##### 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 May 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from to
 Commission File No. 0-11488
 PENFORD CORPORATION
  Washington
    
    91-1221360(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer
Identification No.)7094 South Revere Parkway, 
Centennial, Colorado
    
    80112-3932(Address of Principal Executive Offices)
    
    (Zip Code)
 (303) 649-1900
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



PENFORD CORPORATION AND SUBSIDIARIES
 INDEX
 PagePART IFINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets  May 31, 2009 and August 31, 2008
    
    
    3Condensed Consolidated Statements of Operations  Three and Nine Months ended May 31, 2009
and May 31, 2008
    
    
    4Condensed Consolidated Statements of Cash Flow  Nine Months ended May 31, 2009 and
May 31, 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 4. Controls and Procedures
    
    
    30PART IIOTHER INFORMATIONItem 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    31Item 6. Exhibits
    
    
    32Signatures
    
    
    33EX-10.1EX-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
 May 31,
    
    
    August 31,(In thousands, except per share data)
    
    2009
    
    
    2008(Unaudited)ASSETSCurrent assets:Cash
    
    $
    2,492
    
    
    $
    534Trade accounts receivable, net
    
    
    43,541
    
    
    
    28,752Inventories
    
    
    44,614
    
    
    
    50,200Prepaid expenses
    
    
    6,243
    
    
    
    4,370Insurance recovery receivable
    
    
    1,243
    
    
    
    8,000Income tax receivable
    
    
    6,493
    
    
    
    10,052Other
    
    
    5,124
    
    
    
    3,881Total current assets
    
    
    109,750
    
    
    
    105,789Property, plant and equipment, net
    
    
    156,155
    
    
    
    169,932Restricted cash value of life insurance
    
    
    9,270
    
    
    
    10,465Deferred tax asset
    
    
    4,415
    
    
    
    6,293Goodwill, net
    
    
    6,999
    
    
    
    26,043Other intangible assets, net
    
    
    672
    
    
    
    760Other assets
    
    
    1,412
    
    
    
    1,151Total assets
    
    $
    288,673
    
    
    $
    320,433LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Cash overdraft, net
    
    $
    
    
    
    $
    1,301Current portion of long-term debt and capital lease obligations
    
    
    21,507
    
    
    
    8,029Short-term borrowings
    
    
    3,482
    
    
    
    676Accounts payable
    
    
    29,689
    
    
    
    46,475Accrued liabilities
    
    
    12,446
    
    
    
    11,195Total current liabilities
    
    
    67,124
    
    
    
    67,676Long-term debt and capital lease obligations
    
    
    72,444
    
    
    
    59,860Other post-retirement benefits
    
    
    13,216
    
    
    
    12,862Other liabilities
    
    
    18,968
    
    
    
    19,673Total liabilities
    
    
    171,752
    
    
    
    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
    
    
    93,250
    
    
    
    91,443Retained earnings
    
    
    42,778
    
    
    
    74,092Treasury stock, at cost, 1,981 shares
    
    
    (32,757
    )
    
    
    (32,757
    )Accumulated other comprehensive income
    
    
    493
    
    
    
    14,457Total shareholders equity
    
    
    116,921
    
    
    
    160,362Total liabilities and shareholders equity
    
    $
    288,673
    
    
    $
    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
    
    
    Nine months endedMay 31,
    
    
    May 31,
    
    
    May 31,
    
    
    May 31,(In thousands, except per share data)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Sales
    
    $
    78,723
    
    
    $
    102,799
    
    
    $
    239,222
    
    
    $
    285,549Cost of sales
    
    
    80,191
    
    
    
    87,260
    
    
    
    239,444
    
    
    
    242,252Gross margin
    
    
    (1,468
    )
    
    
    15,539
    
    
    
    (222
    )
    
    
    43,297Operating expenses
    
    
    7,318
    
    
    
    7,267
    
    
    
    21,852
    
    
    
    21,173Research and development expenses
    
    
    1,480
    
    
    
    2,004
    
    
    
    4,561
    
    
    
    6,099Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    13,828
    
    
    
    Flood related costs, net of insurance proceeds
    
    
    (1,075
    )
    
    
    
    
    
    
    (9,109
    )
    
    
    Restructure costs
    
    
    
    
    
    
    27
    
    
    
    
    
    
    
    1,356Litigation expense
    
    
    
    
    
    
    1,411
    
    
    
    
    
    
    
