)
                                                                    --------         --------

Effect of exchange rate changes on cash and cash equivalents             208              107
                                                                    --------         --------

Net increase in cash and cash equivalents                              2,168              722
Cash and cash equivalents at beginning of period                         765              199
                                                                    --------         --------
Cash and cash equivalents at end of period                          $  2,933         $    921
                                                                    ========         ========
</Table>


The accompanying notes are an integral part of these statements.


                                       5
<PAGE>

                      PENFORD CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1--BUSINESS

         Penford Corporation ("Penford" or the "Company") is in the business of
developing, manufacturing and marketing specialty natural-based ingredient
systems for various applications, including papermaking, textiles and food
products. The Company operates manufacturing facilities in the United States,
Australia, and New Zealand. Penford's products provide excellent binding and
film-forming characteristics that make customers' products better through
natural, convenient and cost effective solutions. Sales of the Company's
products are generated using a combination of direct sales and distributor
agreements.

         The Company has extensive research and development capabilities, which
are used in understanding the complex chemistry of carbohydrate-based materials
and their application. In addition, the Company has specialty processing
capabilities for a variety of modified starches.

2--BASIS OF PRESENTATION

         The accompanying condensed consolidated financial statements include
the accounts of Penford and its wholly-owned subsidiaries. All material
intercompany transactions and balances have been eliminated. The condensed
consolidated balance sheet at May 31, 2003 and the condensed consolidated
statements of income and cash flows for the interim periods ended May 31, 2003
and 2002 have been prepared by the Company without audit. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
that are necessary to present fairly the financial information have been made.
Certain information and footnote disclosures normally included in financial
statements, prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC"). The results of operations for
interim periods are not necessarily indicative of the operating results of a
full year or of future operations. Certain prior period amounts have been
reclassified to conform with the current period presentation. The accompanying
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements included in the Company's Annual Report on
Form 10-K for the year ended August 31, 2002.

         Effective September 1, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 144, "Accounting for Impairment or Disposal of
Long-Lived Assets." SFAS No. 144, which supercedes SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," retains the fundamental provisions with respect to the recognition and
measurement of long-lived asset impairment but does not apply to goodwill and
other intangible assets. However, SFAS No. 144 provides expanded guidance with
respect to appropriate cash flows to be used to determine whether recognition of
any long-lived asset impairment is required, and if required, how to measure the
amount of the impairment. SFAS No. 144 also requires that any net assets to be
disposed of by sale be reported at the lower of carrying value or fair value
less cost to sell, and expands the reporting of discontinued operations. The
adoption of SFAS No. 144 had no effect on the Company's results of operations,
financial position or liquidity.

         Effective September 1, 2002, the Company adopted SFAS No. 145,
"Recission of Financial Accounting Standards Board ("FASB") Statement No. 4, 44,
and 62, Amendment of FASB Statement No. 13, and Technical Corrections." Among
other things, this statement rescinds SFAS No. 4, "Reporting Gains and Losses
from Extinguishment of Debt," which requires all gains and losses from
extinguishments of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. As a result, Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations--Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions" ("APB No. 30") will now be
used to classify those gains and losses. The adoption of SFAS No. 145 had no
effect on the Company's financial position or results of operations for the
three and nine month periods ended May 31, 2003. The Company will reclassify
extraordinary items from all prior periods into income from continuing
operations. It is unlikely that the Company will classify future gains or losses
from extinguishment of debt as extraordinary in nature.


                                       6
<PAGE>

         Effective January 1, 2003, the Company adopted SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146
requires that a liability for costs associated with exit or disposal activities
be recognized and measured initially at fair value only when the liability is
incurred. SFAS No. 146 is effective for exit or disposal activities that are
initiated after December 31, 2002. The adoption of SFAS No. 146 did not have an
effect on the Company's financial position, results of operations or liquidity.

         Effective December 1, 2002, the Company adopted FASB Interpretation No.
45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others" ("FIN No. 45"). FIN No.
45 requires certain disclosures to be made by a guarantor effective for interim
and annual periods ending after December 15, 2002. FIN No. 45 also requires the
guarantor to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation relating to the guarantee. The initial recognition
and measurement provisions of FIN No. 45 are applicable on a prospective basis
to guarantees issued or modified after December 31, 2002. The Company has no
guarantees which are subject to the recognition and measurement provisions of
FIN No. 45. The adoption of FIN No. 45 had no effect on the Company's reported
financial position, results of operations or liquidity. See Note 6 for
disclosure of parent company guarantee of subsidiary debt to a third party.

         Effective March 1, 2003, the Company adopted the disclosure alternative
prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation," as
amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure." The Company will continue to account for its stock-based
employee compensation related to stock options under the intrinsic value
recognition and measurement principles of APB Opinion No. 25, "Accounting for
Stock Issued to Employees" and its various interpretations. SFAS No. 148
requires prominent disclosure of the method used to account for stock-based
employee compensation, the amount of employee stock-based compensation cost
included in reported net income, and pro forma net income and earnings per share
as if the fair value recognition provisions of SFAS No. 123 had been adopted.
SFAS No. 148 is effective for interim periods beginning after December 15, 2002.
The adoption of SFAS No. 148 will not have an effect on the Company's reported
financial position, results of operations or liquidity.

         The following table illustrates the effect on net income and earnings
per share if the Company had elected to recognize compensation expense
consistent with the provisions prescribed in SFAS No. 123:

<Table>
<Caption>
                                                               THREE MONTHS ENDED                  NINE MONTHS ENDED
                                                                     MAY 31,                             MAY 31,
                                                           ---------------------------         ---------------------------
(In thousands except share and per share data)               2003              2002               2003             2002
----------------------------------------------             ---------         ---------         ---------         ---------
<S>                                                        <C>               <C>               <C>               <C>
Net income, as reported                                    $   1,755         $   1,420         $   6,639         $   2,804

Add: Stock-based employee compensation expense
        included in reported net income, net of tax               11                64                57               102
Less: Stock-based employee compensation expense
        determined under the fair value method for
        all awards, net of tax                                  (234)             (277)             (749)             (799)
                                                           ---------         ---------         ---------         ---------
   Pro forma net income                                    $   1,532         $   1,207         $   5,947         $   2,107

Earnings per share:
Reported basic earnings per common share                   $    0.21         $    0.19         $    0.83         $    0.37
                                                           =========         =========         =========         =========
Reported diluted earnings per common share                 $    0.21         $    0.18         $    0.82         $    0.36
                                                           =========         =========         =========         =========
Pro forma basic earnings per common share                  $    0.18         $    0.16         $    0.75         $    0.28
                                                           =========         =========         =========         =========
Pro forma diluted earnings per common share                $    0.18         $    0.15         $    0.73         $    0.27
                                                           =========         =========         =========         =========
</Table>


                                       7
<PAGE>

         Under SFAS No. 123, compensation expense is measured at the grant date
based on the value of the award and is recognized over the vesting period. The
effect of applying SFAS No. 123 for providing pro forma disclosures for the
three and nine months ended 2003 and 2002 is not likely to be representative of
the effects in future years because the amounts above reflect compensation
expense for options granted in those and prior periods. Options are generally
awarded annually and the number and value of these options will effect the pro
forma compensation expense and earnings per share disclosures in future periods.

         In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51"
("FIN No. 46"). FIN No. 46 requires certain variable interest entities ("VIEs")
to be consolidated by the primary beneficiary of the entity if the equity
investors in the entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. FIN No. 46 is effective for all new VIEs created or acquired
after January 31, 2003. For VIEs created or acquired prior to February 1, 2003,
the provisions of FIN No. 46 must be applied for the first interim or annual
period beginning after June 15, 2003. The Company has not invested in any VIEs.

         In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 149 is generally effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after June
30, 2003. The Company is currently evaluating the effect that the adoption of
SFAS No. 149 will have on its financial position, results of operations and
liquidity.

         In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 requires that certain financial instruments, which under previous
guidance were accounted for as equity, must now be accounted for as liabilities.
The financial instruments affected include mandatorily redeemable stock, certain
financial instruments that require or may require the issuer to buy back some of
its shares in exchange for cash or other assets and certain obligations that can
be settled with shares of stock. SFAS No. 150 is effective for all financial
instruments entered into or modified after May 31, 2003 and must be applied to
existing financial instruments effective with the beginning of the first fiscal
period after June 15, 2003. The Company has no financial instruments within the
scope of SFAS No. 150.


