10-K/A

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 1

Form 10-K/A

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended August 31, 2005

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 Number 0-11488

Penford Corporation

(Exact name of registrant as specified in its charter)

Washington (State or other jurisdiction of incorporation or organization)	91-1221360 (I.R.S. Employer Identification No.)
7094 S. Revere Parkway Centennial, Colorado (Address of principal Executive Offices)	80112-3932 (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $1.00 par value
Common Stock Purchase Rights

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

     Indicate by 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 at least the past 90 days. Yes þ No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

     Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     The aggregate market value of the Registrant’s Common Stock held by non-affiliates of the Registrant as of February 28, 2005, the last business day of the Registrant’s second quarter of fiscal 2005, was approximately $86.8 million based upon the last sale price reported for such date on The Nasdaq National Market. For purposes of making this calculation, Registrant has assumed that all the outstanding shares were held by non-affiliates, except for shares held by Registrant’s directors and officers and by each person who owns 5% or more of the outstanding Common Stock. However, this does not necessarily mean that there are not other persons who may be deemed to be affiliates of the Registrant.

     The number of shares of the Registrant’s Common Stock (the Registrant’s only outstanding class of stock) outstanding as of November 7, 2005 was 8,877,165.

Documents Incorporated by Reference

     No documents are incorporated by reference in this Amendment No. 1 on Form 10-K/A.

EXPLANATORY NOTE

     Penford Corporation (also referred to as “Penford” or the “Company) is filing this Amendment No. 1 (this “Amendment No. 1”) to its Form 10-K for the fiscal year ended August 31, 2005 (the “Form 10-K”), originally filed with the Securities and Exchange Commission on November 14, 2005 for the purpose of revising the Report of Independent Registered Public Accounting Firm that appeared in Item 8 of Part II of the Form 10-K. We are also updating the signature page, the Exhibit Index referenced in Item 15 of Part IV, and Exhibits 31.1, 31.2 and 32.

     Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, the complete text of Item 8 of Part II, as amended, is set forth below. This Amendment No. 1 speaks as of the original filing date of the Form 10-K and reflects only the changes discussed above. No other information or disclosures in the Form 10-K, including the Company’s financial statements and the footnotes thereto, have been amended or updated by this Amendment No. 1.

2

Item 8: Financial Statements and Supplementary Data

TABLE OF CONTENTS

	Page
Consolidated Balance Sheets		4
Consolidated Statements of Operations		5
Consolidated Statements of Comprehensive Income (Loss)		5
Consolidated Statements of Cash Flows		6
Consolidated Statements of Shareholders’ Equity		7
Notes to Consolidated Financial Statements		8
Report of Management on Internal Control Over Financial Reporting		29
Reports of Independent Registered Public Accounting Firm		30
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO & CFO Pursuant to Section 906

3

Consolidated Balance Sheets

	August 31,
	2005			2004
	(Dollars in thousands)
Assets
Current assets:
Cash	$	5,367		$	5,915
Trade accounts receivable, net		39,653			38,703
Inventories		34,801			31,807
Prepaid expenses		5,084			4,124
Other		4,032			2,888
Total current assets		88,937			83,437
Property, plant and equipment, net		125,267			130,392
Restricted cash value of life insurance		10,132			12,623
Other assets		1,040			3,269
Other intangible assets, net		3,121			2,299
Goodwill, net		21,420			20,171
	$	249,917		$	252,191
Liabilities and shareholders’ equity
Current liabilities:
Cash overdraft, net	$	777		$	—
Current portion of long-term debt and capital lease obligations		4,022			4,775
Accounts payable		35,941			25,169
Accrued pension liability		2,302			3,151
Accrued liabilities		10,324			10,200
Total current liabilities		53,366			43,295
Long-term debt and capital lease obligations		62,107			75,551
Other postretirement benefits		13,091			12,598
Deferred income taxes		4,353			7,204
Other liabilities		16,974			17,824
Total liabilities		149,891			156,472
Commitments and contingencies		—			—
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 10,849,487 shares in 2005 and 10,784,200 in 2004, including treasury shares		10,849			10,784
Additional paid-in capital		37,728			36,911
Retained earnings		76,040			75,585
Treasury stock, at cost, 1,981,016 shares		(32,757	)		(32,757	)
Accumulated other comprehensive income		8,166			5,196
Total shareholders’ equity		100,026			95,719
Total liabilities and shareholders’ equity	$	249,917		$	252,191

The accompanying notes are an integral part of these statements.

4

Consolidated Statements of Operations

	Year Ended August 31,
	2005			2004		2003
	(Dollars in thousands, except share
	and per share data)
Sales	$	296,763		$	279,386	$	262,467
Cost of sales		263,542			241,298		218,784
Gross margin		33,221			38,088		43,683
Operating expenses		26,413			23,063		24,620
Research and development expenses		5,796			6,115		5,399
Restructure costs, net		—			1,334		(165	)
Income from operations		1,012			7,576		13,829
Interest expense		5,574			4,492		5,495
Other non-operating income, net		2,209			1,987		3,205
Income (loss) before income taxes		(2,353	)		5,071		11,539
Income tax expense (benefit)		(4,927	)		1,369		3,103
Net income	$	2,574		$	3,702	$	8,436
Weighted average common shares and equivalents outstanding, assuming dilution		8,946,195			8,868,050		8,227,549
Earnings per common share:
Basic	$	0.29		$	0.42	$	1.04
Diluted	$	0.29		$	0.42	$	1.03
Dividends declared per common share	$	0.24		$	0.24	$	0.24

Consolidated Statements of Comprehensive Income

	Year Ended August 31,
	2005			2004			2003
	(Dollars in thousands)
Net income	$	2,574		$	3,702		$	8,436
Other comprehensive income (loss):
Change in fair value of derivatives, net of tax benefit of $156, $274 and $369		(303	)		(609	)		(686	)
Loss from derivative transactions reclassified into earnings from other comprehensive income, net of tax benefit of $350, $425 and $46		679			945			86
Foreign currency translation adjustments		3,271			3,694			5,578
Additional minimum pension liability, net of applicable income tax benefit of $365, $150 and $1,088		(677	)		(278	)		(2,021	)
Other comprehensive income		2,970			3,752			2,957
Total comprehensive income	$	5,544		$	7,454		$	11,393

The accompanying notes are an integral part of these statements.

5

Consolidated Statements of Cash Flows

	Year Ended August 31,
	2005			2004			2003
	(Dollars in thousands)
Operating activities:
Net income	$	2,574		$	3,702		$	8,436
Adjustments to reconcile net income to net cash from operations:
Depreciation and amortization		17,025			17,689			17,680
Loss on early extinguishment of debt		1,051			665			—
Gain on sale of investment		(736	)		—			—
Gain on sale of land		(1,166	)		—			—
Gain on sale of Hi-maize® business		—			—			(1,916	)
Deferred income tax benefit		(5,410	)		(618	)		(2,039	)
Stock compensation expense related to non-employee director stock options and other stock option acceleration		91			159			120
Other		246			842			9
Change in operating assets and liabilities:
Trade receivables		(122	)		(1,482	)		(4,130	)
Inventories		(2,042	)		(3,519	)		3,412
Prepaid expenses		(914	)		(7	)		(202	)
Accounts payable and accrued liabilities		12,102			2,544			4,556
Taxes payable		(2,406	)		862			(104	)
Other		763			(454	)		707
Net cash flow from operating activities		21,056			20,383			26,529
Investing activities:
Acquisitions of property, plant and equipment, net		(9,413	)		(15,454	)		(8,772	)
Proceeds from investments		3,525			—			—
Proceeds from sale of land		1,870			—			—
Proceeds from sale of Hi-Maize® assets, net		—			—			2,054
Proceeds from Hi-Maize® licensing agreement, net		—			—			1,653
Other		(150	)		(433	)		(669	)
Net cash used by investing activities		(4,168	)		(15,887	)		(5,734	)
Financing activities:
Proceeds from revolving line of credit		57,830			39,459			26,950
Payments on revolving line of credit		(48,177	)		(65,082	)		(22,300	)
Proceeds from long-term debt		22,396			50,039			—
Payments on long-term debt		(47,867	)		(26,362	)		(25,648	)
Exercise of stock options		682			2,145			1,751
Net proceeds from issuance of common stock		—			—			6,938
Payment of loan fees		(905	)		(1,736	)		(247	)
Increase (decrease) in cash overdraft		776			—			(1,754	)
Payment of dividends		(2,117	)		(2,090	)		(1,910	)
Other		(8	)		—			(21	)
Net cash used by financing activities		(17,390	)		(3,627	)		(16,241	)
Effect of exchange rate changes on cash and cash equivalents		(46	)		(651	)		378
Net increase (decrease) in cash and cash equivalents		(548	)		218			4,932
Cash and cash equivalents, beginning of year		5,915			5,697			765
Cash and cash equivalents, end of year	$	5,367		$	5,915		$	5,697
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest	$	4,754		$	3,621		$	4,737
Income taxes, net	$	563		$	2,581		$	2,661
Noncash investing and financing activities:
Capital lease obligations incurred for certain equipment leases	$	85		$	—		$	—

The accompanying notes are an integral part of these statements.

6

Consolidated Statements of Shareholders’ Equity

	Year Ended August 31,
	2005			2004			2003
	(Dollars in thousands)
Common stock
Balance, beginning of year	$	10,784		$	10,585		$	9,666
Exercise of stock options		65			199			404
Cancelled common stock		—			—			(143	)
Issuance of restricted stock, net		—			—			8
Issuance of common stock		—			—			650
Balance, end of year		10,849			10,784			10,585
Additional paid-in capital
Balance, beginning of year		36,911			34,628			26,055
Exercise of stock options		617			1,946			1,490
Tax benefit of stock option exercises		109			262			598
Director stock-based compensation		91			75			197
Issuance of common stock		—			—			6,288
Balance, end of year		37,728			36,911			34,628
Retained earnings
Balance, beginning of year		75,585			73,985			67,513
Net income		2,574			3,702			8,436
Dividends declared		(2,119	)		(2,102	)		(1,964	)
Balance, end of year		76,040			75,585			73,985
Treasury stock		(32,757	)		(32,757	)		(32,757	)
Accumulated other comprehensive income (loss):
Balance, beginning of year		5,196			1,444			(1,513	)
Change in fair value of derivatives, net of tax		(303	)		(609	)		(686	)
Loss from derivative transactions reclassified into earnings from other comprehensive income, net of tax		679			945			86
Foreign currency translation adjustments		3,271			3,694			5,578
Additional minimum pension liability, net of tax		(677	)		(278	)		(2,021	)
Balance, end of year		8,166			5,196			1,444
Total shareholders’ equity	$	100,026		$	95,719		$	87,885

The accompanying notes are an integral part of these statements.

7

Notes to Consolidated Financial Statements

Note 1 — Summary of Significant Accounting Policies

  Business

     Penford Corporation (“Penford” or the “Company”) is a developer, manufacturer and marketer of specialty natural-based ingredient systems for industrial and food ingredient applications. The Company operates manufacturing facilities in the United States, Australia and New Zealand. Penford’s products provide binding and film-forming characteristics that improve customer’s products through convenient and cost-effective solutions made from renewable sources. 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 in developing applications to address customer needs. In addition, the Company has specialty processing capabilities for a variety of modified starches.

     Penford manages its business in three segments. The first two, industrial ingredients and food ingredients are broad categories of end-market users, primarily served by the U.S. operations. The third segment is the geographically separate operations in Australia and New Zealand. The Australian and New Zealand operations are engaged primarily in the food ingredients business.

  Basis of Presentation

     The accompanying consolidated financial statements include the accounts of Penford and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated. Certain reclassifications have been made to prior years’ financial statements in order to conform with the current year presentation.

  Use of Estimates

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates are used in accounting for, among other things, the allowance for doubtful accounts, accruals, the determination of assumptions for pension and postretirement employee benefit costs, and the useful lives of property and equipment. Actual results may differ from previously estimated amounts.

  Cash and Cash Equivalents

     Cash and cash equivalents consist of cash and temporary investments with maturities of less than three months when purchased. Amounts are reported in the balance sheets at cost, which approximates market value.

  Allowance for Doubtful Accounts and Concentration of Credit Risk

     The allowance for doubtful accounts reflects the Company’s best estimate of probable losses in the accounts receivable balances. Penford estimates the allowance for uncollectible accounts based on historical experience, known troubled accounts, industry trends, economic conditions, how recently payments have been received, and ongoing credit evaluations of its customers. Activity in the allowance for doubtful accounts for fiscal 2005, 2004 and 2003 is as follows:

	Balance		Charged to
	Beginning of		Costs and		Deductions		Balance
	Year		Expenses		and Other		End of Year
Year ended August 31:
2005	$	364	$	196	$	159	$	401
2004		538		250		424		364
2003		345		320		127		538

8

     Approximately half of the Company’s sales in fiscal 2005, 2004 and 2003 were made to customers who operate in the North American paper industry. This industry has suffered an economic downturn, which has resulted in the closure of a number of smaller mills. In fiscal 2004, the Industrial Ingredients – North America business wrote off receivable amounts which became uncollectible primarily due to bankruptcies in the paper industry.

  Financial Instruments

     The carrying value of financial instruments including cash and cash equivalents, receivables, payables and accrued liabilities approximates fair value because of their short maturities. The Company’s bank debt reprices with changes in market interest rates and, accordingly, the carrying amount of such debt approximates market value.

  Inventories

     Inventory is stated at the lower of cost or market. Inventory is valued using the first-in, first-out (“FIFO”) method, which approximates actual cost. Capitalized costs include materials, labor and manufacturing overhead related to the purchase and production of inventories.

  Goodwill and Other Intangible Assets

     In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” goodwill is not amortized, but instead is tested for impairment at least annually, or more frequently if there is an indication of impairment.

     Patents are amortized using the straight-line method over their estimated period of benefit. At August 31, 2005, the weighted average remaining amortization period for patents is eight years. Intangible pension assets are not amortized. Penford has no intangible assets with indefinite lives.

  Property, Plant and Equipment

     Property, plant and equipment are recorded at cost. Expenditures for maintenance and repairs are expensed as incurred. The Company uses the straight-line method to compute depreciation expense assuming average useful lives of three to forty years for financial reporting purposes. Depreciation of $16,326,000, $16,990,000 and $16,626,000 was recorded in 2005, 2004 and 2003, respectively. For income tax purposes, the Company generally uses accelerated depreciation methods.

     Interest is capitalized on major construction projects while in progress. No interest was capitalized in 2005, 2004 and 2003.

  Income Taxes

     The provision for income taxes includes federal, state, and foreign taxes currently payable and deferred income taxes arising from temporary differences between financial and income tax reporting methods. Deferred taxes are recorded using the liability method in recognition of these temporary differences. Deferred taxes are not recognized on undistributed earnings of foreign subsidiaries as these earnings are deemed to be permanently reinvested.

  Revenue Recognition

     Revenue from sales of products and shipping and handling revenue are recognized at the time goods are shipped, and title transfers to the customer. Costs associated with shipping and handling are included in cost of sales.

  Research and Development

     Research and development costs are expensed as incurred, except for costs of patents, which are capitalized and amortized over the life of the patents. Research and development costs expensed were $5.8 million, $6.1 million and $5.4 million in fiscal 2005, 2004 and 2003, respectively. Patent costs of $19,000, $39,000 and $221,000 were capitalized in 2005, 2004 and 2003, respectively.

9

  Foreign Currency Translation

     Assets and liabilities of subsidiaries whose functional currency is deemed to be other than the U.S. dollar are translated at year end rates of exchange. Resulting translation adjustments are accumulated in the currency translation adjustments component of other comprehensive income. Income statement amounts are translated at average exchange rates prevailing during the year.

  Derivatives

     For derivative instruments designated as fair value hedges, the gain or loss on the derivative instruments as well as the offsetting loss or gain on the hedged firm commitments are recognized in current earnings as a component of cost of goods sold. At August 31, 2005, derivative instruments designated as fair value hedges are not material. For derivative instruments designated as cash flow hedges, the effective portion of the gain or loss on the derivative instruments is reported as a component of other comprehensive income, net of applicable income taxes, and recognized in earnings as a component of cost of goods sold in the period when the finished goods produced from the hedged item are sold. If it is determined that the derivative instruments used are no longer effective at offsetting changes in the price of the hedged item, then the changes in market value would be recognized in current earnings as a component of cost of good sold. At August 31, 2005, the Company had $0.3 million of after-tax gains in other comprehensive income related to derivative transactions which the Company expects to recognize in earnings in fiscal 2006. Unrealized gains and losses, representing the fair value of derivative instruments, are recorded as other current assets or accounts payable on the Company’s balance sheet.

  Significant Customer and Export Sales

     The Company has several relatively large customers in each business segment. However, over the last three years Penford had no customers that exceeded 10% of sales. Export sales accounted for approximately 16%, 19% and 18% of consolidated sales in fiscal 2005, 2004 and 2003, respectively.

Stock-Based Compensation

     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.” Through August 31, 2005, the Company accounted 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. The adoption of SFAS No. 148 did not have an effect on the Company’s reported financial position, results of operations or liquidity.

     The Company uses the intrinsic-value method to record expense for stock options. Accordingly, no compensation expense has been recognized for the stock-based compensation plans other than for the Directors’ Plan and restricted stock awards.

     The fair value of each option grant was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions for fiscal 2005: risk-free interest rates of 3.7% to 4.0%; expected option life of each vesting increment of 1.6 years for employees and 4.5 years for non-employee directors; expected volatility of 58%; and expected dividends of $0.24 per share. The weighted average fair value of options granted under the 1994 Plan during fiscal years 2005, 2004 and 2003 was $7.71, $7.82 and $7.09, respectively. The weighted average fair value of options granted under the Directors’ Plan during fiscal years 2005, 2004 and 2003 was $10.30, $6.82 and $6.68, respectively.

10

     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:

	Year Ended August 31,
	2005			2004			2003
	(Dollars in thousands, except per
	share data)
Net income, as reported	$	2,574		$	3,702		$	8,436
Add: Stock-based employee compensation expense included in reported net income, net of tax		36			81			66
Less: Stock-based employee compensation expense determined under the fair value method for all awards, net of tax		(898	)		(1,181	)		(935	)
Net income, pro forma	$	1,712		$	2,602		$	7,567
Earnings per share:
Basic — as reported	$	0.29		$	0.42		$	1.04
Basic — pro forma		0.19			0.30			0.93
Diluted — as reported	$	0.29		$	0.42		$	1.03
Diluted — pro forma		0.19			0.29			0.92

     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 pro forma impacts disclosed above are not necessarily indicative of future effects on net income and earnings per share. The potential impact of adopting SFAS No. 123R on the results of operations for fiscal 2006 is dependent on various factors, including the number of options granted in fiscal 2006, and assumptions regarding the volatility of the stock price and future dividends.

  Recent Accounting Pronouncements

     In November 2004, the Financial Accounting Standards Board (“FASB”) issued Statement No. 151, “Inventory Costs—an Amendment of ARB No. 43, Chapter 4” (“SFAS No. 151”). SFAS No. 151, which is effective for inventory costs incurred during years beginning after June 15, 2005, clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material, requiring that those items be recognized as current-period charges. In addition, SFAS No. 151 requires that allocation of fixed production overheads be based on the normal capacity of the production facilities. The adoption of SFAS No. 151 beginning September 1, 2005 is not expected to have a material effect on the Company’s results of operation, financial position or liquidity.

     In December 2004, the FASB issued Statement No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”). SFAS No. 123R, which is effective for the first annual period beginning after June 15, 2005, requires all share-based payments to employees, including grants of stock options, to be recognized in the financial statements based on their fair values. In addition, two transition alternatives are permitted at the time of adoption of this statement, restating prior year financial statements or recognizing adjustments to share-based liabilities as the cumulative effect of a change in accounting principle. The Company will be required to adopt SFAS No. 123R effective September 1, 2005. In March 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 107 (“SAB 107”) regarding the SEC’s interpretation of SFAS No. 123R. The Company is currently evaluating the requirements of SFAS No. 123R and SAB 107. The Company expects that the adoption of SFAS No. 123R will have a material effect on its results of operations and earnings per share. The Company has not yet determined the method of adoption or the effect of adopting SFAS No. 123R, and it has not determined whether the adoption will result in amounts that are similar to the current proforma disclosures pursuant to SFAS No. 123.

     In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN No. 47”), which requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. FIN No. 47 is effective for fiscal years ending after December 15, 2005. The Company is currently evaluating the effect that the adoption will have on its results of operations and financial position, but does not believe it will have a material impact.

11

Note 2 — Inventories

     Components of inventory are as follows:

	August 31,
	2005		2004
	(dollars in thousands)
Raw materials	$	17,666	$	13,996
Work in progress		614		687
Finished goods		16,521		17,124
Total inventories	$	34,801	$	31,807

     To reduce the price volatility of corn used in fulfilling some of its starch sales contracts, Penford, from time to time, uses readily marketable exchange-traded futures as well as forward cash corn purchases. The exchange-traded futures are not purchased or sold for trading or speculative purposes and are designated as hedges. The changes in market value of such contracts have historically been, and are expected to continue to be, effective in offsetting the price changes of the hedged commodity. Penford also at times uses exchange-traded futures to hedge corn inventories. Hedges are designated as cash flow hedges at the time the transaction is established and are recognized in earnings in the time period for which the hedge was established. Hedged transactions are within 12 months of the time the hedge is established. The amount of ineffectiveness related to the Company’s hedging activities was not material.

Note 3 — Property and equipment

     Components of property and equipment are as follows:

	August 31,
	2005			2004
	(Dollars in thousands)
Land	$	15,943		$	15,952
Plant and equipment		304,247			293,721
Construction in progress		11,022			10,526
		331,212			320,199
Accumulated depreciation		(205,945	)		(189,807	)
Net property and equipment	$	125,267		$	130,392

The above table includes less than $0.1 million of equipment under capital leases.

Note 4 — Goodwill and other intangible assets

     Goodwill represents the excess of acquisition costs over the fair value of the net assets of Penford Australia, which was acquired on September 29, 2000. The Company evaluates annually, or more frequently if certain indicators are present, the carrying value of its goodwill under provisions of SFAS No. 142.

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     In accordance with this standard, Penford does not amortize goodwill. The Company completed the annual update as of June 1, 2005 and determined there was no impairment to the recorded value of goodwill. In order to identify potential impairments, Penford compared the fair value of each of its reporting units with its carrying amount, including goodwill. Penford then compared the implied fair value of its reporting units’ goodwill with the carrying amount of that goodwill. The implied fair value of the reporting units was determined using primarily discounted cash flows. This testing was performed on Penford’s Food Ingredients—North America and the Australia/New Zealand operations reporting units, which are the same as two of the Company’s business segments. Since there was no indication of impairment, Penford was not required to complete the second step of the process which would measure the amount of any impairment. On a prospective basis, the Company is required to continue to test its goodwill for impairment on an annual basis, or more frequently if certain indicators arise.

     The Company’s goodwill of $21.4 million and $20.2 million at August 31, 2005 and 2004 respectively, represents the excess of acquisition costs over the fair value of the net assets of Penford Australia. The increase in the carrying value of goodwill since August 31, 2004 reflects the impact of exchange rate fluctuations between the Australian and U.S. dollar on the translation of this asset.

     Penford’s intangible assets consist of patents which are being amortized over the weighted average remaining amortization period of eight years as of August 31, 2005 and an intangible pension asset. There is no residual value associated with patents. The carrying amount and accumulated amortization of intangible assets are as follows:

	August 31, 2005				August 31, 2004
	Carrying		Accumulated		Carrying		Accumulated
	Amount		Amortization		Amount		Amortization
Intangible assets:
Patents	$	2,250	$	1,156	$	2,215	$	1,013
Intangible pension asset (1)		2,027		—		1,097		—
	$	4,277	$	1,156	$	3,312	$	1,013

(1) Not covered by the scope of SFAS No. 142

     Amortization expense related to intangible assets was $0.1 million in each of 2005, 2004 and 2003. The estimated aggregate annual amortization expense for patents is approximately $0.1 million for each of the next five fiscal years, 2006-2010.

Note 5 — Debt

	August 31,
	2005		2004
	(Dollars in thousands)
Secured credit agreements — revolving loans, 7.37% weighted average interest rate at August 31, 2005	$	16,116	$	33,077
Secured credit agreements — term loans, 5.70% weighted average interest rate at August 31, 2005		49,936		47,249
Capital lease obligations		77		—
		66,129		80,326
Less: current portion		4,022		4,775
Long-term debt	$	62,107	$	75,551

     On August 22, 2005, Penford entered into a $105 million Amended and Restated Credit Agreement. This agreement refinances the previous secured term and revolving credit facilities. Under the agreement, the Company may borrow $50 million in term loans and $55 million in revolving lines of credit. The Company may borrow the Australian dollar equivalent of U.S. $10 million in term loans and a maximum of U.S. $15 million in an alternative currency, which is defined in the Agreement as the Australian dollar or other currency approved by the lenders. The revolving lines of credit and term loans expire on August 22, 2010. Interest rates under the new credit facility are based on either the London Interbank Offering Rates (“LIBOR”) in Australia or the U.S., or the prime rate, depending on the selection of available borrowing options under the Agreement.

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     Substantially all of Penford’s U.S. assets secure the credit facility and the credit agreement includes, among other things, financial covenants with limitations on indebtedness and capital expenditures and maintenance of fixed charge and leverage ratios. Penford was in compliance with the credit agreement covenants at August 31, 2005. Pursuant to the terms of the credit agreement, Penford’s borrowing availability was $22.8 million at August 31, 2005.

     As of August 31, 2005, Penford borrowed $49.9 million in term loans, of which $9.9 million U.S. dollar equivalent was denominated in Australian dollars, and the Company borrowed $16.1 million on its revolving lines of credit, of which $9.7 million U.S. dollar equivalent was denominated in Australian dollars. The maturities of debt existing at August 31, 2005 for the fiscal years beginning with fiscal 2006 are as follows (dollars in thousands):

2006	$	4,022
2007		5,023
2008		6,028
2009		6,004
2010		45,052
	$	66,129

     Included in the Company’s long term debt is $77,000 of capital lease obligations, of which $22,000 is considered current portion of long term debt. See Note 8.

Note 6 — Stockholders’ Equity

  Common Stock

	Year Ended August 31,
	2005		2004		2003
Common shares outstanding
Balance, beginning of year		10,784,200		10,584,715		9,666,149
Exercise of stock options		65,287		199,441		404,343
Cancelled common stock		—		—		(143,354	)
Issuance of restricted stock, net		—		44		7,577
Issuance of common stock		—		—		650,000
Balance, end of year		10,849,487		10,784,200		10,584,715

     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. The Company incurred $0.3 million in placement fees and professional services related to the common stock issuance.

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  Common Stock Purchase Rights

     On June 16, 1988, Penford distributed a dividend of one right (“Right”) for each outstanding share of Penford common stock. The Rights will become exercisable if a purchaser acquires 15% of Penford’s common stock or makes an offer to acquire common stock. In the event that a purchaser acquires 15% of the common stock of Penford, each Right shall entitle the holder, other than the acquirer, to purchase one share of common stock of Penford at a price of $100. In the event that Penford is acquired in a merger or transfers 50% or more of its assets or earnings to any one entity, each Right entitles the holder to purchase common stock of the surviving or purchasing company having a market value of twice the exercise price of the Right. The Rights may be redeemed by Penford at a price of $0.01 per Right and expire on June 16, 2008.

Note 7 — Other Comprehensive Income (Loss)

     The components of other comprehensive income (loss) are as follows:

	August 31,
	2005			2004
	(Dollars in thousands)
Net unrealized gain (loss) on derivatives, net of tax	$	282		$	(95	)
Foreign currency translation adjustments		12,857			9,586
Minimum pension liability, net of tax		(4,973	)		(4,295	)
	$	8,166		$	5,196

     The earnings associated with the Company’s investment in Penford Australia are considered to be permanently invested and no provision for U.S. income taxes on the related translation adjustment has been provided.

Note 8 — Leases

     Certain of the Company’s property, plant and equipment is leased under operating leases ranging from one to fifteen years with renewal options. Rental expense under operating leases was $5.4 million, $5.2 million and $5.3 million in 2005, 2004 and 2003, respectively. Future minimum lease payments for fiscal years beginning with the fiscal year ending August 31, 2006 for noncancelable operating and capital leases having initial lease terms of more than one year are as follows (dollars in thousands):

	Capital			Operating
	Leases			Leases
2006	$	26		$	5,014
2007		27			4,231
2008		30			3,424
2009		4			3,051
2010		—			2,075
Thereafter		—			1,107
Total minimum lease payments		87		$	18,902
Less: amounts representing interest		(10	)
Net minimum lease payments	$	77

Note 9 — Stock-based Compensation Plans

     As of August 31, 2005, the Company had two stock option plans: the 1994 Stock Option Plan (the “1994 Plan”) and the Stock Option Plan for Non-Employee Directors (the “Directors’ Plan”).

     The 1994 Plan provides for the granting of non-qualified stock options at the fair market value of the Company’s common stock on the date of grant. The non-qualified stock options generally vest over four years at the rate of 25% each year and expire 10 years from the date of grant.

     The Directors’ Plan expired in August 2005 and no further options can be granted under this plan. Non-qualified options previously granted under the Directors’ Plan were granted at 75% of the fair market value of the Company’s

15

common stock on the date of grant. Options granted under the Directors’ Plan vested six months after the grant date and expire at the earlier of ten years after the date of grant or three years after the date the non-employee director ceases to be a member of the Board. In addition, non-employee directors receive restricted stock under a restricted stock plan every three years. The restricted stock may be sold or otherwise transferred at the rate of 33.3% each year. In 2005, 2004 and 2003, the Company expensed approximately, $42,000, $93,000 and $69,000, respectively, in non-cash compensation related to directors’ deferred compensation and stock compensation plans.

     Changes in stock options for the three fiscal years ended are as follows:

						Weighted Average
	Shares			Option Price Range		Exercise Price
Balance, August 31, 2002		1,338,591		$	5.77 — 19.31	$	11.87
Granted		326,048			8.93 — 14.95		12.68
Exercised		(404,343	)		5.77 — 13.73		9.24
Cancelled		(125,313	)		9.23 — 19.31		12.78
Balance, August 31, 2003		1,134,983			5.77 — 17.69		12.94
Granted		50,660			9.83 — 14.50		11.52
Exercised		(199,441	)		5.77 — 14.88		10.76
Cancelled		(13,539	)		12.44 — 13.73		13.41
Balance, August 31, 2004		972,663			5.77 — 17.69		13.31
Granted		224,235			12.75 — 16.34		15.69
Exercised		(62,378	)		5.77 — 14.50		10.45
Cancelled		(26,985	)		12.75 — 14.50		12.99
Balance, August 31, 2005		1,107,535			6.02 — 17.69		13.96
Options Exercisable at August 31
-2003		583,344			5.77 — 17.69		12.31
-2004		598,175			5.77 — 17.69		13.29
-2005		689,735		$	6.02 — 17.69	$	13.57
Shares available for future grant at August 31, 2005		103,976

     The following table summarizes information concerning outstanding and exercisable options as of August 31, 2005:

	Options Outstanding
			Wtd. Avg.		Wtd.		Options Exercisable
			Remaining		Avg.				Wtd. Avg.
	Number of		Contractual		Exercise		Number of		Exercise
Range of Exercise Prices	Options		Life		Price		Options		Price
$  6.02 — 11.00		131,898		5.38	$	9.21		130,648	$	9.21
11.01 — 14.00		522,637		6.93		12.78		337,637		12.78
14.01 — 17.69		453,000		7.21		16.70		221,450		17.34
		1,107,535						689,735

Note 10 — Pensions and Other Postretirement Benefits

     Penford maintains two noncontributory defined benefit pension plans that cover substantially all North American employees and retirees.

     The Company also maintains a postretirement health care benefit plan covering its North American bargaining unit hourly retirees.

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  Obligations and Funded Status

     The following represents information summarizing the Company’s pension and other postretirement benefit plans. A measurement date of August 31, 2005 was used for all plans.