    1,411Income (loss) from operations
    
    
    (9,191
    )
    
    
    4,830
    
    
    
    (31,354
    )
    
    
    13,258Non-operating income, net
    
    
    914
    
    
    
    336
    
    
    
    2,628
    
    
    
    1,590Interest expense
    
    
    1,604
    
    
    
    782
    
    
    
    4,446
    
    
    
    2,649Income (loss) before income taxes
    
    
    (9,881
    )
    
    
    4,384
    
    
    
    (33,172
    )
    
    
    12,199Income tax expense (benefit)
    
    
    (2,466
    )
    
    
    1,679
    
    
    
    (3,210
    )
    
    
    4,017Net income (loss)
    
    $
    (7,415
    )
    
    $
    2,705
    
    
    $
    (29,962
    )
    
    $
    8,182Weighted average common shares and
equivalents outstanding:Basic
    
    
    11,176
    
    
    
    11,129
    
    
    
    11,169
    
    
    
    10,371Diluted
    
    
    11,176
    
    
    
    11,446
    
    
    
    11,169
    
    
    
    10,743Earnings (loss) per share:Basic
    
    $
    (0.66
    )
    
    $
    0.24
    
    
    $
    (2.68
    )
    
    $
    0.79Diluted
    
    $
    (0.66
    )
    
    $
    0.24
    
    
    $
    (2.68
    )
    
    $
    0.76Dividends declared per common share
    
    $
    
    
    
    $
    0.06
    
    
    $
    0.12
    
    
    $
    0.18
 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
 Nine Months EndedMay 31,
    
    
    May 31,(In thousands)
    
    2009
    
    
    2008Cash flows from operating activities:Net income (loss)
    
    $
    (29,962
    )
    
    $
    8,182Adjustments to reconcile net income (loss) to net cash used
in operations:Depreciation and amortization
    
    
    13,700
    
    
    
    12,182Stock-based compensation
    
    
    2,091
    
    
    
    1,638Goodwill impairment
    
    
    13,828
    
    
    
    Gain on sale of dextrose product line
    
    
    (1,562
    )
    
    
    Deferred income taxes
    
    
    (173
    )
    
    
    (2,103
    )Loss on derivative transactions
    
    
    1,101
    
    
    
    4,442Loss (gain) on foreign currency transactions
    
    
    198
    
    
    
    (1,126
    )Other
    
    
    10
    
    
    
    (87
    )Change in assets and liabilities:Trade accounts receivable
    
    
    (16,447
    )
    
    
    (2,880
    )Prepaid expenses
    
    
    (2,071
    )
    
    
    (1,580
    )Inventories
    
    
    (76
    )
    
    
    (14,812
    )Accounts payable and accrued liabilities
    
    
    (14,937
    )
    
    
    (2,149
    )Income tax
    
    
    3,072
    
    
    
    (5,031
    )Insurance recovery receivable
    
    
    6,757
    
    
    
    Other
    
    
    2,777
    
    
    
    112Net cash used in operating activities
    
    
    (21,694
    )
    
    
    (3,212
    )Cash flows from investing activities:Investment in property, plant and equipment, net
    
    
    (4,634
    )
    
    
    (37,482
    )Proceeds from sale of dextrose product line
    
    
    2,857
    
    
    
    Proceeds from investments
    
    
    1,276
    
    
    
    Other
    
    
    (75
    )
    
    
    (90
    )Net cash used in investing activities
    
    
    (576
    )
    
    
    (37,572
    )Cash flows from financing activities:Proceeds from short-term borrowings
    
    
    10,298
    
    
    
    5,871Payments on short-term borrowings
    
    
    (7,849
    )
    
    
    (12,395
    )Proceeds from revolving line of credit
    
    
    55,931
    
    
    
    61,029Payments on revolving line of credit
    
    
    (24,500
    )
    
    
    (28,052
    )Payments of long-term debt
    
    
    (5,500
    )
    
    
    (26,625
    )Payments under capital lease obligation
    
    
    (202
    )
    
    
    (50
    )Exercise of stock options
    
    
    
    
    
    
    322Net proceeds from issuance of common stock
    
    
    
    
    
    
    46,844Payment of loan fees
    
    
    (551
    )
    
    
    Decrease in cash overdraft
    
    
    (1,301
    )
    
    
    (4,070
    )Payment of dividends
    
    
    (2,027
    )
    
    
    (1,774
    )Other
    
    
    
    
    