3--INVENTORIES

         The components of inventory are as follows:

<Table>
<Caption>
                                May 31,       August 31,
                                  2003           2002
                                -------       ----------
                                    (In thousands)
<S>                             <C>           <C>
Raw materials and other         $13,603        $14,250
Work in progress                    595            597
Finished goods                   15,573         13,109
                                -------        -------
       Total inventories        $29,771        $27,956
                                =======        =======
</Table>


                                       8
<PAGE>

4--PROPERTY, PLANT AND EQUIPMENT

<Table>
<Caption>
                                                 May 31,          August 31,
                                                  2003               2002
                                                ---------         ----------
                                                       (In thousands)
<S>                                             <C>               <C>
Land                                            $  14,624         $  13,153
Plant and equipment                               277,285           267,837
Construction in progress                            6,778             5,415
                                                ---------         ---------
                                                  298,687           286,405
Accumulated depreciation                         (167,843)         (154,363)
                                                ---------         ---------
       Net property, plant and equipment        $ 130,844         $ 132,042
                                                =========         =========
</Table>

5--RESTRUCTURING RESERVE

         In the second quarter of fiscal 2002, the Company announced a strategic
restructuring of its business operations, including the relocation of its
headquarters from the State of Washington to Colorado. During fiscal 2002, the
Company recorded restructuring costs totaling $1,383,000 primarily related to
severance and lease termination costs. The restructuring covers seven employees,
one of which had been terminated as of August 31, 2002. Five additional
employees were terminated during the first nine months of fiscal 2003. In the
second quarter of fiscal 2003, the Company settled its lease obligations for
less cost than had been expected and, therefore, adjusted the restructuring
reserve. The following table is an analysis of the restructuring reserve for the
nine months ended May 31, 2003.


<Table>
<Caption>
                                         Employee       Lease Termination
                                          Costs             and Other             Total
                                         --------       -----------------        -------
                                                         (In thousands)
<S>                                      <C>            <C>                      <C>
Balance, August 31, 2002                 $ 1,014             $   264             $ 1,278
Payments                                    (508)               (100)               (608)
Adjustment                                    --                (117)               (117)
                                         -------             -------             -------
Balance, May 31, 2003                    $   506             $    47             $   553
                                         =======             =======             =======
</Table>

6--DEBT

         On November 26, 2002, the Company's banks approved an amendment to the
Company's credit agreements to modify the leverage ratio and to reduce scheduled
term loan payments in fiscal 2003 to reflect the current operating environment
and to ensure continued availability of credit. The Company is required to
reduce its leverage ratio (the ratio of the debt balance to the trailing four
quarters of earnings before interest, taxes, depreciation and amortization) as
follows: 3.00 to 1 at May 31, 2003; 2.75 to 1 at August 31, 2003; 2.50 to 1 at
February 28, 2004; 2.25 to 1 at August 31, 2004 and 2.00 to 1 at November 30,
2004 and thereafter. The Company has limited ability to borrow on available
capacity under its existing credit lines until the leverage ratio improves. In
addition, the financial covenants also restrict new indebtedness, require
maintenance of minimum tangible net worth, require maintenance of interest
coverage and fixed charges coverage ratios and limit annual capital expenditures
to $15 million for fiscal 2003. The Company was in compliance with the amended
covenants and expects to be in compliance for the remainder of the fiscal year.

         Pursuant to the Company's credit agreements dated November 2000, the
revolving lines of credit expire on October 31, 2003. Therefore, $50.3 million
of amounts due on these lines of credit at May 31, 2003 has been classified as
current maturities of long-term debt in the Condensed Consolidated Balance
Sheets. The Company expects to refinance its revolving credit agreements on or
before the maturity date.


                                       9
<PAGE>

         In September 2000, Penford Australia, a wholly-owned subsidiary of the
Company, obtained a revolving credit facility to finance grain inventory
purchases from a bank in Australia. Also in September 2000, as security for the
credit facility, the Company entered into a guarantee with the bank in
Australia. The credit facility is also secured by the grain in inventory. The
guarantee continues until maturity of the credit facility in September 2003. The
maximum amount of future payments under the guarantee is the current outstanding
balance of the credit facility, $6.1 million and $6.6 million at May 31, 2003
and August 31, 2002, respectively, plus accrued interest and fees. The
outstanding balances of the credit facility are included in current portion of
long-term debt in the Condensed Consolidated Balance Sheets.


7--TAXES

         The Company's effective tax rate for the three and nine months ended
May 31, 2003 varied from the U.S. federal statutory rate due to lower foreign
tax rates and a lower tax rate applied as a result of the sale of certain assets
of the Company's Hi-maize(R) business in Australia as discussed in Note 11.


8--OTHER COMPREHENSIVE INCOME (LOSS)

         The components of total comprehensive income are as follows:

<Table>
<Caption>
                                                            Three months ended                Nine months ended
                                                                  May 31,                           May 31,
                                                         -------------------------         -------------------------
                                                           2003             2002             2003             2002
                                                         --------         --------         --------         --------
                                                                              (In thousands)
<S>                                                      <C>              <C>              <C>              <C>
Net income                                               $  1,755         $  1,420         $  6,639         $  2,804
Foreign currency translation adjustments                    2,456            2,707            6,264            1,823
Change in unrealized gains (losses) on derivative
   instruments that qualify as cash flow hedges               (86)              (3)             (22)             (34)
                                                         --------         --------         --------         --------
       Total comprehensive income                        $  4,125         $  4,124         $ 12,881         $  4,593
                                                         ========         ========         ========         ========
</Table>


9--SEGMENT REPORTING

         Financial information for the Company's three segments is presented
below. The first two segments, Industrial Ingredients--North America and Food
Ingredients--North America, are broad categories of end-market users, primarily
served by the Company's U.S. operation. The third segment is the Company's
geographically separate operations in Australia and New Zealand, which are
engaged primarily in the food ingredients business. A fourth item for "corporate
and other" activity is presented to provide reconciliation to amounts reported
in the condensed consolidated financial statements. Corporate and other
represents the activities related to the corporate headquarters such as public
company reporting, personnel costs of the executive management team,
corporate-wide professional services and elimination and consolidation entries.
Intercompany sales of $135,000 and $472,000 in the three and nine month periods
ended May 31, 2003 between Australia/New Zealand operations and Food
Ingredients--North America are eliminated in corporate and other since the chief
operating decision maker views segment results prior to intercompany
eliminations. There were no intercompany sales in the three or nine months ended
May 31, 2002.


                                       10
<PAGE>

<Table>
<Caption>
                                                     Three months ended                 Nine months ended
                                                           May 31,                            May 31,
                                                ---------------------------         ---------------------------
                                                  2003              2002              2003              2002
                                                ---------         ---------         ---------         ---------
                                                                          (In thousands)
<S>                                             <C>               <C>               <C>               <C>
Sales:
   Industrial Ingredients--North America        $  34,912         $  32,545         $ 104,272         $  92,416
   Food Ingredients--North America                 10,954            10,729            33,418            32,845
   Australia/New Zealand operations                20,304            15,863            56,551            45,019
   Corporate and other                               (135)               --              (472)               --
                                                ---------         ---------         ---------         ---------
                                                $  66,035         $  59,137         $ 193,769         $ 170,280
                                                =========         =========         =========         =========

Income (loss) from operations:
   Industrial Ingredients--North America        $   2,190         $   2,917         $   7,390         $   6,487
   Food Ingredients--North America                  1,113             1,581             4,499             4,989
   Australia/New Zealand operations                 1,217             1,094             3,682             3,604
   Corporate and other                             (1,400)           (1,646)           (4,948)           (3,954)
   Restructuring costs, net                            --                --               117            (1,383)
                                                ---------         ---------         ---------         ---------
                                                $   3,120         $   3,946         $  10,740         $   9,743
                                                =========         =========         =========         =========
</Table>

<Table>
<Caption>
                                               May 31,        August 31,
                                                 2003            2002
                                               --------       ----------
<S>                                            <C>            <C>
Total assets:
   Industrial Ingredients-North America        $107,547        $108,635
   Food Ingredients--North America               33,418          35,171
   Australia/New Zealand operations              86,826          75,042
   Corporate and other                           23,487          21,122
                                               --------        --------
                                               $251,278        $239,970
                                               ========        ========
</Table>

10--EARNINGS PER SHARE

         Basic earnings per share reflects only the weighted average common
shares outstanding during the period. Diluted earnings per share reflects
weighted average common shares outstanding and the effect of any dilutive common
stock equivalent shares. The following table presents the computation of diluted
weighted average shares outstanding for the three and nine month periods ended
May 31, 2003 and 2002.

<Table>
<Caption>
                                                     Three months ended                Nine months ended
                                                           May 31,                           May 31,
                                                  --------------------------        --------------------------
                                                    2003             2002             2003             2002
                                                  ---------        ---------        ---------        ---------
<S>                                               <C>              <C>              <C>              <C>
Weighted average common shares outstanding        8,404,001        7,626,851        7,974,076        7,571,369
Dilutive stock options                               85,319          280,362          124,867          176,653
                                                  ---------        ---------        ---------        ---------
Weighted average common shares,
    outstanding, assuming dilution                8,489,320        7,907,213        8,098,943        7,748,022
                                                  =========        =========        =========        =========
</Table>


                                       11
<PAGE>

11--TRANSACTIONS WITH NATIONAL STARCH

         In November 2002, the Company sold certain assets of its resistant
starch Hi-maize(R) business to National Starch Corporation ("National Starch"),
a wholly-owned subsidiary of ICI of the U.K, for $2.5 million. The Company
recorded a $1.9 million pre-tax gain on the sale of these assets, which gain is
included in net non-operating income in the Condensed Consolidated Statements of
Income for the nine months ended May 31, 2003.

         The Company also licensed to National Starch the exclusive rights to
its resistant starch intellectual property portfolio for applications in human
nutrition. The Company retained the rights to practice its resistant starch
intellectual property for all non-human nutrition applications. Under the terms
of the licensing agreement, the Company received an initial licensing fee of
$2.25 million ($1.6 million net of transaction expenses) which is being
amortized over the life of the royalty agreement. In addition, the Company will
receive annual royalty payments for a period of seven years or until a maximum
of $11.0 million in royalties is received by the Company. The amortization of
the initial licensing fee and royalty income, totaling $0.4 million and $0.8
million for the three and nine months ended May 31, 2003, respectively, are
included in non-operating income.

         The Company also entered into a tolling arrangement under which the
Company will manufacture resistant starch products for National Starch, if
requested by National Starch. Sales of these products and the costs to
manufacture pursuant to this agreement are included in income from operations in
the statements of income.


12--ISSUANCE OF COMMON STOCK

         On March 14, 2003, the Company sold 650,000 shares of its common stock
to the T. Rowe Price Small-Cap Value Fund at $11.11 per share. In March 2003,
approximately $6.8 million of the proceeds were used to reduce the Company's
term loans outstanding.


                                       12
<PAGE>

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Investors should read the following discussion and analysis in conjunction with
the consolidated financial statements and notes thereto included elsewhere in
this report. In addition to historical information, the following discussion and
statements found in the Notes to the Condensed Consolidated Financial Statements
contain certain forward-looking statements within the meaning of Section 21E of
the Securities and Exchange Act, as amended, that involve known and unknown
risks and uncertainties, such as statements of Penford's plans, objectives,
expectations and intentions, including the Company's expectation to be in
compliance with its amended debt covenants, the expectation that the Company
will be able to refinance its revolving credit agreement on or before the
maturity date, the expectation that the Company will not need to increase
borrowings in the normal course of operations for the remainder of the fiscal
year and the expectation that the Company will not incur additional compensation
expenses related to its outgoing officers. You should read the cautionary
statements made in this report as being applicable to all related
forward-looking statements wherever they appear in this report. Forward-looking
statements typically can be identified by the use of words such as "believes,"
"intends," "may," "will," "looks," "should," "could," "anticipates," "expects,"
"estimates" or comparable terminology or by strategies or trends, although some
forward-looking statements are expressed differently. Finally, there may be
other factors not mentioned above or included in our SEC filings that may cause
our actual results to differ materially from those in any forward-looking
statement such as global economic conditions and additional threatened terrorist
attacks and responses thereto, including war. You should not rely on these
forward-looking statements, which reflect only the Company's opinion as of the
date of this report. We do not assume any obligation to revise forward-looking
statements.

RESULTS OF OPERATIONS

         Results of operations for the Company's three segments are presented
below. The first two segments, Industrial Ingredients--North America and Food
Ingredients--North America, are broad categories of end-market users, primarily
served by the Company's U.S. operation. The third segment is the Company's
geographically separate operations in Australia and New Zealand, which are
engaged primarily in the food ingredients business, although the industrial
market is an important and growing category there. A fourth item for "corporate
and other" activity is presented to provide reconciliation to amounts reported
in the consolidated financial statements. Corporate and other represents the
activities related to the corporate headquarters such as public company
reporting, personnel costs of the executive management team, corporate-wide
professional services and elimination and consolidation entries.

Sales

         Consolidated sales for the three months ended May 31, 2003 increased
$6.9 million, or 12%, to $66.0 million from $59.1 million for the three months
ended May 31, 2002. Consolidated sales for the nine months ended May 31, 2003
rose to $193.8 million, an increase of 14% over the same period in the prior
year.

         Sales at the Company's Industrial Ingredients--North America business
unit increased by $2.4 million, or 7%, in the third quarter of fiscal 2003
compared to the year-ago quarter. Sales for the nine months ended May 31, 2003
increased $11.9 million, or 13%, over the same period in the prior year. The
increase in sales during fiscal 2003 is primarily due to growth in sales
volumes, reflecting improving paper demand for the Company's customers' selling
paper products.

         The Food Ingredients--North America sales for the three and nine months
ended May 31, 2003 increased by 2% compared to the prior year periods. The
slight change in sales compared to the Company's other business segments is
reflective of the soft customer demand in the quick service restaurant business,
the primary end market for many of this segment's products.


                                       13
<PAGE>

         Sales at Penford's Australia/New Zealand operations rose by 28%, or
$4.4 million, in the third quarter of fiscal 2003 compared to the same quarter
of fiscal 2002 due to volume growth of $0.7 million, favorable product mix and
pricing of $0.7 million and favorable currency exchange rates of $3.0 million.
Sales for the nine months ended May 31, 2003 increased to $56.6 million, or a
26% increase over the same period last year with increased volumes accounting
for $2.4 million, favorable product mix and pricing accounting for $2.1 million
and favorable currency exchange rates accounting for $7.0 million of the
increase.

Income from operations

         Consolidated income from operations decreased $0.8 million for the
third quarter compared to the prior year period. The decrease is primarily
related to higher costs of natural gas in North America and grain in Australia
as discussed below, offset by revenue growth due to an increase in volumes and
favorable currency exchange rates. Consolidated income from operations for the
nine months ended May 31, 2003 increased $1.0 million over the same period last
year. This increase is primarily due to the Company recording a $1.4 million
restructuring reserve in the same period last year. See Note 5 to the Condensed
Consolidated Financial Statements. In addition, revenue growth was offset by
higher costs of natural gas in North America and grain in Australia and
increased employee benefit costs in North America as discussed below..

         Income from operations at the Company's Industrial Ingredients--North
America business unit declined $0.7 million in the third quarter compared to the
prior year period. This decrease is primarily due to higher energy costs of $1.3
million partially offset by the impact of higher sales of $0.5 million and lower
chemical raw material costs of $0.2 million. For the nine months ended May 31,
2003, income from operations was $0.9 million higher compared to the prior year
due to higher sales of $3.7 million and lower chemical costs of $0.5 million
offset by $2.6 million in higher energy costs and $0.6 million in increased
employee benefit costs.

         The Food Ingredients--North American business unit recorded a decrease
in income from operations of $0.5 million for both the three and nine months
ended May 31, 2003 compared to the same periods in 2002. Contributing to the
decline was lower plant utilization resulting in lower fixed cost absorption.

         Penford's Australia/New Zealand operating income for both the three and
nine months ended May 31, 2003 was comparable to the prior year. Higher sales as
discussed above were offset by significantly higher raw material grain costs
caused by the continuing drought in the region. Increases in grain costs were
$1.2 million and $2.5 million for the three and nine months ended May 31, 2003,
respectively.

         Corporate operating expenses for the third quarter decreased $0.2
million compared to the prior year period due to a decrease of $0.1 million in
office rent expense because the Company closed its Bellevue, Washington
headquarters as discussed below and a $0.1 million decrease in personnel
relocation expenses which were incurred in fiscal 2002 but not in fiscal 2003.
For the nine months ended May 31, 2003, operating expenses increased
approximately $1.0 million compared to the same period in the prior year. During
the first quarter of fiscal 2003, the Company incurred increased compensation
expense of approximately $0.8 million for both current and outgoing officers of
the Company. The compensation expense for outgoing officers ceased at the end of
the first quarter as these officers left the Company at that time.

Interest expense and taxes

         Interest expense decreased 23% and 22%, respectively, for the three and
nine month periods ended May 31, 2003 compared to the same periods in the prior
year. The decrease in interest expense is attributable to lower debt balances
and lower interest rates.

         The Company's effective tax rate for the nine months ended May 31, 2003
varied from the U.S. Federal statutory rate due to the effect of lower statutory
tax rates in Australia and a lower tax rate applied as a result of the sale of
certain assets of the Company's Hi-maize(R) business in Australia as discussed
below.


