Carolina Starches Acquisition

12 Months Ended

Aug. 31, 2012

Carolina Starches Acquisition

Note 19 — Carolina Starches Acquisition

On January 11, 2012, Penford Carolina, LLC, a Delaware limited liability company (“Purchaser”) and a wholly-owned subsidiary of the Company, entered into an Amended and Restated Business Sale and Membership Interest Purchase Agreement (the “Amended and Restated Purchase Agreement”) providing for the purchase of Carolina Starches. Penford Carolina, LLC manufactures, markets and sells industrial cationic starches produced from potato, corn and tapioca into the paper and packaging industry. The acquisition of these businesses provides an important source of raw material to support continued growth in the Food Ingredients business and broadens the Company’s portfolio of specialty modified industrial starches.

Pursuant to the terms of the Amended and Restated Purchase Agreement, the Purchaser acquired from each of R. Bentley Cheatham, Dwight Carlson and Steven P. Brower (collectively, the “Sellers”) 100% of the limited liability interests in Carolina Starches, LLC and entered into asset purchase agreements with two limited liability companies owned by Sellers pursuant to which these companies transferred to Purchaser substantially all of their net assets. The Purchaser also entered into a real property lease agreement and an option to purchase agreement with another limited liability company owned by the Sellers, pursuant to which Purchaser leases a facility from such company with an option to purchase that facility. The acquisition price was $5 million in cash paid to the Sellers and the payment of $3.5 million in bank debt of Carolina Starches, LLC and its related companies. The Company incurred $0.2 million of acquisition costs. The funding of the purchase price of $8.5 million was provided by borrowings under the Company’s credit facility. The results of operations of the acquired limited liability company interests and assets are included in the Company’s consolidated results from January 11, 2012 forward.

The acquisition of Carolina Starches was accounted for as a business combination under the acquisition method. The allocation of the purchase price to the assets acquired and liabilities assumed, based on their fair values as of January 11, 2012, is presented below. The purchase price allocation was finalized in the fourth quarter of fiscal 2012. Included in property, plant and equipment is $0.7 million of land, land improvements and buildings acquired in this transaction pursuant to a capital lease. Goodwill represents the amount by which the purchase price exceeded the fair value of the net assets acquired and has been allocated to the Food Ingredients segment. It is estimated that all of the goodwill associated with this acquisition is deductible for tax purposes. Pro forma results of operations have not been included as the results were not significant to the historical periods.

	Preliminary						Final
(in thousands)	Allocation			Adjustments			Allocation
Property, plant and equipment	$	3,947		$	—		$	3,947
Working capital		4,190			35			4,225
Other assets		141			—			141
Intangible assets		290			—			290
Goodwill		116			(35	)		81
Non-current liabilities		(184	)		—			(184	)
Total purchase price	$	8,500		$	—		$	8,500