    
    94Net cash provided by financing activities
    
    
    24,299
    
    
    
    41,194Effect of exchange rate changes on cash and cash equivalents
    
    
    (71
    )
    
    
    (410
    )Net increase in cash and cash equivalents
    
    
    1,958
    
    
    
    Cash and cash equivalents, beginning of period
    
    
    534
    
    
    
    Cash and cash equivalents, end of period
    
    $
    2,492
    
    
    $
    
 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
    
    Six months ended
    
    Three months endedAugust 31, 2008
    
    February 28, 2009
    
    May 31, 2009
    
    Total(In thousands)Repairs of buildings and equipment
    
    $
    17,082
    
    
    $
    6,244
    
    
    $
    102
    
    
    $
    23,428Site 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
    
    
    
    754
    
    
    
    66
    
    
    
    2,61738,055
    
    
    
    7,417
    
    
    
    168
    
    
    
    45,640Insurance recoveries
    
    
    (10,500
    )
    
    
    (15,451
    )
    
    
    (1,243
    )
    
    
    (27,194
    )Net flood costs (recoveries)
    
    $
    27,555
    
    
    $
    (8,034
    )
    
    $
    (1,075
    )
    
    $
    18,446
  Insurance recoveries
  8




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4GOODWILL
   5STOCK-BASED COMPENSATION
 Stock Compensation Plans
  Valuation and Expense Under SFAS No. 123R
  9




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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
    
    
    (6,905
    )
    
    
    13.21Outstanding Balance, May 31, 2009
    
    
    1,369,442
    
    
    $
    15.18
    
    
    
    4.54
    
    
    $
    Options Exercisable at May 31, 2009
    
    
    902,817
    
    
    $
    14.21
    
    
    
    3.84
    
    
    $
    
   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 May 31, 2009
    
    
    89,582
    
    
    $
    31.31
   Compensation Expense
  10




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Three Months Ended
    
    Nine Months EndedMay 31,
    
    May 31,
    
    May 31,
    
    May 31,2009
    
    2008
    
    2009
    
    2008Cost of sales
    
    $
    76
    
    
    $
    48
    
    
    $
    241
    
    
    $
    134Operating expenses
    
    
    548
    
    
    
    591
    
    
    
    1,806
    
    
    
    1,488Research and development expenses
    
    
    13
    
    
    
    10
    
    
    
    44
    
    
    
    16Total stock-based compensation expense
    
    $
    637
    
    
    $
    649
    
    
    $
    2,091
    
    
    $
    1,638Tax benefit
    
    
    242
    
    
    
    247
    
    
    
    795
    
    
    
    622Total stock-based compensation expense, net of tax
    
    $
    395
    
    
    $
    402
    
    
    $
    1,296
    
    
    $
    1,016
 6INVENTORIES
  May 31,
    
    
    August 31,2009
    
    
    2008(In thousands)Raw materials
    
    $
    24,416
    
    
    $
    26,578Work in progress
    
    
    848
    
    
    
    1,139Finished goods
    
    
    19,350
    
    
    
    22,483Total inventories
    
    $
    44,614
    
    
    $
    50,200
  7PROPERTY, PLANT AND EQUIPMENT
  May 31,
    
    
    August 31,2009
    
    
    2008(In thousands)Land
    
    $
    19,904
    
    
    $
    20,993Plant and equipment
    
    
    378,070
    
    
    
    385,632Construction in progress
    
    
    7,707
    
    
    
    6,808405,681
    
    
    
    413,433Accumulated depreciation
    
    
    (249,526
    )
    
    
    (243,501
    )Net property, plant and equipment
    
    $
    156,155
    
    
    $
    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
    
    
    Nine months endedMay 31,
    
    
    May 31,
    
    
    May 31,
    
    
    May 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Net income (loss)
    
    $
    (7,415
    )
    
    $
    2,705
    
    
    $
    (29,962
    )
    
    $
    8,182Foreign currency translation adjustments
    
    
    8,585
    
    
    
    (274
    )
    
    
    (11,717
    )
    
    
    10,795Net unrealized gain (loss) on derivative
instruments that qualify as cash flow
hedges,
net of tax
    
    
    233
    
    
    
    292
    
    
    
    (2,247
    )
    
    
    1,648Total comprehensive income (loss)
    
    $
    1,403
    
    
    $
    2,723
    
    
    $
    (43,926
    )
    
    $
    20,625
  13




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12NON-OPERATING INCOME, NET
  Three months ended
    
