##### 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, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from
 to
 Commission File No. 0-11488
 PENFORD CORPORATION
  Washington
    
    91-1221360(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer
Identification No.)7094 South Revere Parkway,Centennial, Colorado
    
    80112-3932(Address of Principal Executive Offices)
    
    (Zip Code)
 (303) 649-1900
 þ o
 
 o þ o
 o þ




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##### 



PENFORD CORPORATION AND SUBSIDIARIES
 INDEX
 PagePART IFINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets  February 28, 2007 and August 31, 2006
    
    3Condensed Consolidated Statements of Operations  Three and Six Months ended February 28,
2007 and February 28, 2006
    
    4Condensed Consolidated Statements of Cash Flow  Six Months ended February 28, 2007 and
February 28, 2006
    
    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
    
    21Item 4. Controls and Procedures
    
    21PART IIOTHER INFORMATIONItem 1A. Risk Factors
    
    22Item 4. Submission of Matters to a Vote of Security Holders
    
    24Item 6. Exhibits
    
    24Signatures
    
    25Certification of CEO Pusuant to Section 302Certification of CFO Pusuant to Section 302Certifications of CEO and CFO Pursuant to Section 906
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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)
    
    2007
    
    
    2006(Unaudited)ASSETSCurrent assets:Cash
    
    $
    2,715
    
    
    $
    939Trade accounts receivable, net
    
    
    50,598
    
    
    
    44,593Inventories
    
    
    40,867
    
    
    
    34,953Prepaid expenses
    
    
    3,833
    
    
    
    4,649Other
    
    
    4,558
    
    
    
    4,782Total current assets
    
    
    102,571
    
    
    
    89,916Property, plant and equipment, net
    
    
    133,641
    
    
    
    124,829Restricted cash value of life insurance
    
    
    10,344
    
    
    
    10,278Goodwill, net
    
    
    22,740
    
    
    
    21,871Other intangible assets, net
    
    
    2,757
    
    
    
    2,785Other assets
    
    
    1,673
    
    
    
    989Total assets
    
    $
    273,726
    
    
    $
    250,668LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Cash overdraft, net
    
    $
    
    
    
    $
    961Current portion of long-term debt and capital lease obligations
    
    
    4,057
    
    
    
    4,295Short-term borrowings
    
    
    7,411
    
    
    
    9,541Accounts payable
    
    
    32,380
    
    
    
    31,686Accrued liabilities
    
    
    9,612
    
    
    
    11,360Total current liabilities
    
    
    53,460
    
    
    
    57,843Long-term debt and capital lease obligations
    
    
    74,239
    
    
    
    53,171Other post-retirement benefits
    
    
    13,765
    
    
    
    13,606Deferred income taxes
    
    
    4,587
    
    
    
    5,924Other liabilities
    
    
    14,248
    
    
    
    12,672Total liabilities
    
    
    160,299
    
    
    
    143,216Shareholders 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 10,953 and 10,909 shares, respectively
    
    
    10,953
    
    
    
    10,909Additional paid-in capital
    
    
    40,571
    
    
    
    39,427Retained earnings
    
    
    81,335
    
    
    
    78,131Treasury stock, at cost, 1,981 shares
    
    
    (32,757
    )
    
    
    (32,757
    )Accumulated other comprehensive income
    
    
    13,325
    
    
    
    11,742Total shareholders equity
    
    
    113,427
    
    
    
    107,452Total liabilities and shareholders equity
    
    $
    273,726
    
    
    $
    250,668
 The accompanying notes are an integral part of these statements.
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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)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Sales
    
    $
    85,241
    
    
    $
    77,078
    
    
    $
    170,741
    
    
    $
    154,981Cost of sales
    
    
    72,839
    
    
    
    68,534
    
    
    
    145,145
    
    
    
    136,037Gross margin
    
    
    12,402
    
    
    
    8,544
    
    
    
    25,596
    
    
    
    18,944Operating expenses
    
    
    7,333
    
    
    
    6,671
    
    
    
    14,433
    
    
    
    14,408Research and development expenses
    
    
    1,578
    
    
    
    1,571
    
    
    
    3,150
    
    
    
    3,008Income from operations
    
    
    3,491
    
    
    
    302
    
    
    
    8,013
    
    
    
    1,528Non-operating income, net
    
    
    229
    
    
    
    486
    
    
    
    751
    
    
    
    847Interest expense
    
    
    1,689
    
    
    
    1,534
    
    
    
    2,993
    
    
    
    2,867Income (loss) before income taxes
    
    
    2,031
    
    
    
    (746
    )
    
    
    5,771
    
    
    
    (492
    )Income taxes (benefit)
    
    
    325
    
    
    
    (235
    )
    
    
    1,492
    
    
    
    (176
    )Net income (loss)
    
    $
    1,706
    
    
    $
    (511
    )
    
    $
    4,279
    
    
    $
    (316
    )Weighted average common shares and
equivalents outstanding:Basic
    
    
    8,957
    
    
    
    8,881
    
    
    
    8,950
    
    
    
    8,879Diluted
    
    
    9,152
    
    
    
    8,881
    
    
    
    9,103
    
    
    
    8,879Income (loss) per share:Basic
    
    $
    0.19
    
    
    $
    (0.06
    )
    
    $
    0.48
    
    
    $
    (0.04
    )Diluted
    
    $
    0.19
    
    
    $
    (0.06
    )
    
    $
    0.47
    
    
    $
    (0.04
    )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)
    
    2007
    
    
    2006Cash flows from operating activities:Net income (loss)
    
    $
    4,279
    
    
    $
    (316
    )Adjustments to reconcile net income (loss) to net cash provided by
operations:Depreciation and amortization
    
    
    7,896
    
    
    
    7,671Stock-based compensation
    
    
    590
    
    
    
    600Loss (gain) on sale of fixed assets
    
    
    142
    
    
    
    (52
    )Deferred income taxes
    
    
    (175
    )
    
    
    (413
    )Loss on derivative transactions
    
    
    1,825
    
    
    
    385Other
    
    
    (72
    )
    
    
    21Change in assets and liabilities:Trade accounts receivable
    
    
    (5,221
    )
    
    
    (2,048
    )Prepaid expenses
    
    
    846
    
    
    
    938Inventories
    
    
    (8,290
    )
    
    
    82Accounts payable and accrued liabilities
    
    
    (88
    )
    
    
    (5,411
    )Taxes payable
    
    
    (2,254
    )
    
    
    (280
    )Other
    
    
    1,814
    
    
    
    940Net cash provided by operating activities
    
    
    1,292
    
    
    
    2,117Cash flows from investing activities:Investment in property, plant and equipment, net
    
    
    (15,122
    )
    
    
    (10,003
    )Proceeds from sale of land
    
    
    
    
    
    
    612Other
    
    
    (64
    )
    
    
    4Net cash used in investing activities
    
    
    (15,186
    )
    
    
    (9,387
    )Cash flows from financing activities:Proceeds from short-term borrowings
    
    
    5,143
    
    
    
    Payments on short-term borrowings
    
    
    (7,643
    )
    
    
    Proceeds from revolving line of credit
    
    
    33,652
    
    
    
    15,461Payments on revolving line of credit
    
    
    (15,339
    )
    
    
    Proceeds from long-term debt
    
    
    4,200
    
    
    
    Payments of long-term debt
    
    
    (2,249
    )
    
    
    (1,994
    )Exercise of stock options
    
    
    528
    
    
    
    128Payment of loan fees
    
    
    (836
    )
    
    
    (16
    )Decrease in cash overdraft
    
    
    (961
    )
    
    
    (777
    )Payment of dividends
    
    
    (1,073
    )
    
    
    (1,064
    )Other
    
    
    44
    
    
    
    (5
    )Net cash provided by financing activities
    
    
    15,466
    
    
    
    11,733Effect of exchange rate changes on cash and cash equivalents
    
    
    204
    
    
    
    2Net increase in cash and cash equivalents
    
    
    1,776
    
    
    
    4,465Cash and cash equivalents, beginning of period
    
    
    939
    
    
    
    5,367Cash and cash equivalents, end of period
    
    $
    2,715
    
    
    $
    9,832
 The accompanying notes are an integral part of these statements.
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PENFORD CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1BUSINESS
    2BASIS OF PRESENTATION
 Consolidation
  Recent Accounting Pronouncements
   6




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3STOCK-BASED COMPENSATION
 Stock Compensation Plans
  General Option Information
  WeightedWeighted
    
    
    AverageNumber of
    
    
    Average
    
    
    Remaining
    
    
    AggregateShares
    
    
    Exercise Price
    
    
    Term (in years)
    
    
    Intrinsic ValueOutstanding Balance, August 31, 2006
    
    
    1,171,063
    
    
    $
    13.98Granted
    
    
    65,000
    
    
    
    16.25Exercised
    
    
    (43,558
    )
    
    
    12.12Cancelled
    
    
    (14,625
    )
    
    
    13.13Outstanding Balance, February 28, 2007
    
    
    1,177,880
    
    
    $
    14.19
    
    
    
    5.95
    
    
    $
    7,659,503Options Exercisable at February 28, 2007
    
    
    760,130
    
    
    $
    13.60
    
    
    
    5.35
    
    
    $
    5,389,414
  7




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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$    6.18  13.00
    
    
    464,085
    
    
    
    5.24
    
    
    $
    11.98
    
    
    
    427,710
    
    
    $
    11.9113.01  16.00
    
    
    375,795
    
    
    
    6.53
    
    
    
    14.64
    
    
    
    146,420
    
    
    
    14.1116.01  17.69
    
    
    338,000
    
    
    
    6.30
    
    
    
    16.72
    
    
    
    186,000
    
    
    
    17.081,177,880
    
    
    
    
    
    
    
    
    
    
    
    760,130
 Valuation and Expense Under SFAS No. 123R
    Six Months Ended February 28,2006 Incentive Plan
    
    1994 Plan2007
    
    2006
    
    2007
    
    2006Expected volatility
    
    
    45
    %
    
    
    
    
    
    
    
    
    
    
    52
    %Expected life (years)
    
    
    5.5
    
    
    
    
    
    
    
    
    
    
    
    5.0Interest rate (percent)
    
    
    4.4-4.9
    
    
    
    
    
    
    
    
    
    
    
    4.4-4.5Dividend yield
    
    
    1.5
    %
    
    
    
    
    
    
    
    
    
    
    1.7
    %
  8




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Three Months Ended
    
    Six Months EndedFebruary 28,
    
    February 28,2007
    
    2006
    
    2007
    
    2006Cost of sales
    
    $
    17
    
    
    $
    32
    
    
    $
    41
    
    
    $
    52Operating expenses
    
    
    260
    
    
    
    242
    
    
    
    518
    
    
    
    504Research and development expenses
    
    
    3
    
    
    
    11
    
    
    
    10
    
    
    
    23Total stock-based compensation expense
    
    $
    280
    
    
    $
    285
    
    
    $
    569
    
    
    $
    579Tax benefit
    
    
    104
    
    
    
    97
    
    
    
    211
    
    
    
    197Total stock-based compensation
expense, net of tax
    
    $
    176
    
    
    $
    188
    
    
    $
    358
    
    
    $
    382
  Restricted Stock
  4INVENTORIES
  February 28,
    
    
    August 31,2007
    
    
    2006(In thousands)Raw materials
    
    $
    22,370
    
    
    $
    18,531Work in progress
    
    
    811
    
    
    
    449Finished goods
    
    
    17,686
    
    
    
    15,973Total inventories
    
    $
    40,867
    
    
    $
    34,953
 5PROPERTY, PLANT AND EQUIPMENT
  February 28,
    
    
    August 31,2007
    
    
    2006(In thousands)Land
    
    $
    17,303
    
    
    $
    16,659Plant and equipment
    
    
    332,322
    
    
    
    322,169Construction in progress
    
    
    11,532
    
    
    
    7,078361,157
    
    
    
    345,906Accumulated depreciation
    
    
    (227,516
    )
    
    
    (221,077
    )Net property, plant and equipment
    
    $
    133,641
    
    
    $
    124,829
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6DEBT
         10




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7TAXES
   8OTHER COMPREHENSIVE INCOME (LOSS)
  Three months ended
    
    
    Six months endedFebruary
    
    
    February
    
    
    February
    
    
    February28, 2007
    
    
    28, 2006
    
    
    28, 2007
    
    
    28, 2006(In thousands)Net income (loss)
    
    $
    1,706
    
    
    $
    (511
    )
    
    $
    4,279
    
    
    $
    (316
    )Foreign currency translation adjustments
    
    
    987
    
    
    
    (587
    )
    
    
    2,924
    
    
    
    (1,080
    )Net unrealized gain (loss) on derivative
instruments that qualify as cash flow hedges
    
    
    (273
    )
    
    
    806
    
    
    
    (1,341
    )
    
    
    1,113Total comprehensive income (loss)
    
    $
    2,420
    
    
    $
    (292
    )
    
    $
    5,862
    
    
    $
    (283
    )
 9NON-OPERATING INCOME, NET
  Three months ended
    
    
    Six months endedFebruary 28,
    
    
    February 28,
    
    
    February 28,
    
    
    February 28,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Royalty and licensing income
    
    $
    405
    
    
    $
    412
    
    
    $
    923
    
    
    $
    835Gain (loss) on sale of assets
    
    
    (142
    )
    
    
    54
    
    
    
    (142
    )
    
    
    52Other
    
    
    (34
    )
    
    
    20
    
    
    
    (30
    )
    
    
    (40
    )Total
    
    $
    229
    
    
    $
    486
    
    
    $
    751
    
    
    $
    847
  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
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Service cost
    
    $
    345
    
    
    $
    418
    
    
    $
    733
    
    
    $
    836Interest cost
    
    
    516
    
    
    
    526
    
    
    
    1,100
    
    
    
    1,051Expected return on plan assets
    
    
    (593
    )
    
    
    (529
    )
    
    
    (1,186
    )
    
    
    (1,058
    )Amortization of prior service cost
    
    
    47
    
    
    
    46
    
    
    
    93
    
    
    
    93Amortization of actuarial losses
    
    
    48
    
    
    
    150
    
    
    
    96
    
    
    
    301Net periodic benefit cost
    
    $
    363
    
    
    $
    611
    
    
    $
    836
    
    
    $
    1,223
 Three months ended
    
    
    Six months endedFebruary 28,
    
    
    February 28,
    
    
    February 28,
    
    
    February 28,Post-retirement health care plans
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Service cost
    
    $
    78
    
    
    $
    98
    
    
    $
    155
    
    
    $
    196Interest cost
    
    
    204
    
    
    
    196
    
    
    
    409
    
    
    
    392Amortization of prior service cost
    
    
    (38
    )
    
    
    (38
    )
    
    
    (76
    )
    
    
    (76
    )Amortization of actuarial losses
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    72Net periodic benefit cost
    
    $
    244
    
    
    $
    292
    
    
    $
    488
    
    
    $
    584
 11SEGMENT REPORTING
  12




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Three months ended
    
    
    Six months endedFebruary 28,
    
    
    February 28,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Sales:Industrial IngredientsNorth America
    
    $
    46,713
    
    
    $
    41,165
    
    
    $
    90,685
    
    
    $
    79,646Food IngredientsNorth America
    
    
    14,561
    
    
    
    13,567
    
    
    
    29,801
    
    
    
    28,657Australia/New Zealand operations
    
    
    24,104
    
    
    
    22,442
    
    
    
    50,628
    
    
    
    47,077Intercompany sales
    
    
    (137
    )
    
    
    (96
    )
    
    
    (373
    )
    
    
    (399
    )$
    85,241
    
    
    $
    77,078
    
    
    $
    170,741
    
    
    $
    154,981Income (loss) from operations:Industrial IngredientsNorth America
    
    $
    3,649
    
    
    $
    781
    
    
    $
    6,830
    
    
    $
    1,355Food IngredientsNorth America
    
    
    2,160
    
    
    
    1,485
    
    
    
    5,013
    
    
    
    3,886Australia/New Zealand operations
    
    
    (57
    )
    
    
    98
    
    
    
    751
    
    
    
    795Corporate and other
    
    
    (2,261
    )
    
    
    (2,062
    )
    
    
    (4,581
    )
    
    
    (4,508
    )$
    3,491
    
    
    $
    302
    
    
    $
    8,013
    
    
    $
    1,528
 February 28,
    
    
    August 31,2007
    
    
    2006(In thousands)Total assets:Industrial IngredientsNorth America
    
    $
    120,040
    
    
    $
    98,733Food IngredientsNorth America
    
    
    30,507
    
    
    
    31,714Australia/New Zealand operations
    
    
    104,293
    
    
    
    104,491Corporate and other
    
    
    18,886
    
    
    
    15,730$
    273,726
    
    
    $
    250,668
  Three months ended
    
    Six months endedFebruary 28,
    
    February 28,2007
    
    2006
    
    2007
    
    2006(In thousands)
    
    (In thousands)Industrial IngredientsNorth America
    
    $
    68
    
    
    $
    54
    
    
    $
    136
    
    
    $
    120Food IngredientsNorth America
    
    
    55
    
    
    
    32
    
    
    
    98
    
    
    
    65Australia/New Zealand operations
    
    
    9
    
    
    
    2
    
    
    
    29
    
    
    
    13Corporate
    
    
    148
    
    
    
    197
    
    
    
    306
    
    
    
    381$
    280
    
    
    $
    285
    
    
    $
    569
    
    
    $
    579
 13




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12EARNINGS PER SHARE
 .
 Three months ended
    
    
    Six months endedFebruary 28,
    
    
    February 28,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Weighted average
common shares
outstanding
    
    
    8,957
    
    
    
    8,881
    
    
    
    8,950
    
    
    
    8,879Dilutive stock options
    
    
    195
    
    
    
    
    
    
    
    153
    
    
    
    Weighted average
common shares
outstanding,
assuming dilution
    
    
    9,152
    
    
    
    8,881
    
    
    
    9,103
    
    
    
    8,879
  13LEGAL PROCEEDINGS
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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 in Item 1A in this
Quarterly Report, and those described from time to time in other filings with the Securities and
Exchange Commission, including the Companys Annual Report on Form 10-K for the year ended August
31, 2006, 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;
unanticipated ethanol facility construction or procurement delays that could result in delay in the
timing of the commencement of ethanol production; unexpected overruns; technical difficulties,
nonperformance by contractors or mandated changes in project requirements or specifications;
changes in general economic conditions or developments with respect to specific industries, markets
or customers which affect demand for the Companys products, including unfavorable shifts in
product mix; adverse litigation results or unanticipated third party claims; interest rate,
chemical 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.
 Overview
   Results of Operations
 Executive Overview
  15




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Sales
    Income from operations
   16




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Corporate operating expenses
  Interest expense
  Income taxes
    17




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Non-operating income, net
  Three months ended
    
    
    Six months endedFebruary 28,
    
    
    February 28,
    
    
    February 28,
    
    
    February 28,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Royalty and licensing income
    
    $
    405
    
    
    $
    412
    
    
    $
    923
    
    
    $
    835Gain (loss) on sale of assets
    
    
    (142
    )
    
    
    54
    
    
    
    (142
    )
    
    
    52Other
    
    
    (34
    )
    
    
    20
    
    
    
    (30
    )
    
    
    (40
    )Total
    
    $
    229
    
    
    $
    486
    
    
    $
    751
    
    
    $
    847
  Liquidity and Capital Resources
      18




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Contractual Obligations
  2007
    
    
    2008-2009
    
    
    2010-2011
    
    
    2012 & After
    
    
    TotalLong-term Debt and Capital
Lease Obligations
    
    $
    2,029
    
    
    $
    8,116
    
    
    $
    8,021
    
    
    $
    60,130
    
    
    $
    78,296Purchase Orders  Ethanol Construction
    
    
    10,039
    
    
    
    2,510
    
    
    
    
    
    
    
    
    
    
    
    12,549Rail Car LeasesEthanol
    
    
    
    
    
    
    2,059
    
    
    
    2,574
    
    
    
    2,612
    
    
    
    7,245$
    12,068
    
    
    $
    12,685
    
    
    $
    10,595
    
    
    $
    62,742
    
    
    $
    98,090
  Recent Accounting Pronouncements
  Critical Accounting Policies
   
    
    Evaluation of the allowance for doubtful accounts receivable
    
    Hedging activities
    
    Benefit plans
    
    Valuation of goodwill
    
    Self-insurance program
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
    
    Income taxes
    
    Stock-based compensation
  Evaluation of the Allowance for Doubtful Accounts Receivable
  Hedging Activities
   Benefit Plans
  Valuation of Goodwill
  Self-insurance Program
  20




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Income Taxes
   Stock-Based Compensation
   
 Item 3: Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4: Controls and Procedures.
  21




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PART II  OTHER INFORMATION
 
 Item 1A Risk Factors
 Increases in energy and chemical costs may reduce the Companys profitability.
  The availability and cost of agricultural products Penford purchases are vulnerable to weather
and other factors beyond its control. The Companys ability to pass through cost increases for
these products is limited by worldwide competition and other factors.
  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.
  22




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Profitability is subject to risks associated with changes in foreign currency exchange rates.
  The Company may not be able to implement ethanol production as planned or at all.
  The Companys results of operations could be adversely affected by litigation and other
contingencies
  Changes in worldwide economic conditions and government laws and policies could adversely
affect the Companys financial results.
  Provisions of Washington law could discourage or prevent a potential takeover.
  23




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##### Table of Contents



Other uncertainties
  
 Item 4: Submission of Matters to a Vote of Security Holders
  Percent of
    
    
    
    
    
    Percent ofDirector
    
    Votes For
    
    Total Shares
    
    Votes Withheld
    
    Total SharesJeffrey T. Cook
    
    
    8,005,205
    
    
    
    89.4
    %
    
    
    175,728
    
    
    
    2.0
    %Thomas D. Malkoski
    
    
    7,919,348
    
    
    
    88.4
    %
    
    
    261,585
    
    
    
    2.9
    %Sally G. Narodick
    
    
    7,883,619
    
    
    
    88.0
    %
    
    
    297,314
    
    
    
    3.3
    %
  Votes
    
    
    
    
    
    BrokerVotes For
    
    Against
    
    Abstain
    
    Non-Votes7,574,609
    
    
    599,065
    
    
    
    7,258
    
    
    
    773,455
 
 Item 6: Exhibits.
  31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 24




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SIGNATURES
  Penford Corporation

(Registrant)April 9, 2007
    
    /s/ Steven O. CordierSteven O. CordierSenior Vice President and Chief Financial
Officer
 25




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 200232
    
    Certifications of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002