	Year Ended August 31,
	Pension Benefits						Other Benefits
	2005			2004			2005			2004
	(Dollars in thousands)
Change in benefit obligation:
Benefit obligation at September 1	$	32,786		$	30,355		$	14,652		$	11,618
Service cost		1,066			915			352			505
Interest cost		2,065			1,889			775			852
Plan participants’ contributions		—			—			112			114
Amendments		1,124			—			(1,523	)		—
Actuarial loss		127			108			(82	)		201
Change in assumptions		3,746			1,236			1,387			1,942
Benefits paid		(1,782	)		(1,717	)		(632	)		(580	)
Benefit obligation at August 31	$	39,132		$	32,786		$	15,041		$	14,652
Change in plan assets:
Fair value of plan assets at September 1	$	21,594		$	20,377		$	—		$	—
Actual return on plan assets		3,387			1,826			—			—
Company contributions		3,560			1,108			520			466
Plan participants’ contributions		—			—			112			114
Benefits paid		(1,782	)		(1,717	)		(632	)		(580	)
Fair value of the plan assets at August 31	$	26,759		$	21,594		$	—		$	—
Funded status:
Plan assets less than projected benefit obligation	$	(12,373	)	$	(11,192	)	$	(15,041	)	$	(14,652	)
Unrecognized net actuarial loss		10,734			8,859			3,321			2,054
Unrecognized prior service cost		2,027			1,097			(1,371	)		—
Net asset (liability)	$	388		$	(1,236	)	$	(13,091	)	$	(12,598	)
Recognized as:
Intangible pension asset	$	2,027		$	1,097		$	—		$	—
Accrued benefit liability		(9,289	)		(8,941	)		(13,091	)		(12,598	)
Other comprehensive income		7,650			6,608			—			—
	$	388		$	(1,236	)	$	(13,091	)	$	(12,598	)

     Selected information related to the Company’s defined benefit pension plans that have benefit obligations in excess of fair value of plan assets is presented below:

	August 31,
	2005		2004
Projected benefit obligation	$	39,132	$	32,786
Accumulated benefit obligation	$	36,048	$	30,534
Fair value of plan assets	$	26,759	$	21,594

     At August 31, 2005, the Company recorded an additional minimum pension liability of $1,042,000 to reflect the excess of the accumulated benefit obligations over the fair value of plan assets. This charge is reflected in other comprehensive income, net of tax.

     Effective August 1, 2004, the Company’s postretirement health care benefit plan covering bargaining unit hourly employees was closed to new entrants and to any current employee who did not meet minimum requirements as to age plus years of service.

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Net Periodic Benefit Cost

	Year Ended August 31,
	Pension Benefits									Other Benefits
	2005			2004			2003			2005			2004		2003
	(Dollars in thousands)
Components of net periodic benefit cost
Service cost	$	1,066		$	915		$	716		$	352		$	505	$	309
Interest cost		2,065			1,889			1,838			775			852		704
Expected return on plan assets		(1,868	)		(1,736	)		(1,709	)		—			—		—
Amortization of transition obligation		—			121			125			—			—		—
Amortization of prior service cost		194			109			90			(152	)		—		—
Amortization of actuarial (gain) loss		480			437			167			38			59		(63	)
Benefit cost	$	1,937		$	1,735		$	1,227		$	1,013		$	1,416	$	950

Assumptions

     The Company assesses its benefit plan assumptions on a regular basis. Assumptions used in determining plan information are as follows:

	August 31,
	Pension Benefits									Other Benefits
	2005			2004			2003			2005			2004			2003
Weighted-average assumptions used to calculate net periodic expense:
Discount rate		6.25	%		6.40	%		7.50	%		6.25	%		6.40	%		7.50	%
Expected return on plan assets		8.00	%		8.50	%		9.00	%
Rate of compensation increase		4.00	%		4.00	%		4.00	%
Weighted-average assumptions used to calculate benefit obligations at August 31:
Discount rate		5.50	%		6.25	%		6.40	%		5.50	%		6.25	%		6.40	%
Expected return on plan assets		8.00	%		8.00	%		8.50	%
Rate of compensation increase		4.00	%		4.00	%		4.00	%

     The expected long-term return on assets assumption for the pension plans represents the average rate of return to be earned on plan assets over the period the benefits included in the benefit obligation are to be paid. In developing the expected rate of return, the Company considers long-term historical market rates of return as well as actual returns on the Company’s plan assets, and adjusts this information to reflect expected capital market trends. Penford also considers forward looking return expectations by asset class, the contribution of active management and management fees paid by the plans. The plan assets are held in qualified trusts and anticipated rates of return are not reduced for income taxes. The expected long-term return on assets assumption used to calculate net periodic pension expense was 8.0% for fiscal 2005. A 0.5% decrease (increase) in the expected return on assets assumptions would increase (decrease) pension expense by approximately $0.1 million based on the assets of the plans at August 31, 2005. The expected return on plan assets to be used in calculating fiscal 2006 pension expense is 8%.

     The discount rate used by the Company in determining pension expense and pension obligations reflects the yield of high quality (AA or better rating by a recognized rating agency) corporate bonds whose cash flows are expected to match the timing and amounts of projected future benefit payments. The discount rates to determine net periodic expense used in 2003 (7.5%), 2004 (6.4%) and 2005 (6.25%) reflect the decline in bond yields over the past several years. Penford has reduced its discount rate for calculating its benefit obligations at August 31, 2005, as well as net periodic expense for fiscal 2006, to 5.5%. Lowering the discount rate by 0.25% would increase pension expense by approximately $0.3 million and other postretirement benefit expense by $0.04 million.

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     Unrecognized net loss amounts reflect the difference between expected and actual returns on pension plan assets as well as the effects of changes in actuarial assumptions. Unrecognized net losses in excess of certain thresholds are amortized into net periodic pension and postretirement benefit expense over the average remaining service life of active employees. Amortization of unrecognized net loss amounts is expected to increase net pension expense and net postretirement health care expense by approximately $0.6 million and $0.2 million, respectively, in fiscal 2006.

	2005			2004			2003
Assumed health care cost trend rates:
Current health care trend assumption		10.00	%		12.00	%		10.00	%
Ultimate health care trend rate		4.75	%		4.75	%		4.75	%
Year ultimate health care trend is reached		2014			2013			2011

     The assumed health care cost trend rate could have a significant effect on the amounts reported. A one-percentage-point change in the assumed health care cost trend rate would have the following effects (in thousands):

	1-Percentage-		1-Percentage-
	Point		Point
	Increase		Decrease
	(Dollars in thousands)
Effect on total of service and interest cost components in fiscal 2005	$	191	$	(157	)
Effect on postretirement accumulated benefit obligation as of August 31, 2005	$	2,253	$	(1,854	)

Plan Assets

     The weighted average asset allocations of the investment portfolio for the pension plans at August 31 are as follows:

	Target			August 31,
	Allocation			2005			2004
U.S. equities		60	%		55	%		56	%
International equities		10	%		15	%		9	%
Fixed income investments		25	%		25	%		29	%
Real estate		5	%		5	%		6	%
Cash and other investments		—			—			—

     The assets of the pension plans are invested in units of common trust funds actively managed by Frank Russell Trust Company, a professional fund investment manager. The investment strategy for the defined benefit pension assets is to maintain a diversified asset allocation in order to minimize the risk of large losses and maximize the long-term risk-adjusted rate of return. No plan assets are invested in Penford shares. There are no plan assets for the Company’s postretirement health care plans.

Contributions and Benefit Payments

     The Company’s funding policy for the defined benefit pension plans is to contribute amounts sufficient to meet the statutory funding requirements of the Employee Retirement Income Security Act of 1974. The Company contributed $3.6 million, $1.1 million and $0.3 million in fiscal 2005, 2004 and 2003, respectively. The Company expects to contribute $2.3 million to its defined benefit pension plans during fiscal 2006. Penford funds the benefit payments of its postretirement health care plans on a cash basis; therefore, the Company’s contributions to these plans in fiscal 2006 will approximate the benefit payments below.

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     Expected benefit payments are based on the same assumptions used to measure the benefit obligations and include benefits attributable to estimate future employee service.

			Other
	Pension		Postretirement
2006	$	1.9	$	0.7
2007		1.9		0.7
2008		1.9		0.7
2009		2.0		0.8
2010		2.0		0.8
2011-2015	$	10.7	$	4.7

Note 11 — Other Employee Benefits

  Savings and Stock Ownership Plan

     The Company has a defined contribution savings plan where eligible North American-based employees can elect a maximum salary deferral of 16%. The plan provides a 100% match on the first 3% of salary contributions and a 50% match on the next 3% per employee. The Company’s matching contributions were $750,000, $777,000 and $798,000 for fiscal years 2005, 2004 and 2003, respectively.

     The plan also includes an annual profit-sharing component that is awarded by the Board of Directors based on achievement of predetermined corporate goals. This feature of the plan is available to all employees who meet the eligibility requirements of the plan. There were no profit-sharing contributions paid to participants for fiscal years 2005, 2004 and 2003.

  Deferred Compensation Plan

     The Company provides its directors and certain employees the opportunity to defer a portion of their salary, bonus and fees. The deferrals earn interest based on Moody’s current Corporate Bond Yield. Deferred compensation interest of $188,000, $225,000 and $275,000 was accrued in 2005, 2004 and 2003, respectively.

  Supplemental Executive Retirement Plan

     The Company sponsors a supplemental executive retirement plan, a non-qualified plan, which covers certain employees. For fiscal 2005, 2004 and 2003, the net periodic pension expense accrued for this plan was $302,000, $185,000 and $26,000, respectively. Net periodic benefit expense for fiscal 2004 and 2003 is net of curtailment gains of $133,000 and $329,000, respectively, resulting from the termination of one participant in 2004 and two participants in 2003. The accrued obligation related to the plan was $3.8 million for fiscal years 2005 and 2004.

  Health Care and Life Insurance Benefits

     The Company offers health care and life insurance benefits to most active North American employees. Costs incurred to provide these benefits are charged to expense as incurred. Health care and life insurance expense, net of employee contributions, was $4,656,000, $4,595,000 and $3,722,000 in 2005, 2004 and 2003, respectively.

  Superannuation Fund

     The Company contributes to superannuation funds on behalf of the employees of Penford Australia. Australian law requires the Company to contribute at least 9% of each employee’s eligible pay. In New Zealand, the Company sponsors a superannuation benefit plan whereby it contributes 7.5% and 5% of eligible pay for salaried and hourly employees, respectively. The Company contributions to superannuation funds were $1,085,000, $1,079,000 and $841,000 in 2005, 2004 and 2003, respectively.

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Note 12 — Other Non-operating Income

     Other non-operating income consists of the following:

	Year Ended August 31,
	2005			2004			2003
	(Dollars in thousands)
Royalty and licensing income	$	1,386		$	2,217		$	1,212
Gain on sale of Hi-Maize business		—			—			1,916
Loss on extinguishment of debt		(1,051	)		(665	)		—
Gain on sale of Tamworth farm		1,166			—			—
Gain on sale of investment		736			150			—
Investment income		8			19			62
Other		(36	)		266			15
	$	2,209		$	1,987		$	3,205

     In 2005 and 2004, the Company refinanced its secured term and revolving credit facilities and wrote off $1.1 million and $0.7 million, respectively, of unamortized debt issuance costs related to these credit agreements. See Note 5.

     In the first quarter of fiscal 2003, the Company sold certain assets of its resistant starch Hi-maize business to National Starch Corporation (“National Starch”). The Company recorded a $1.9 million gain on the sale of these assets. The Company also exclusively licensed to National Starch certain rights to its resistant starch intellectual property portfolio for applications in human nutrition. 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 royalties for a period of seven years or until a maximum of $11.0 million in royalties has been received by Penford. The royalty payments are subject to a minimum of $7 million over the first five years of the licensing agreement. The Company recognized $1.4 million, $2.2 million and $1.2 million in income during fiscal 2005, 2004 and 2003, respectively, related to the licensing fee and royalties.

     In the fourth quarter of 2005, Penford sold a parcel of land near its wheat starch plant in Tamworth, New South Wales, Australia, that is used for disposal of effluent from the Tamworth manufacturing process for $1.9 million, and recognized a gain on the sale of $1.2 million. See Note 19.

     In the third quarter of fiscal 2005, the Company sold a majority of its investment in a small Australian start-up company and recognized a $0.7 million pre-tax gain on the transaction.

Note 13 — Income Taxes

     Income (loss) before income taxes is as follows:

	Year Ended August 31,
	2005			2004			2003
	(Dollars in thousands)
Domestic	$	(4,635	)	$	(151	)	$	5,684
Foreign		2,282			5,222			5,855
Total	$	(2,353	)	$	5,071		$	11,539

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     Income tax expense (benefit) consists of the following:

	Year Ended August 31,
	2005			2004			2003
	(Dollars in thousands)
Current:
Federal	$	(353	)	$	364		$	3,411
State		170			284			335
Foreign		666			1,339			1,396
		483			1,987			5,142
Deferred:
Federal		(4,579	)		(692	)		(1,669	)
State		(573	)		(317	)		(88	)
Foreign		(258	)		391			(282	)
		(5,410	)		(618	)		(2,039	)
Total	$	(4,927	)	$	1,369		$	3,103

	Year Ended August 31,
	2005			2004			2003
	(Dollars in thousands)
Comprehensive tax expense (benefit) allocable to:
Income (loss) before taxes	$	(4,927	)	$	1,369		$	3,103
Comprehensive income (loss)		(871	)		(849	)		(1,503	)
	$	(5,798	)	$	520		$	1,600

     A reconciliation of the statutory federal tax to the actual provision (benefit) for taxes is as follows:

	Year Ended August 31,
	2005			2004			2003
	(Dollars in thousands)
Statutory tax rate		34	%		34	%		34	%
Statutory tax on income	$	(800	)	$	1,724		$	3,923
State taxes, net of federal benefit		(245	)		(22	)		258
Nondeductible depreciation and amortization		97			75			59
Tax credits, including research and development credits		(247	)		(60	)		(221	)
Extraterritorial income exclusion benefit		(2,970	)		(340	)		(306	)
Lower statutory rate on foreign earnings		(449	)		(163	)		(835	)
Other		(313	)		155			225
Total provision	$	(4,927	)	$	1,369		$	3,103

     The Company recorded a $1.9 million gain on the sale of certain assets of its Hi-maize business in fiscal 2003. The Company determined that, due to changes in the Australian tax legislation, no income taxes would be payable related to this gain and accordingly, no income taxes have been provided on this gain.

22

     The significant components of deferred tax assets and liabilities are as follows:

	August 31,
	2005			2004
	(Dollars in thousands)
Deferred tax assets:
Alternative minimum tax credit	$	2,636		$	2,910
Research and development credit		492			91
Postretirement benefits		9,196			8,382
Provisions for accrued expenses		1,911			1,607
Other		1,077			1,241
Total deferred tax assets		15,312			14,231
Deferred tax liabilities:
Depreciation		18,396			20,488
Other		165			321
Total deferred tax liabilities		18,561			20,809
Net deferred tax liabilities	$	3,249		$	6,578
Recognized as:
Other current assets	$	1,104		$	626
Long-term deferred income taxes		(4,353	)		(7,204	)
Total net deferred tax liabilities	$	3,249		$	6,578

     At August 31, 2005, the Company had federal alternative minimum tax credit carryforwards of $2.6 million, which do not expire under current tax law, and research and development credit carryforwards of $0.5 million which expire in 2023 through 2025.

     In August 2005, the Company received a report from the Internal Revenue Service (“IRS”) regarding the audit of the Company’s U.S. federal income tax returns for fiscal years ended August 31, 2001 and 2002. The IRS has challenged the deductibility of interest expense, loss on extinguishment of debt and debt issuance costs in those years. No assurance can be given that these tax matters will be resolved in the Company’s favor in view of the inherent uncertainties and complexity involved in tax proceedings. Although the Company believes that its tax return positions are supportable, management has recorded a current tax liability for its best estimate of the probable loss on certain of these positions.

     In 2004, the Company filed amended U.S. federal income tax returns for fiscal years ended August 31, 2001 and 2002, increasing the extraterritorial income exclusion (“EIE”) deduction. The methodology that was used to determine the incremental EIE deduction for those years was also utilized for the federal income tax returns for fiscal years ended August 31, 2003 and 2004. Penford had not recognized the tax benefit associated with the incremental EIE deduction for fiscal years 2001 through 2004 because the Company had concluded that it was not probable, as defined in FASB Statement No. 5, “Accounting for Contingencies,” that the deduction would be sustained. In its tax audits of the fiscal 2001 and 2002 federal income tax returns, the IRS did not challenge the Company’s EIE deduction for those years. Accordingly, in the fourth quarter of 2005, the Company recognized the incremental tax benefit of this deduction for fiscal years 2001 through 2004. The amount of tax benefit recognized for years prior to 2005 was $2.5 million.

Note 14 — Restructuring Costs

     In the first quarter of fiscal 2004, the Company’s Australian business began implementing an organizational and operational restructure plan at its Tamworth, New South Wales, manufacturing facility. During fiscal 2004, a total of 16 employees were terminated and $0.6 million was expensed as restructuring costs related to severance and fringe benefits. All severance and related benefits had been paid by August 31, 2004. In the fourth quarter of fiscal 2004, the Australian business segment wrote off $0.2 million of equipment in connection with the Tamworth restructuring. The fiscal 2004 costs of this restructure have been classified as operating expenses in the Statement of Operations.

     In the second quarter of fiscal 2004, the Company’s Industrial Ingredients—North America business implemented a workforce reduction of 38 employees. In connection therewith, $0.5 million was charged to operating expense as restructuring costs. All severance and related costs were paid at August 31, 2004.

