##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended February 28, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from
 to
 Commission File No. 0-11488
 PENFORD CORPORATION
  Washington
    
    91-1221360(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)7094 South Revere Parkway,Centennial, Colorado
    
    80112-3932(Address of Principal Executive Offices)
    
    (Zip Code)
 (303) 649-1900
 þ o
 o þ o
 o þ




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##### Table of Contents



PENFORD CORPORATION AND SUBSIDIARIES
 INDEX
 PagePART IFINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets  February 28, 2006 and August 31, 2005
    
    3Condensed Consolidated Statements of Operations  Three and Six Months ended February 28, 2006
and February 28, 2005
    
    4Condensed Consolidated Statements of Cash Flow  Six Months ended February 28, 2006 and
February 28, 2005
    
    5Notes to Condensed Consolidated Financial Statements
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    23Item 4. Controls and Procedures
    
    23PART IIOTHER INFORMATIONItem 4. Submission of Matters to a Vote of Security Holders
    
    24Item 5. Other Information
    
    24Item 6. Exhibits
    
    25Signatures
    
    26Form of Change in Control Agreement and AnnexesCertifications of CEO Pursuant to Section 302Certifications of CFO Pursuant to Section 302Certifications of CEO and CFO Pursuant to Section 906
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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1: Financial Statements
 PENFORD CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 February 28,
    
    
    August 31,(In thousands, except per share data)
    
    2006
    
    
    2005(Unaudited)ASSETSCurrent assets:Cash
    
    $
    9,832
    
    
    $
    5,367Trade accounts receivable, net
    
    
    41,450
    
    
    
    39,653Inventories
    
    
    34,713
    
    
    
    34,801Prepaid expenses
    
    
    4,141
    
    
    
    5,084Other
    
    
    4,329
    
    
    
    4,032Total current assets
    
    
    94,465
    
    
    
    88,937Property, plant and equipment, net
    
    
    126,771
    
    
    
    125,267Restricted cash value of life insurance
    
    
    10,225
    
    
    
    10,132Goodwill, net
    
    
    21,159
    
    
    
    21,420Other intangible assets, net
    
    
    2,948
    
    
    
    3,121Other assets
    
    
    951
    
    
    
    1,040Total assets
    
    $
    256,519
    
    
    $
    249,917LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Cash overdraft, net
    
    $
    
    
    
    $
    777Current portion of long-term debt and capital lease obligations
    
    
    4,528
    
    
    
    4,022Accounts payable
    
    
    31,118
    
    
    
    35,941Accrued pension liability
    
    
    2,739
    
    
    
    2,302Accrued liabilities
    
    
    8,692
    
    
    
    10,324Total current liabilities
    
    
    47,077
    
    
    
    53,366Long-term debt and capital lease obligations
    
    
    74,820
    
    
    
    62,107Other post-retirement benefits
    
    
    13,391
    
    
    
    13,091Deferred income taxes
    
    
    4,737
    
    
    
    4,353Other liabilities
    
    
    17,084
    
    
    
    16,974Total liabilities
    
    
    157,109
    
    
    
    149,891Shareholders equity:Preferred stock, par value $1.00 per share, authorized 1,000 shares,
none issued
    
    
    
    
    
    
    Common stock, par value $1.00 per share, authorized 29,000 shares,
issued 10,868 and 10,849 shares, respectively
    
    
    10,868
    
    
    
    10,849Additional paid-in capital
    
    
    38,442
    
    
    
    37,728Retained earnings
    
    
    74,658
    
    
    
    76,040Treasury stock, at cost, 1,981 shares
    
    
    (32,757
    )
    
    
    (32,757
    )Accumulated other comprehensive income
    
    
    8,199
    
    
    
    8,166Total shareholders equity
    
    
    99,410
    
    
    
    100,026Total liabilities and shareholders equity
    
    $
    256,519
    
    
    $
    249,917
 The accompanying notes are an integral part of these statements.
 3




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PENFORD CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  Three months ended
    
    
    Six months endedFebruary 28,
    
    
    February 28,
    
    
    February 28,
    
    
    February 28,(In thousands, except per share data)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Sales
    
    $
    77,078
    
    
    $
    69,219
    
    
    $
    154,981
    
    
    $
    141,284Cost of sales
    
    
    68,534
    
    
    
    62,059
    
    
    
    136,037
    
    
    
    130,895Gross margin
    
    
    8,544
    
    
    
    7,160
    
    
    
    18,944
    
    
    
    10,389Operating expenses
    
    
    6,671
    
    
    
    5,986
    
    
    
    14,408
    
    
    
    11,794Research and development expenses
    
    
    1,571
    
    
    
    1,431
    
    
    
    3,008
    
    
    
    2,843Income (loss) from operations
    
    
    302
    
    
    
    (257
    )
    
    
    1,528
    
    
    
    (4,248
    )Non-operating income, net
    
    
    486
    
    
    
    370
    
    
    
    847
    
    
    
    452Interest expense
    
    
    1,534
    
    
    
    1,358
    
    
    
    2,867
    
    
    
    2,620Loss before income taxes
    
    
    (746
    )
    
    
    (1,245
    )
    
    
    (492
    )
    
    
    (6,416
    )Income tax benefit
    
    
    (235
    )
    
    
    (253
    )
    
    
    (176
    )
    
    
    (1,598
    )Net loss
    
    $
    (511
    )
    
    $
    (992
    )
    
    $
    (316
    )
    
    $
    (4,818
    )Weighted average common shares and
equivalents outstanding:Basic and Diluted
    
    
    8,881
    
    
    
    8,825
    
    
    
    8,879
    
    
    
    8,821Loss per share:Basic and Diluted
    
    $
    (0.06
    )
    
    $
    (0.11
    )
    
    $
    (0.04
    )
    
    $
    (0.55
    )Dividends declared per common share
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.12
    
    
    $
    0.12
 The accompanying notes are an integral part of these statements.
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PENFORD CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
  Six Months EndedFebruary 28,
    
    
    February 28,(In thousands)
    
    2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (316
    )
    
    $
    (4,818
    )Adjustments to reconcile net loss to net cash provided by
operations:Depreciation and amortization
    
    
    7,671
    
    
    
    8,632Stock-based compensation
    
    
    600
    
    
    
    76Gain on sale of land
    
    
    (51
    )
    
    
    Deferred income taxes
    
    
    (413
    )
    
    
    (1,048
    )Other
    
    
    505
    
    
    
    8Change in assets and liabilities:Trade accounts receivable
    
    
    (2,048
    )
    
    
    2,244Prepaid expenses
    
    
    938
    
    
    
    765Inventories
    
    
    (268
    )
    
    
    736Accounts payable and accrued liabilities
    
    
    (5,411
    )
    
    
    (2,051
    )Taxes payable
    
    
    (30
    )
    
    
    (1,133
    )Other
    
    
    940
    
    
    
    (171
    )Net cash provided by operating activities
    
    
    2,117
    
    
    
    3,240Cash flows from investing activities:Investment in property, plant and equipment, net
    
    
    (10,003
    )
    
    
    (4,309
    )Proceeds from sale of land
    
    
    612
    
    
    
    Other
    
    
    4
    
    
    
    (113
    )Net cash used in investing activities
    
    
    (9,387
    )
    
    
    (4,422
    )Cash flows from financing activities:Proceeds from revolving line of credit
    
    
    15,461
    
    
    
    3,000Payments of long-term debt
    
    
    (1,994
    )
    
    
    (2,291
    )Exercise of stock options
    
    
    128
    
    
    
    215Payment of loan fees
    
    
    (16
    )
    
    
    (146
    )Decrease in cash overdraft
    
    
    (777
    )
    
    
    Payment of dividends
    
    
    (1,064
    )
    
    
    (1,058
    )Other
    
    
    (5
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    11,733
    
    
    
    (280
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    2
    
    
    
    6Net increase (decrease) in cash and cash equivalents
    
    
    4,465
    
    
    
    (1,456
    )Cash and cash equivalents, beginning of period
    
    
    5,367
    
    
    
    5,915Cash and cash equivalents, end of period
    
    $
    9,832
    
    
    $
    4,459
 The accompanying notes are an integral part of these statements. 5
    Table of Contents   PENFORD CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1BUSINESS
   2BASIS OF PRESENTATION
 Consolidation
  Recent Accounting Pronouncements
  3STOCK-BASED COMPENSATION
 Stock Compensation Plans
  6




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General Option Information
  WeightedWeighted
    
    
    AverageNumber of
    
    
    Average
    
    
    Remaining
    
    
    AggregateShares
    
    
    Exercise Price
    
    
    Term (in years)
    
    
    Intrinsic ValueOutstanding Balance, August 31, 2005
    
    
    1,107,535
    
    
    $
    13.96Granted
    
    
    98,500
    
    
    
    13.34Exercised
    
    
    
    
    
    
    Cancelled
    
    
    (10,000
    )
    
    
    16.34Outstanding Balance, November 30, 2005
    
    
    1,196,035
    
    
    $
    13.88Granted
    
    
    
    
    
    
    Exercised
    
    
    (10,000
    )
    
    
    12.79Cancelled
    
    
    (7,500
    )
    
    
    12.79Outstanding Balance, February 28, 2006
    
    
    1,178,535
    
    
    $
    13.90
    
    
    
    6.60
    
    
    $
    2,772,200Options Exercisable at February 28, 2006
    
    
    792,035
    
    
    $
    13.66
    
    
    
    5.68
    
    
    $
    2,122,500
     Options Outstanding
    
    
    Options ExercisableWtd. Avg.Remaining
    
    
    Wtd. Avg.
    
    
    
    
    
    
    Wtd. Avg.Number of
    
    
    Contractual
    
    
    Exercise
    
    
    Number of
    
    
    ExerciseRange of Exercise Prices
    
    
    Options
    
    
    Life (years)
    
    
    Price
    
    
    Options
    
    
    Price$
    6.02  11.00
    
    
    
    131,898
    
    
    
    4.88
    
    
    $
    9.21
    
    
    
    131,898
    
    
    $
    9.2111.01  14.00
    
    
    
    603,637
    
    
    
    6.93
    
    
    
    12.86
    
    
    
    389,387
    
    
    
    12.7814.01  17.69
    
    
    
    443,000
    
    
    
    6.67
    
    
    
    16.71
    
    
    
    270,750
    
    
    
    17.091,178,535
    
    
    
    
    
    
    
    
    
    
    
    792,035
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Adoption of SFAS No. 123R
    Valuation and Assumptions
    Three Months Ended February 28, 20051994 Plan
    
    Directors PlanExpected volatility
    
    
    
    
    
    
    58
    %Expected life (years)
    
    
    
    
    
    
    5.0Interest rate (percent)
    
    
    
    
    
    
    3.7-4.0Dividend yield
    
    
    
    
    
    
    1.6
    %
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Six Months Ended February 28,1994 Plan
    
    Directors Plan2006
    
    2005
    
    2006
    
    2005Expected volatility
    
    
    52
    %
    
    
    58
    %
    
    
    
    
    
    
    58
    %Expected life (years)
    
    
    5.0
    
    
    
    4.1
    
    
    
    
    
    
    
    5.0Interest rate (percent)
    
    
    4.4-4.5
    
    
    
    3.7-4.0
    
    
    
    
    
    
    
    3.7-4.0Dividend yield
    
    
    1.7
    %
    
    
    1.6
    %
    
    
    
    
    
    
    1.6
    %
 SFAS No. 123R
  Three months ended
    
    Six months endedFebruary 28, 2006
    
    February 28, 2006Cost of sales
    
    $
    32
    
    
    $
    52Operating expenses
    
    
    242
    
    
    
    504Research and development expenses
    
    
    11
    
    
    
    23Total stock-based compensation expense
    
    $
    285
    
    
    $
    579Tax benefit
    
    
    97
    
    
    
    197Total stock-based compensation
expense, net of tax
    
    $
    188
    
    
    $
    382
  Pro-forma Information under SFAS 123 for Periods Prior to Fiscal 2006
  Three months ended
    
    
    Six months ended(In thousands, except per share data)
    
    February 28, 2005
    
    
    February 28, 2005Net loss, as reported
    
    $
    (992
    )
    
    $
    (4,818
    )Add: Stock-based employee
compensation expense included in
reported net income, net of tax
    
    
    25
    
    
    
    42Less: Stock-based employee
compensation expense determined under
the fair value method for all awards,
net of tax
    
    
    (332
    )
    
    
    (607
    )Net loss, pro forma
    
    $
    (1,299
    )
    
    $
    (5,383
    )Loss per share:Basic  as reported
    
    $
    (0.11
    )
    
    $
    (0.55
    )Basic  pro forma
    
    $
    (0.15
    )
    
    $
    (0.61
    )Diluted  as reported
    
    $
    (0.11
    )
    
    $
    (0.55
    )Diluted  pro forma
    
    $
    (0.15
    )
    
    $
    (0.61
    )
 9




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Restricted Stock
  4INVENTORIES
  February 28,
    
    
    August 31,2006
    
    
    2005(In thousands)Raw materials
    
    $
    15,254
    
    
    $
    17,666Work in progress
    
    
    653
    
    
    
    614Finished goods
    
    
    18,806
    
    
    
    16,521Total inventories
    
    $
    34,713
    
    
    $
    34,801
 5PROPERTY, PLANT AND EQUIPMENT
 February 28,
    
    
    August 31,2006
    
    
    2005(In thousands)Land
    
    $
    16,267
    
    
    $
    15,943Plant and equipment
    
    
    306,857
    
    
    
    304,247Construction in progress
    
    
    16,797
    
    
    
    11,022339,921
    
    
    
    331,212Accumulated depreciation
    
    
    (213,150
    )
    
    
    (205,945
    )Net property, plant and equipment
    
    $
    126,771
    
    
    $
    125,267
  6DEBT
   10




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7TAXES
   8OTHER COMPREHENSIVE INCOME
  Three months ended
    
    
    Six months endedFebruary
    
    
    February
    
    
    February
    
    
    February28, 2006
    
    
    28, 2005
    
    
    28, 2006
    
    
    28, 2005(In thousands)Net loss
    
    $
    (511
    )
    
    $
    (992
    )
    
    $
    (316
    )
    
    $
    (4,818
    )Foreign currency translation adjustments
    
    
    (587
    )
    
    
    751
    
    
    
    (1,080
    )
    
    
    6,452Change in unrealized gains on derivative instruments
that qualify as cash flow hedges, net of tax
    
    
    806
    
    
    
    73
    
    
    
    1,113
    
    
    
    16Total comprehensive income (loss)
    
    $
    (292
    )
    
    $
    (168
    )
    
    $
    (283
    )
    
    $
    1,650
 9NON-OPERATING INCOME, NET
  Three months ended
    
    
    Six months endedFebruary 28,
    
    
    February 28,
    
    
    February 28,
    
    
    February 28,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands)Royalty and licensing income
    
    $
    412
    
    
    $
    440
    
    
    $
    835
    
    
    $
    527Gain on sale of land
    
    
    51
    
    
    
    
    
    
    
    51
    
    
    
    Other
    
    
    23
    
    
    
    (70
    )
    
    
    (39
    )
    
    
    (75
    )Total
    
    $
    486
    
    
    $
    370
    
    
    $
    847
    
    
    $
    452
  11




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10
 PENSION AND POST-RETIREMENT BENEFIT PLANS
  Three months ended
    
    
    Six months endedFebruary 28,
    
    
    February 28,
    
    
    February 28,
    
    
    February 28,Defined benefit pension plans
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands)Service cost
    
    $
    418
    
    
    $
    283
    
    
    $
    836
    
    
    $
    533Interest cost
    
    
    526
    
    
    
    533
    
    
    
    1,051
    
    
    
    1,032Expected return on plan assets
    
    
    (529
    )
    
    
    (467
    )
    
    
    (1,058
    )
    
    
    (934
    )Amortization of prior service cost
    
    
    46
    
    
    
    67
    
    
    
    93
    
    
    
    97Amortization of actuarial losses
    
    
    150
    
    
    
    118
    
    
    
    301
    
    
    
    240Net periodic benefit cost
    
    $
    611
    
    
    $
    534
    
    
    $
    1,223
    
    
    $
    968
 Three months ended
    
    
    Six months endedFebruary 28,
    
    
    February 28,
    
    
    February 28,
    
    
    February 28,Post-retirement health care plans
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands)Service cost
    
    $
    98
    
    
    $
    28
    
    
    $
    196
    
    
    $
    176Interest cost
    
    
    196
    
    
    
    138
    
    
    
    392
    
    
    
    388Amortization of prior service cost
    
    
    (38
    )
    
    
    (76
    )
    
    
    (76
    )
    
    
    (76
    )Amortization of actuarial losses
    
    
    36
    
    
    
    4
    
    
    
    72
    
    
    
    19Net periodic benefit cost
    
    $
    292
    
    
    $
    94
    
    
    $
    584
    
    
    $
    507
  12




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11SEGMENT REPORTING
  Three months ended
    
    
    Six months endedFebruary
    
    
    February
    
    
    February
    
    
    February28, 2006
    
    
    28, 2005
    
    
    28, 2006
    
    
    28, 2005(In thousands)Sales:Industrial IngredientsNorth America
    
    $
    41,165
    
    
    $
    35,634
    
    
    $
    79,646
    
    
    $
    70,769Food IngredientsNorth America
    
    
    13,567
    
    
    