    
    Nine months endedMay 31,
    
    
    May 31,
    
    
    May 31,
    
    
    May 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Royalty and licensing income
    
    $
    394
    
    
    $
    465
    
    
    $
    1,181
    
    
    $
    1,320Gain on sale of dextrose product line
    
    
    
    
    
    
    
    
    
    
    1,562
    
    
    
    Gain (loss) on foreign currency transactions
    
    
    443
    
    
    
    (236
    )
    
    
    (198
    )
    
    
    208Other
    
    
    77
    
    
    
    107
    
    
    
    83
    
    
    
    62Total
    
    $
    914
    
    
    $
    336
    
    
    $
    2,628
    
    
    $
    1,590
     13  PENSION AND POST-RETIREMENT BENEFIT PLANS
  Defined benefit pension plans
    
    Three months ended
    
    
    Nine months endedMay 31,
    
    
    May 31,
    
    
    May 31,
    
    
    May 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Service cost
    
    $
    355
    
    
    $
    371
    
    
    $
    1,065
    
    
    $
    1,113Interest cost
    
    
    646
    
    
    
    622
    
    
    
    1,936
    
    
    
    1,868Expected return on plan assets
    
    
    (607
    )
    
    
    (663
    )
    
    
    (1,821
    )
    
    
    (1,989
    )Amortization of prior service cost
    
    
    64
    
    
    
    64
    
    
    
    190
    
    
    
    190Amortization of actuarial losses
    
    
    52
    
    
    
    12
    
    
    
    158
    
    
    
    38Net periodic benefit cost
    
    $
    510
    
    
    $
    406
    
    
    $
    1,528
    
    
    $
    1,220
 14




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Post-retirement health care plans
    
    Three months ended
    
    
    Nine months endedMay 31,
    
    
    May 31,
    
    
    May 31,
    
    
    May 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Service cost
    
    $
    64
    
    
    $
    77
    
    
    $
    194
    
    
    $
    233Interest cost
    
    
    229
    
    
    
    214
    
    
    
    685
    
    
    
    640Amortization of prior service cost
    
    
    (38
    )
    
    
    (38
    )
    
    
    (114
    )
    
    
    (114
    )Net periodic benefit cost
    
    $
    255
    
    
    $
    253
    
    
    $
    765
    
    
    $
    759
 14DERIVATIVE INSTRUMENTS AND FAIR VALUE MEASURMENTS
   
    
    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.
 15




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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)
    
    $
    444
    
    
    $
    
    
    
    $
    
    
    
    $
    444Current liabilities (Accrued Liabilities):Interest rate swaps
    
    $
    
    
    
    $
    1,984
    
    
    $
    
    
    
    $
    1,984Foreign currency contracts
    
    
    
    
    
    
    43
    
    
    
    
    
    
    
    43Total Liabilities
    
    $
    
    
    
    $
    2,027
    
    
    $
    
    
    
    $
    2,027
 
 (1)
    
    As allowed by FSP FIN 39-1, Amendment of FASB Interpretation No. 39, commodity derivative assets and
liabilities have been offset by cash collateral due and paid under master netting arrangements. The cash
collateral offset was $3.4 million at May 31, 2009. Derivative Instruments
  Interest Rate Swap Agreements
  Foreign Currency Contracts
  Commodity Contracts
  16




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##### Table of Contents



Corn Futures
    
    2,460,000 BushelsNatural Gas Futures
    
    610,000 mmbtu (millions of British thermal units)Interest Rate Swap Contracts
    
    30,000,000 US Dollars (notional Amount)Foreign Exchange Contracts
    
    18,008,946 CZK
  Fair Value of Derivative Instrumentsas of the Quarter Ended May 31, 2009(in thousands)2009 Asset Derivatives
    
    
    2009 Liability DerivativesDerivatives Designated as Hedging
    
    Balance Sheet
    
    
    
    
    
    Balance SheetInstruments under SFAS 133
    
    Location
    
    Fair Value
    
    
    Location
    
    Fair ValueCash Flow Hedges:Corn Futures
    
    Other Current Assets
    
    $
    246
    
    
    Other Current Assets
    
    $
    (719
    )Natural Gas Futures
    
    Other Current Assets
    
    
    
    
    
    Other Current Assets
    
    
    (3,308
    )Interest Rate Contracts
    
    Other Current Assets
    
    
    
    
    
    Accrued Liabilities
    
    
    (1,984
    )Foreign Exchange Contracts
    
    Other Current Assets
    
    
    
    
    
    Accrued Liabilities
    
    
    (43
    )Total Cash Flow Hedges
    
    
    
    
    246
    
    
    
    
    
    (6,054
    )Fair Value Hedges:Corn Futures
    
    Other Current Assets
    
    
    418
    
    
    Other Current Assets
    
    
    (777
    )Total Fair Value Hedges
    
    
    
    
    418
    
    
    
    
    
    (777
    )Total Derivatives
Designated as Hedging
Instruments under SFAS
133
    
    
    
    $
    664
    
    
    
    
    $
    (6,831
    )
 17




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##### Table of Contents



The Effect of Derivative Instruments on the Statement of Financial Performancefor the Quarter Ended May 31, 2009(in thousands)Location of Gain or(Loss) Reclassified
    
    
    
    
    
    Location of Gain or (Loss)
    
    Amount of Gain orfrom Accum OCI into
    
    Amount of Gain or
    
    
    Recognized in Income on
    
    (Loss) RecognizedAmount of Gain or
    
    
    Income
    
    (Loss) Reclassified
    
    
    Derivative (Ineffective
    
    in Income on(Loss)
    
    
    (Effective Portion)
    
    from Accum OCI into
    
    
    Portion)
    
    DerivativeDerivatives in SFAS 133 Cash
    
    Recognized in OCI
    
    
    Income Statement
    
    Income (Effective
    
    
    Income Statement
    
    (IneffectiveFlow Hedging Relationships
    
    (Effective Portion)
    
    
    Location
    
    Portion)
    
    
    Location
    
    Portion)Cash Flow Hedging
Relationships:Corn Futures
    
    $
    72
    
    
    Cost of sales
    
    $
    (1,401
    )
    
    Cost of sales
    
    $
    48Natural Gas Futures
    
    
    (3,308
    )
    
    Cost of sales
    
    
    (2,418
    )
    
    Cost of sales
    
    
    Interest Rate Contracts
    
    
    (1,984
    )
    
    Interest expense
    
    
    (223
    )
    
    Interest Expense
    
    
    Foreign Exchange Contracts
    
    
    (66
    )
    
    Cost of sales
    
    
    (26
    )
    
    Cost of sales
    
    
    Total
    
    $
    (5,286
    )
    
    
    
    $
    (4,068
    )
    
    
    
    $
    48
 The Effect of Derivative Instruments on the Statement of Financial Performancefor the Quarter Ended May 31, 2009(in thousands)Location ofLocation of Gain /
    
    
    
    
    
    
    
    
    
    
    Gain/(Loss)
    
    
    Location of(Loss) Recognized
    
    
    Amount of Gain
    
    
    
    
    
    
    Recognized in
    
    
    Gain/(Loss)in Income on
    
    
    / (Loss)
    
    
    Hedged Item in
    
    
    Income on Related
    
    
    Recognized inDerivative
    
    
    Recognized in
    
    
    SFAS 133 Fair
    
    
    Hedged Item
    
    
    Income onDerivatives in SFAS 133 Fair
    
    Income Statement
    
    
    Income on
    
    
    Value Hedge
    
    
    Income Statement
    
    
    Related HedgedValue Hedging Relationships
    
    Location
    
    
    Derivative
    
    
    Relationships
    
    
    Location
    
    
    ItemFair Value Hedge
Relationships:Corn Futures
    
    Cost of sales
    
    
    
    
    
    Firm Commitments/Inventory
    
    Cost of sales
    
    $
    328Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    328
 15RESTRUCTURING COSTS
  16SEGMENT REPORTING
  18




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##### Table of Contents



Three months ended
    
    
    Nine months endedMay 31,
    
    
    May 31,
    
    
    May 31,
    
    
    May 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Sales:Industrial IngredientsNorth America
    
    $
    44,671
    
    
    $
    60,861
    
    
    $
    133,828
    
    
    $
    159,147Food IngredientsNorth America
    
    
    16,606
    
    
    
    17,139
    
    
    
    50,971
    
    
    
    48,857Australia/New Zealand Operations
    
    
    17,613
    
    
    
    25,096
    
    
    
    55,041
    
    
    
    78,498Intercompany sales
    
    
    (167
    )
    
    
    (297
    )
    
    
    (618
    )
    
    
    (953
    )$
    78,723
    
    
    $
    102,799
    
    
    $
    239,222
    
    
    $
    285,549Income (loss) from operations:Industrial IngredientsNorth America
    
    $
    (7,047
    )
    
    $
    5,094
    
    
    $
    (11,899
    )
    
    $
    15,358Food IngredientsNorth America
    
    
    3,365
    
    
    
    2,830
    
    
    
    9,576
    
    
    
    7,689Australia/New Zealand Operations
    
    
    (3,113
    )
    
    
    (874
    )
    
    
    (21,433
    )
    
    
    (2,994
    )Corporate and other
    
    
    (2,396
    )
    
    
    (2,220
    )
    
    
    (7,598
    )
    
    
    (6,795
    )$
    (9,191
    )
    
    $
    4,830
    
    
    $
    (31,354
    )
    
    $
    13,258
  May 31,
    
    
    August 31,2009
    
    
    2008(In thousands)Total assets:Industrial IngredientsNorth America
    
    $
    136,836
    
    
    $
    141,618Food IngredientsNorth America
    
    
    31,961
    
    
    
    35,100Australia/New Zealand Operations
    
    
    83,477
    
    
    
    111,255Corporate and other
    
    
    36,399
    
    
    
    32,460$
    288,673
    
    
    $
    320,433
 17EARNINGS (LOSS) PER SHARE
 .
 Three months ended
    
    
    Nine months endedMay 31,
    
    
    May 31,
    
    
    May 31,
    
    
    May 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Weighted average common shares outstanding
    
    
    11,176
    
    
    
    11,129
    
    
    
    11,169
    
    
    
    10,371Dilutive stock options and awards
    
    
    
    
    
    
    317
    
    
    
    
    
    
    
    372Weighted average common shares
outstanding,
assuming dilution
    
    
    11,176
    
    
    
    11,446
    
    
    
    11,169
    
    
    
    10,743
  19




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18LEGAL PROCEEDINGS
   19GUARANTEE
  20SUBSEQUENT EVENT
    20




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##### Table of Contents



2009
    
    $
    5,7932010
    
    
    21,2412011
    
    
    69,9302012
    
    
    2322013
    
    
    237$
    97,433
 21




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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,§
    
    the Companys ability to successfully operate under and comply with the terms of the
Second Amended and Restated Credit Agreement, as amended; or§
    
    other factors described in Part I, Item 1A Risk Factors.
 Overview
  22




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##### Table of Contents



Impact of Cedar Rapids Flood
     Goodwill
  Accounting Changes
  23




---



##### Table of Contents



Results of Operations
 Executive Overview
   24




---



##### Table of Contents



Industrial IngredientsNorth America
    Food IngredientsNorth America
    Australia/New Zealand Operations
  25




---



##### Table of Contents



Corporate operating expenses
  Interest expense
   Income taxes
   26




---



##### Table of Contents



Non-operating income, net
  Three months ended
    
    
    Nine months endedMay 31,
    
    
    May 31,
    
    
    May 31,
    
    
    May 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Royalty and licensing income
    
    $
    394
    
    
    $
    465
    
    
    $
    1,181
    
    
    $
    1,320Gain on sale of dextrose product line
    
    
    
    
    
    
    
    
    
    
    1,562
    
    
    
    Gain (loss) on foreign currency
transactions
    
    
    443
    
    
    
    (236
    )
    
    
    (198
    )
    
    
    208Other
    
    
    77
    
    
    
    107
    
    
    
    83
    
    
    
    62Total
    
    $
    914
    
    
    $
    336
    
    
    $
    2,628
    
    
    $
    1,590
   27




---



##### Table of Contents



Liquidity and Capital Resources
         28




---



##### Table of Contents



Guaranteed Obligations
  Contractual Obligations
   Pension Contributions
  Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
    29




---



##### Table of Contents



Critical Accounting Policies and Estimates
  
 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
  30




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1: Legal Proceedings
   
 Item 1A: Risk Factors
     31




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##### Table of Contents



Item 6: Exhibits.
  10.1
    
    Third Amendment to Second Amended and Restated Credit Agreement31.1
    
    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
 32




---



##### Table of Contents



SIGNATURES
  Penford Corporation(Registrant)July 10, 2009
    
    /s/ Steven O. Cordier

Steven O. CordierSenior Vice President and Chief Financial Officer
 33




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##### Table of Contents



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
    
    Third Amendment to Second Amended and Restated Credit Agreement31.1
    
    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
 34