23

Note 15 — Earnings Per Common Share

     The following table presents the computation of basic and diluted earnings per share:

	Year Ended August 31,
	2005		2004		2003
	(Dollars in thousands, except share
	and per share data)
Net income	$	2,574	$	3,702	$	8,436
Weighted average common shares outstanding		8,826,916		8,733,059		8,122,284
Net effect of dilutive stock options		119,279		134,991		105,265
Weighted average common shares and equivalents outstanding, assuming dilution		8,946,195		8,868,050		8,227,549
Earnings per common share:
Basic	$	0.29	$	0.42	$	1.04
Diluted	$	0.29	$	0.42	$	1.03

     Weighted-average stock options omitted from the denominator of the earnings per share calculation because they were antidilutive were 346,388, 214,000 and 489,730 for 2005, 2004 and 2003, respectively.

Note 16 — 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 served by the Company’s U.S. operations. The Industrial Ingredients segment provides carbohydrate-based starches for industrial applications, primarily in the paper and packaging products industries. The Food Ingredients segment produces specialty starches for food applications. The third segment is the geographically separate operations in Australia and New Zealand. The Australian and New Zealand operations produce specialty starches used primarily in the food ingredients business. See Part 1, Item 1, “Business,” for a description of the products for each segment. A fourth item for “corporate and other” activity has been 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 consolidation entries. Intercompany sales between Australia/New Zealand operations and Food Ingredients — North America of $911,000, $872,000 and $546,000 in 2005, 2004 and 2003, respectively, are eliminated in corporate and other since the chief operating decision maker views segment results prior to intercompany eliminations. All interest expense of the Company is included in corporate and other and is not allocated to the other reportable segments. The accounting policies of the reportable segments are the same as those described in Note 1.

24

	Year Ended August 31,
	2005			2004			2003
	(Dollars in thousands)
Sales
• Industrial ingredients — North America	$	147,782		$	143,612		$	140,637
• Food ingredients — North America		53,661			47,518			44,694
• Australia/New Zealand operations		96,231			89,128			77,682
• Corporate and other		(911	)		(872	)		(546	)
	$	296,763		$	279,386		$	262,467
Depreciation and amortization
• Industrial ingredients — North America	$	8,832		$	9,783		$	10,250
• Food ingredients — North America		3,311			3,263			3,226
• Australia/New Zealand operations		4,306			4,069			3,494
• Corporate and other		576			574			710
	$	17,025		$	17,689		$	17,680
Income (loss) from operations
• Industrial ingredients — North America	$	(147	)	$	3,846		$	9,551
• Food ingredients — North America		7,404			5,046			5,915
• Australia/New Zealand operations		1,331			4,549			4,797
• Corporate and other		(7,576	)		(5,865	)		(6,434	)
	$	1,012		$	7,576		$	13,829
Capital expenditures, net
• Industrial ingredients — North America	$	4,211		$	5,753		$	5,982
• Food ingredients — North America		1,742			1,929			778
• Australia/New Zealand operations		3,319			7,750			2,000
• Corporate and other		141			22			12
	$	9,413		$	15,454		$	8,772

	August 31,
	2005		2004
	(Dollars in thousands)
Total assets
• Industrial ingredients — North America	$	101,080	$	101,620
• Food ingredients — North America		33,193		32,323
• Australia/New Zealand operations		105,882		99,344
• Corporate and other		9,762		18,904
	$	249,917	$	252,191
Total goodwill — Australia/New Zealand	$	21,420	$	20,171

     Reconciliation of total income from operations for the Company’s segments to income before income taxes as reported in the consolidated financial statements follows:

	Year Ended August 31,
	2005			2004			2003
	(Dollars in thousands)
Income from operations	$	1,012		$	7,576		$	13,829
Other non-operating income		2,201			1,968			3,143
Investment income		8			19			62
Interest expense		(5,574	)		(4,492	)		(5,495	)
Income (loss) before income taxes	$	(2,353	)	$	5,071		$	11,539

25

     Sales, attributed to the point of origin, are as follows:

	Year Ended August 31,
	2005		2004		2003
	(Dollars in thousands)
Sales
• United States	$	200,532	$	190,258	$	184,785
• Australia/New Zealand		96,231		89,128		77,682
	$	296,763	$	279,386	$	262,467

     Sales, attributed to the area to which the product was shipped, are as follows:

	Year Ended August 31,
	2005		2004		2003
		(Dollars in thousands)
United States	$	175,741	$	157,305	$	155,865
Australia/New Zealand		74,222		68,068		60,350
Japan		19,343		17,671		15,610
Canada		13,063		17,602		13,846
Other		14,394		18,740		16,796
	$	296,763	$	279,386	$	262,467

	August 31,
	2005		2004
	(Dollars in thousands)
Long-lived assets, net
• North America	$	82,986	$	88,978
• Australia/New Zealand		63,701		61,585
	$	146,687	$	150,563

Note 17 — Quarterly Financial Data (Unaudited)

	First			Second			Third		Fourth
Fiscal 2005	Quarter			Quarter			Quarter(1)		Quarter(1)			Total
	(Dollars in thousands, except per share data)
Sales	$	72,065		$	69,219		$	76,101	$	79,378		$	296,763
Cost of sales		68,836			62,059			66,061		66,586			263,542
Gross margin		3,229			7,160			10,040		12,792			33,221
Net income (loss)		(3,826	)		(992	)		2,585		4,807			2,574
Earnings (loss) per common share:
Basic	$	(0.43	)	$	(0.11	)	$	0.29	$	0.54		$	0.29
Diluted	$	(0.43	)	$	(0.11	)	$	0.29	$	0.54		$	0.29
Dividends declared	$	0.06		$	0.06		$	0.06	$	0.06		$	0.24
	First			Second			Third		Fourth
Fiscal 2004	Quarter(2)			Quarter(2)			Quarter(2)		Quarter(2)			Total
	(Dollars in thousands, except per share data)
Sales	$	66,170		$	68,482		$	72,484	$	72,250		$	279,386
Cost of sales		56,359			58,574			60,461		65,904			241,298
Gross margin		9,811			9,908			12,023		6,346			38,088
Net income (loss)		845			1,035			2,319		(497	)		3,702
Earnings (loss) per common share:
Basic	$	0.10		$	0.12		$	0.26	$	(0.06	)	$	0.42
Diluted	$	0.10		$	0.12		$	0.26	$	(0.06	)	$	0.42
Dividends declared	$	0.06		$	0.06		$	0.06	$	0.06		$	0.24

26

(1) The Company’s operating results for the third quarter of fiscal 2005 included a $0.7 million pre-tax gain related to the sale of an investment and the operating results for the fourth quarter of fiscal 2005 included the following items: (i) $1.1 million pre-tax write off of unamortized transaction costs related to the Company’s refinancing of its credit facility; (ii) $1.2 million pre-tax gain on sale of land and (iii) recognition of tax benefit of $3.2 million related to current and prior years extraterritorial income exclusion deduction. The tax benefit of $2.5 million related to 2001 through 2004 was recognized in 2005 when the Company determined that it was probable that the deduction on the U.S. federal income tax returns would be sustained. See Note 12 and 13.

(2) The Company’s operating results for fiscal 2004 included the following pre-tax expenses related to strategic restructuring of the Company’s business operations: (i) $0.2 million in first quarter; (ii) $0.5 million in the second quarter; (iii) $0.4 million in the third quarter and (iv) $0.2 million in the fourth quarter. See Note 14. The first quarter also includes a pre-tax write off of unamortized transaction costs related to the Company’s refinancing of its credit facility.

Note 18 — Transactions with National Starch

     In November 2002, the Company sold certain assets of its resistant starch Hi-maize^® business to National Starch Corporation (“National Starch”), a wholly-owned subsidiary of Imperial Chemical Industries PLC of the U.K., for $2.25 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 (expense) in the Consolidated Statements of Operations. In the fourth quarter of fiscal 2003, the Company determined that, due to changes in Australian tax legislation, no income taxes would be payable related to this gain and taxes of approximately $0.3 million previously provided in the first quarter were reversed. See Note 13.

     The Company also exclusively licensed to National Starch certain 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 royalty payments are subject to a minimum of $7 million over the first five years of the licensing agreement. The amortization of the initial licensing fee and royalty income, totaling $1.4 million, $2.2 million and $1.2 million for fiscal 2005, 2004 and 2003, respectively, are included in net non-operating income (expense) in the Consolidated Statements of Operations.