    11,852
    
    
    
    28,657
    
    
    
    24,124Australia/New Zealand operations
    
    
    22,442
    
    
    
    21,905
    
    
    
    47,077
    
    
    
    47,109Intercompany sales
    
    
    (96
    )
    
    
    (172
    )
    
    
    (399
    )
    
    
    (718
    )$
    77,078
    
    
    $
    69,219
    
    
    $
    154,981
    
    
    $
    141,284Income (loss) from operations:Industrial IngredientsNorth America
    
    $
    781
    
    
    $
    604
    
    
    $
    1,355
    
    
    $
    (3,786
    )Food IngredientsNorth America
    
    
    1,485
    
    
    
    1,103
    
    
    
    3,886
    
    
    
    2,495Australia/New Zealand operations
    
    
    98
    
    
    
    (327
    )
    
    
    795
    
    
    
    248Corporate and other
    
    
    (2,062
    )
    
    
    (1,637
    )
    
    
    (4,508
    )
    
    
    (3,205
    )$
    302
    
    
    $
    (257
    )
    
    $
    1,528
    
    
    $
    (4,248
    )
 February 28,
    
    
    August 31,2006
    
    
    2005(In thousands)Total assets:Industrial
IngredientsNorth America
    
    $
    104,734
    
    
    $
    101,080Food IngredientsNorth America
    
    
    32,585
    
    
    
    33,193Australia/New Zealand operations
    
    
    106,069
    
    
    
    105,882Corporate and other
    
    
    13,131
    
    
    
    9,762$
    256,519
    
    
    $
    249,917
  13




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##### Table of Contents



Three months ended
    
    Six months endedFebruary 28, 2006
    
    February 28, 2006(In thousands)Industrial
IngredientsNorth America
    
    $
    54
    
    
    $
    120Food IngredientsNorth America
    
    
    32
    
    
    
    65Australia/New Zealand operations
    
    
    2
    
    
    
    13Corporate
    
    
    197
    
    
    
    381$
    285
    
    
    $
    579
  12EARNINGS (LOSS) PER SHARE
 .
 13LITIGATION
  14




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##### Table of Contents



Item 2:
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Forward-looking Statements
 The statements contained in this Quarterly Report on Form 10-Q (Quarterly Report) that are
not historical facts, including, but not limited to statements found in the Notes to Condensed
Consolidated Financial Statements and in Item 2  Managements Discussion and Analysis of Financial
Condition and Results of Operations, are forward-looking statements that represent managements
beliefs and assumptions based on currently available information. Forward-looking statements can
be identified by the use of words such as believes, may, will, looks, should, could,
anticipates, expects, or comparable terminology or by discussions of strategies or trends.
 Although the Company believes that the expectations reflected in such forward-looking
statements are reasonable, it cannot give any assurances that these expectations will prove to be
correct. Such statements by their nature involve substantial risks and uncertainties that could
significantly affect expected results. Actual future results could differ materially from those
described in such forward-looking statements, and the Company does not intend to update or revise
any forward-looking statements, whether as a result of new information, future events or otherwise.
Among the factors that could cause actual results to differ materially are the risks and
uncertainties discussed in this Quarterly Report, including those referenced below and in the
section subtitled Risks and Uncertainties in this Quarterly Report, and those described from time
to time in other filings with the Securities and Exchange Commission, including the Companys
Annual Report on Form 10-K for the year ended August 31, 2005, which include, but are not limited
to, competition; the possibility of interruption of business activities due to equipment problems,
accidents, strikes, weather or other factors; product development risk; changes in corn and other
raw material prices and availability; changes in general economic conditions or developments with
respect to specific industries or customers affecting demand for the Companys products including
unfavorable shifts in product mix; unanticipated costs, including labor costs, expenses or third
party claims; the risk that results may be affected by construction delays, cost overruns,
technical difficulties, nonperformance by contractors or changes in capital improvement project
requirements or specifications; interest rate and energy cost volatility; foreign currency exchange
rate fluctuations; changes in assumptions used for determining employee benefit expense and
obligations; changes in the assumptions used to determine the effective income tax rate; or other
unforeseen developments in the industries in which Penford operates.
 Results of Operations
 Executive Overview
   15




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##### Table of Contents



Sales
    Income from operations
  16




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Corporate operating expenses
  Interest and taxes
    17




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##### Table of Contents



Non-operating income, net
  Three months ended
    
    
    Six months endedFebruary
    
    
    February
    
    
    February
    
    
    February28, 2006
    
    
    28, 2005
    
    
    28, 2006
    
    
    28, 2005(In thousands)Royalty and licensing income
    
    $
    412
    
    
    $
    440
    
    
    $
    835
    
    
    $
    527Gain on sale of land
    
    
    51
    
    
    
    
    
    
    
    51
    
    
    
    Other
    
    
    23
    
    
    
    (70
    )
    
    
    (39
    )
    
    
    (75
    )Total
    
    $
    486
    
    
    $
    370
    
    
    $
    847
    
    
    $
    452
   Liquidity and Capital Resources
    18




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##### Table of Contents



Contractual Obligations
  Recent Accounting Pronouncements
  Critical Accounting Policies
   
    
    Evaluation of the allowance for doubtful accounts receivable
    
    Hedging activities
    
    Benefit plans
    
    Valuation of goodwill
    
    Self-insurance program
    
    Income taxes
    
    Stock-based compensation
 19




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##### Table of Contents



Evaluation of the Allowance for Doubtful Accounts Receivable
  Hedging Activities
   Benefit Plans
  Valuation of Goodwill
  Self-insurance Program
  20




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##### Table of Contents



Income Taxes
   Stock-Based Compensation
   Risks and Uncertainties
 The availability and cost of agricultural products Penford purchases are vulnerable to weather and
other factors beyond its control.
  Increases in energy and chemical costs will reduce the Companys profitability.
  21




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##### Table of Contents



The loss of a major customer could have an adverse effect on Penfords results of operations.
  Changes in interest rates will affect Penfords profitability.
  Unanticipated changes in tax rates or exposure to additional income tax liabilities could affect
Penfords profitability.
  Profitability is subject to risks associated with changes in foreign exchange currency rates.
  Provisions of Washington law could discourage or prevent a potential takeover.
   22




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##### Table of Contents



Other uncertainties
  
 Item 3: Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4: Controls and Procedures.
  23




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 4: Submission of Matters to a Vote of Security Holders
  Percent of
    
    
    
    
    
    Percent ofDirector
    
    Votes For
    
    Total Shares
    
    Votes Withheld
    
    Total SharesR. Randolph Devening
    
    
    8,123,123
    
    
    
    91.5
    %
    
    
    59,586
    
    
    
    0.7
    %Paul H. Hatfield
    
    
    7,661,255
    
    
    
    86.3
    %
    
    
    521,454
    
    
    
    5.9
    %
  Votes
    
    
    
    
    
    BrokerVotes For
    
    Against
    
    Abstain
    
    Non-Votes6,234,429
    
    
    971,282
    
    
    
    25,264
    
    
    
    1,647,062
 
 Item 5: Other Information
 Entry into a Material Definitive Agreement
 
    24




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##### Table of Contents



)
 
 Item 6: Exhibits.
  10.1
    
    Penford Corporation 2006 Long-Term Incentive Plan (incorporated by reference to Appendix A to
Registrants Proxy Statement filed with the Commission on December 20, 2005)10.2
    
    Form of Penford Corporation 2006 Long-Term Incentive Plan Stock Option Grant Notice including the
Stock Option Agreement and Notice of Exercise (incorporated by reference to the exhibits to the
Registrants Current Report on Form 8-K filed with the Commission on February 21, 2006)10.3
    
    Form of Change in Control Agreement and Annexes31.1
    
    Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certifications of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 25




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##### Table of Contents



SIGNATURES
  Penford Corporation(Registrant) April 10, 2006
    /s/ Steven O. CordierSteven O. CordierSenior Vice President and Chief Financial Officer 26




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description10.1
    
    Penford Corporation 2006 Long-Term Incentive Plan
(incorporated by reference to Appendix A to Registrants Proxy
Statement filed with the Commission on December 20, 2005)10.2
    
    Form of Penford Corporation 2006 Long-Term Incentive Plan
Stock Option Grant Notice including the Stock Option Agreement
and Notice of Exercise (incorporated by reference to the
exhibits to the Registrants Current Report on Form 8-K filed
with the Commission on February 21, 2006)10.3
    
    Form of Change in Control Agreement and Annexes31.1
    
    Certifications of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    Certifications of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 200232
    
    Certifications of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002