                                       14
<PAGE>

Restructuring costs

         In the second quarter of fiscal 2002, the Company announced a strategic
restructuring of its business operations, including the relocation of its
headquarters from the State of Washington to Colorado. During the second quarter
of 2002, the Company recorded restructuring costs totaling $1.4 million
primarily related to severance and lease termination expenses which are included
in income from operations. In the second quarter of fiscal 2003, the Company
settled its lease obligations for less cost than had been expected and adjusted
the restructuring reserve by $0.1 million. Restructuring costs are shown
separately in the Condensed Consolidated Statements of Income.

Non-operating income, net

         Non-operating income, net increased for the nine months ended May 31,
2003 due to the $1.9 pretax gain on the sale of certain assets of the Company's
resistant starch Hi-maize(R) business to National Starch Corporation in November
2002.

LIQUIDITY AND CAPITAL RESOURCES

         At May 31, 2003, the Company had $32.1 million in negative working
capital compared to $15.1 million of positive working capital at August 31,
2002. Excluding the current portion of the Company's revolving and term credit
agreement, the Company had $33.8 million of positive working capital at May 31,
2003. Cash flow from operations was $18.0 million and $16.3 million for the nine
months ended May 31, 2003 and 2002, respectively.

         Cash flow from investing activities increased approximately $1.9
million for the nine months ended May 31, 2003 compared to the same period in
2002. The increase is primarily due to the receipts of cash related to the
Company's sale of certain assets of its Hi-maize(R) business and an upfront
licensing fee for the use of certain intellectual property, partially offset by
an increase in capital expenditures.

         At May 31, 2003, the Company had $56.4 million outstanding under its
revolving credit facilities and Australian inventory financing credit agreement.
The Company's revolving lines of credit mature October 31, 2003. Therefore,
$50.3 million due on these lines of credit at May 31, 2003 has been classified
as current maturities of long-term debt. The Company expects to refinance its
revolving credit agreements on or before the maturity date.

         Under the amended financial covenants of its credit agreements, the
Company is required over the coming fiscal quarters to improve its leverage
ratio (the ratio of the debt balance to the trailing four quarters of earnings
before interest, taxes, depreciation and amortization) to 3.00 to 1 at May 31,
2003; 2.75 to 1 at August 31, 2003; 2.50 to 1 at February 29, 2004; 2.25 to 1 at
August 31, 2004; and 2.00 to 1 at November 30, 2004. The Company has limited
ability to borrow on available capacity under its existing credit lines until
the leverage ratio improves. However, the Company does not expect to increase
borrowings, other than seasonal borrowing related to grain purchasing in our
Australia/New Zealand operations. The Company anticipates that it will have
sufficient borrowing capacity and availability on its credit lines to fund those
seasonal grain purchases.

         The financial covenants in the Company's credit agreement also restrict
new indebtedness, require maintenance of minimum tangible net worth and limit
annual capital expenditures to $15 million for fiscal 2003. In addition to the
leverage ratio, the Company is also required to maintain interest coverage and
fixed charges coverage ratios. If earnings fall below projected levels, the
Company may be required to limit capital expenditures and/or dividends. The
Company was in compliance with the amended covenants and expects to be in
compliance for the remainder of the fiscal year.

         On March 14, 2003, the Company sold 650,000 shares of its common stock
to the T. Rowe Price Small-Cap Value Fund, Inc. for $11.11 per share. In March
2003, approximately $6.8 million of the proceeds were used to reduce the
Company's term loans outstanding.


                                       15
<PAGE>

         During the nine months ended May 31, 2003, the Company paid dividends
of $1.4 million, comparable to the dividend payments in the same period last
year. Any future dividends will be paid at the discretion of the Company's board
of directors and will depend upon, among other things, earnings, financial
condition, cash requirements and availability, and contractual requirements.


                                       16
<PAGE>

                           PART II - OTHER INFORMATION



ITEM 6:           EXHIBITS AND REPORTS ON FORM 8-K.

 (a)     Exhibits

         99.1       Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
                    Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

         99.2       Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
                    Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b)      Reports on Forms 8-K.

                    A Form 8-K was filed on June 20, 2003 relating to the
                    Registrant's financial information for the three and nine
                    months ended May 31, 2003, as presented in a press release
                    on June 19, 2003.


                                       17
<PAGE>


                                   SIGNATURES




Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                     Penford Corporation
                                     -------------------------------------------
                                     (Registrant)




July 15, 2003                                  /s/ Steven O. Cordier
                                     -------------------------------------------
                                                 Steven O. Cordier
                                     Vice President and Chief Financial Officer


                                       18
<PAGE>

                      CHIEF EXECUTIVE OFFICER CERTIFICATION

I, Thomas D. Malkoski, certify that:

1.       I have reviewed this quarterly report on Form 10-Q of Penford
         Corporation;

2.       Based on my knowledge, this quarterly report does not contain any
         untrue statement of a material fact or omit to state a material fact
         necessary to make the statements made, in light of the circumstances
         under which such statements were made, not misleading with respect to
         the period covered by this quarterly report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this quarterly report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this quarterly report;

4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

                  a)       designed such disclosure controls and procedures to
                           ensure that material information relating to the
                           registrant, including its consolidated subsidiaries,
                           is made known to us by others within those entities,
                           particularly during the period in which this
                           quarterly report is begin prepared;

                  b)       evaluated the effectiveness of the registrant's
                           disclosure controls and procedures as of a date
                           within 90 days prior to the filing date of this
                           quarterly report (the "Evaluation Date"); and

                  c)       presented in this quarterly report our conclusions
                           about the effectiveness of the disclosure controls
                           and procedures based on our evaluation as of the
                           Evaluation Date;

5.       The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent function):

                  a)       All significant deficiencies in the design or
                           operation of internal controls which could adversely
                           affect the registrant's ability to record, process,
                           summarize and report financial data and have
                           identified for the registrant's auditors any material
                           weaknesses in internal controls; and

                  b)       Any fraud, whether or not material, that involves
                           management or other employees who have a significant
                           role in the registrant's internal controls; and

6.       The registrant's other certifying officers and I have indicated in this
         quarterly report whether or not there were significant changes in
         internal controls or in other factors that could significantly affect
         internal controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

                                          PENFORD CORPORATION


Date:  July 15, 2003                            /s/ THOMAS D. MALKOSKI
                                          --------------------------------------
                                                  Thomas D. Malkoski
                                                Chief Executive Officer


                                       19
<PAGE>

                      CHIEF FINANCIAL OFFICER CERTIFICATION

I, Steven O. Cordier, certify that:

1.       I have reviewed this quarterly report on Form 10-Q of Penford
         Corporation;

2.       Based on my knowledge, this quarterly report does not contain any
         untrue statement of a material fact or omit to state a material fact
         necessary to make the statements made, in light of the circumstances
         under which such statements were made, not misleading with respect to
         the period covered by this quarterly report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this quarterly report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this quarterly report;

4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

                  a)       designed such disclosure controls and procedures to
                           ensure that material information relating to the
                           registrant, including its consolidated subsidiaries,
                           is made known to us by others within those entities,
                           particularly during the period in which this
                           quarterly report is begin prepared;

                  b)       evaluated the effectiveness of the registrant's
                           disclosure controls and procedures as of a date
                           within 90 days prior to the filing date of this
                           quarterly report (the "Evaluation Date"); and

                  c)       presented in this quarterly report our conclusions
                           about the effectiveness of the disclosure controls
                           and procedures based on our evaluation as of the
                           Evaluation Date;

5.       The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent function):

                  a)       All significant deficiencies in the design or
                           operation of internal controls which could adversely
                           affect the registrant's ability to record, process,
                           summarize and report financial data and have
                           identified for the registrant's auditors any material
                           weaknesses in internal controls; and

                  b)       Any fraud, whether or not material, that involves
                           management or other employees who have a significant
                           role in the registrant's internal controls; and

6.       The registrant's other certifying officers and I have indicated in this
         quarterly report whether or not there were significant changes in
         internal controls or in other factors that could significantly affect
         internal controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

                                         PENFORD CORPORATION


Date:  July 15, 2003                            /s/ STEVEN O. CORDIER
                                         --------------------------------------
                                                  Steven O. Cordier
                                               Chief Financial Officer


                                       20
<PAGE>

                                  EXHIBIT INDEX

<Table>
<Caption>
        EXHIBIT
        NUMBER                          DESCRIPTION
        -------                         -----------
<S>                 <C>
         99.1       Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
                    Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

         99.2       Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
                    Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
</Table>