     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 Consolidated Statements of Operations.

Note 19 — Sale of Australian Land

     On August 22, 2005, the Company sold a parcel of land suitable for residential real estate development in Tamworth, New South Wales, Australia, to a third-party purchaser for $1.9 million in cash, recognizing a gain on the sale of $1.2 million. The Company has leased the property from the purchaser for 12 months with an option to renew the lease for an additional 6 months. The annual rental on the property converted to U.S. dollars at the Australian dollar exchange rate at August 31, 2005 is $0.08 million.

     In a separate transaction, the Company contracted to sell a parcel of land suitable only for agricultural purposes in Tamworth to the same purchaser for $1 million Australian dollars ($0.76 million U.S. dollars at the exchange rate at August 31, 2005). Pursuant to the contract, the sale is to be consummated in August 2006. The purchaser has given the Company a deposit of $0.04 million on the property. Income from the sale of this property will be recognized when the sale is consummated.

Note 20 — Legal Proceedings

     In October 2004, Penford Products Co. (“Penford Products”), a wholly-owned subsidiary of the Company, was served with a lawsuit filed by Graphic Packaging International, Inc. (“Graphic”) in the Fourth Judicial District, Ouachita

27

Parish, State of Louisiana. The petition seeks monetary damages for alleged breach of contract, negligence and tortious misrepresentation. These claims arise out of an alleged agreement obligating Penford Products to supply goods to Graphic and Penford Products’ alleged breach of such agreement, together with conduct related to such alleged breach. Penford has filed an answer generally denying all liability and has countersued for damages. The parties have served and responded to written discovery requests. The Company cannot at this time determine the likelihood of any outcome or estimate damages, if any.

28

REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect the Company’s transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of the Company’s financial statements; providing reasonable assurance that receipts and expenditures of the Company’s assets are made in accordance with management’s authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of the Company’s financial statements would be prevented or detected.

     Management conducted an evaluation of the effectiveness of the Company’s internal controls over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of August 31, 2005. Ernst & Young LLP has audited this assessment of our internal control over financial reporting and their report is included on page 31.

29

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Penford Corporation

We have audited the accompanying consolidated balance sheets of Penford Corporation as of August 31, 2005 and 2004, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended August 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Penford Corporation at August 31, 2005 and 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended August 31, 2005 in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Penford Corporation’s internal control over financial reporting as of August 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 9, 2005 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Denver, Colorado
November 9, 2005

30

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Penford Corporation

We have audited management’s assessment, included in the accompanying Report of Management on Internal Controls over Financial Reporting, that Penford Corporation maintained effective internal control over financial reporting as of August 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Penford Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Penford Corporation maintained effective internal control over financial reporting as of August 31, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Penford Corporation maintained, in all material respects, effective internal control over financial reporting as of August 31, 2005, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Penford Corporation as of August 31, 2005 and 2004, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended August 31, 2005 of Penford Corporation and our report dated November 9, 2005 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Denver, Colorado
November 9, 2005

31

PART IV

Item 15. Exhibits and Financial Statement Schedules.

     (a) (3) Exhibits

          See index to Exhibits on page 34.

32

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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, on this 24th day of February 2006.

PENFORD CORPORATION

/s/ Thomas D. Malkoski Thomas D. Malkoski

President and Chief Executive Officer

33

INDEX TO EXHIBITS

     Exhibits identified in parentheses below, on file with the Securities and Exchange Commission, are incorporated by reference. Copies of exhibits can be obtained at no cost by writing to Penford Corporation, 7094 S. Revere Parkway, Centennial, Colorado 80112.

Exhibit No.		Item
	2.1	Starch Australasia Share Sale Agreement completed as of September 29, 2000 among Penford Holdings Pty. Limited, a wholly owned subsidiary of Registrant, and Goodman Fielder Limited (filed as an exhibit to Registrant’s, File No. 000-11488, Form 8-K/A dated September 29, 2000, filed December 12, 2000)
	3.1	Restated Articles of Incorporation of Registrant (filed as an exhibit to Registrant’s, File No. 000-11488, Form 10-K for fiscal year ended August 31, 1995, filed November 29, 1995)
	3.2	Articles of Amendment to Restated Articles of Incorporation of Registrant (filed as an exhibit to Registrant’s, File No. 000-11488, Form 10-K for fiscal year ended August 31, 1997, filed November 26, 1997)
	3.3	Bylaws of Registrant as amended and restated as of October 28, 2005 †
	4.1	Amended and Restated Rights Agreement dated as of April 30, 1997 (filed as an exhibit to Registrant’s, File No. 000-11488, Amendment to Registration Statement on Form 8-K/A dated May 5, 1997, filed May 5, 1997)
	10.1	Penford Corporation Deferred Compensation Plan, dated January 15, 1991 (filed as an exhibit to Registrant’s, File No. 000-11488, Form 10-K for the fiscal year ended August 31, 1991)*
	10.2	Form of Change of Control Agreements between Penford Corporation and Messrs. Burns, Cordier, Kunerth, Malkoski and Randall and certain other key employees (a representative copy of these agreements is filed as an exhibit to Registrant’s, File No. 000-11488, Form 10-K for the fiscal year ended August 31, 1995, filed November 29, 1995)*
	10.3	Penford Corporation 1993 Non-Employee Director Restricted Stock Plan (filed as an exhibit to Registrant’s, File No. 000-11488, Form 10-Q for the quarter ended November 30, 1993)*
	10.4	Penford Corporation 1994 Stock Option Plan as amended and restated as of January 8, 2002 (filed as an exhibit to Registrant’s, File No. 000-11488, Proxy Statement filed with the Commission on January 18, 2002)*
	10.5	Penford Corporation Stock Option Plan for Non-Employee Directors (filed as a exhibit to Registrant’s, File No. 000-11488, Form 10-Q for the quarter ended May 31, 1996, filed July 15, 1996)*
	10.6	Separation Agreement dated as of July 31, 1998 between Registrant and Penwest Pharmaceuticals Co. (filed as an exhibit to Registrant’s, File No. 000-11488, Form 8-K dated August 31, 1998, filed September 15, 1998)
	10.7	Amended and Restated Credit Agreement dated August 22, 2005, by and between Penford Corporation as borrower, and Harris Bank N.A, as administrative agent. (filed as an exhibit to Registrant’s, File No. 000-11488, Form 8-K dated August 22, 2005, filed August 26, 2005).
	10.8	Director Special Assignments Policy dated August 26, 2005 (filed as an exhibit to Registrant’s, File No. 000-11488, Form 8-K dated August 26, 2005, filed September 1, 2005)*
	10.9	Non-Employee Director Compensation Term Sheet* †
	21	Subsidiaries of the Registrant †
	23	Consent of Independent Registered Public Accounting Firm †
	24	Power of Attorney †
	31.1	Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certifications of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley act of 2002

*	Denotes management contract or compensatory plan or arrangement.
†	Previously filed or furnished.

34

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Thomas D. Malkoski, certify that:

     1. I have reviewed this annual report on Form 10-K/A of Penford Corporation;

     2. Based on my knowledge, this annual 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 annual report;

     3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 annual report is being prepared;

     b) designed such internal control over financing reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and

     d) disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

     a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	PENFORD CORPORATION
Date: February 24, 2006	/s/ Thomas D. Malkoski Thomas D. Malkoski
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Steven O. Cordier, certify that:

     1. I have reviewed this annual report on Form 10-K/A of Penford Corporation;

     2. Based on my knowledge, this annual 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 annual report;

     3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 annual report is being prepared;

     b) designed such internal control over financing reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and

     d) disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

     a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	PENFORD CORPORATION
Date: February 24, 2006	/s/ Steven O. Cordier
	Steven O. Cordier
	Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C.SECTION 1350)

          In connection with the Annual Report of Penford Corporation (the “Company”) on Form 10-K/A for the period ended August 31, 2005, as filed with the Securities and Exchange Commission (the “Report”), Thomas D. Malkoski, Chief Executive Officer of the Company, and Steven O. Cordier, Chief Financial Officer of the Company, respectively, do each hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that to his knowledge:

          (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

          (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

  /s/ Thomas D. Malkoski

  Thomas D. Malkoski

  Chief Executive Officer

  Dated: February 24, 2006

  /s/ Steven O. Cordier

  Steven O. Cordier

  Chief Financial Officer

  Dated: February 24, 2006