PENFORD CORP

In connection with the proposed merger with Ingredion, two purported class action lawsuits have been filed on behalf of Penford Corporation shareholders in the Superior Court of Washington, King County. A complaint captioned Pill v. Penford Corp. et al., No. 14-2-29641-0 SEA was filed on October 30, 2014, and a complaint captioned Toth v. Penford Corp, et al., No. 14-2-31935-5 SEA, was filed on November 25, 2014. The complaints named as defendants Penford Corporation, all of the members of Penford Corporation’s board of directors, Ingredion and Prospect Sub, Inc. (referred to as “Merger Sub”). The complaints allege, among other things, that the members of Penford Corporation’s board of directors breached their fiduciary duties to shareholders by failing to take steps to maximize shareholder value or to engage in a fair sale process before approving the proposed acquisition of the Company by Ingredion.

On December 31, 2014, plaintiffs filed a Consolidated Amended Class Action Complaint naming the same defendants as the Pill and Toth complaints. The amended complaint alleges, among other things, that the members of Penford’s board of directors breached their fiduciary duties to shareholders by failing to take steps to maximize shareholder value or to engage in a fair sale process before approving the proposed acquisition of the Company by Ingredion. Specifically, the amended complaint alleges that the consideration to be paid by Ingredion is inadequate in light of the Company’s current value and potential for future growth. The amended complaint also alleges that the Company’s transaction process was designed to ensure that only Ingredion had the opportunity to acquire the Company and that the use of certain deal protection mechanisms improperly precluded the Company from seeking out competing offers.

On December 23, 2014, the Company was notified that a lawsuit had been filed against it in the United States District Court for the District of Kansas by MGPI Processing, Inc. alleging infringement of a patent relating to the production of resistant starches that is allegedly licensed to the plaintiff. The complaint, which has not yet been served, seeks an unspecified amount of damages and an injunction, among other relief.

Potential Outcomes

Industrial Ingredients’ operating income in the first quarter of fiscal 2015 of $3.0 million grew $5.0 million over the previous year’s first quarter primarily due to an improvement in gross margin. Gross margin increased $5.8 million to $7.2 million from $1.4 million the previous year. Margin improvement was due to favorable ethanol market dynamics of $3.9 million, the lower cost of physical corn of $1.8 million, lower corn-based by-products costs of $0.4 million, lower energy costs of $0.3 million, increased volumes of $0.6 million and $1.2 million less in depreciation expense, see discussion below, partially offset by unfavorable ethanol pricing of $2.3 million and unfavorable starch pricing of $0.3 million. Operating expenses increased $0.7 million due to increased payroll as a result to increased headcount, and research and development expenses increased $0.1 million.

This Quarterly Report on Form 10-Q (“Quarterly Report”), including, but not limited to, statements found in the Notes to Condensed 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. Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on information available as of the date of this report. The Company does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of the filing of this Quarterly Report. 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 Part II Item 1A of this Quarterly Report, and those described from time to time in other filings made with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the year ended August 31, 2014, as amended, which include but are not limited to: