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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 May 31, 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
    
    (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
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PENFORD CORPORATION AND SUBSIDIARIES
 INDEX
 PagePART IFINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets  May 31, 2007 and August 31, 2006
    
    
    3Condensed Consolidated Statements of Operations  Three and Nine Months ended May 31, 2007
and May 31, 2006
    
    
    4Condensed Consolidated Statements of Cash Flow  Nine Months ended May 31, 2007 and
May 31, 2006
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    24PART IIOTHER INFORMATIONItem 1.
Legal Proceedings
    
    
    25Item 1A. Risk Factors
    
    
    25Item 6. Exhibits
    
    
    27Signatures
    
    
    28Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification Pursuant to 18 U.S.C. Section 1350
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PART I  FINANCIAL INFORMATION
 
 Item 1: Financial Statements
 PENFORD CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 May 31,
    
    
    August 31,(In thousands, except per share data)
    
    2007
    
    
    2006(Unaudited)ASSETSCurrent assets:Cash
    
    $
    1,392
    
    
    $
    939Trade accounts receivable, net
    
    
    51,906
    
    
    
    44,593Inventories
    
    
    42,298
    
    
    
    34,953Prepaid expenses
    
    
    5,166
    
    
    
    4,649Other
    
    
    4,395
    
    
    
    4,782Total current assets
    
    
    105,157
    
    
    
    89,916Property, plant and equipment, net
    
    
    138,173
    
    
    
    124,829Restricted cash value of life insurance
    
    
    10,377
    
    
    
    10,278Goodwill, net
    
    
    23,566
    
    
    
    21,871Other intangible assets, net
    
    
    2,742
    
    
    
    2,785Other assets
    
    
    1,594
    
    
    
    989Total assets
    
    $
    281,609
    
    
    $
    250,668LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Cash overdraft, net
    
    $
    3,054
    
    
    $
    961Current portion of long-term debt and capital lease obligations
    
    
    4,060
    
    
    
    4,295Short-term borrowings
    
    
    8,403
    
    
    
    9,541Accounts payable
    
    
    28,044
    
    
    
    31,686Accrued liabilities
    
    
    15,539
    
    
    
    11,360Total current liabilities
    
    
    59,100
    
    
    
    57,843Long-term debt and capital lease obligations
    
    
    67,589
    
    
    
    53,171Other post-retirement benefits
    
    
    13,848
    
    
    
    13,606Deferred income taxes
    
    
    4,385
    
    
    
    5,924Other liabilities
    
    
    14,196
    
    
    
    12,672Total liabilities
    
    
    159,118
    
    
    
    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 10,969 and 10,909 shares, respectively
    
    
    10,969
    
    
    
    10,909Additional paid-in capital
    
    
    41,077
    
    
    
    39,427Retained earnings
    
    
    85,750
    
    
    
    78,131Treasury stock, at cost, 1,981 shares
    
    
    (32,757
    )
    
    
    (32,757
    )Accumulated other comprehensive income
    
    
    17,452
    
    
    
    11,742Total shareholders equity
    
    
    122,491
    
    
    
    107,452Total liabilities and shareholders equity
    
    $
    281,609
    
    
    $
    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
    
    
    Nine months endedMay 31,
    
    
    May 31,
    
    
    May 31,
    
    
    May 31,(In thousands, except per share data)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Sales
    
    $
    95,406
    
    
    $
    79,130
    
    
    $
    266,147
    
    
    $
    234,111Cost of sales
    
    
    76,838
    
    
    
    67,070
    
    
    
    221,983
    
    
    
    203,107Gross margin
    
    
    18,568
    
    
    
    12,060
    
    
    
    44,164
    
    
    
    31,004Operating expenses
    
    
    8,375
    
    
    
    7,020
    
    
    
    22,808
    
    
    
    21,429Research and development expenses
    
    
    1,737
    
    
    
    1,584
    
    
    
    4,886
    
    
    
    4,592Income from operations
    
    
    8,456
    
    
    
    3,456
    
    
    
    16,470
    
    
    
    4,983Non-operating income, net
    
    
    344
    
    
    
    563
    
    
    
    1,095
    
    
    
    1,410Interest expense
    
    
    1,443
    
    
    
    1,522
    
    
    
    4,437
    
    
    
    4,388Income before income taxes
    
    
    7,357
    
    
    
    2,497
    
    
    
    13,128
    
    
    
    2,005Income taxes
    
    
    2,402
    
    
    
    506
    
    
    
    3,894
    
    
    
    330Net income
    
    $
    4,955
    
    
    $
    1,991
    
    
    $
    9,234
    
    
    $
    1,675Weighted average common shares and
equivalents outstanding:Basic
    
    
    8,984
    
    
    
    8,914
    
    
    
    8,962
    
    
    
    8,891Diluted
    
    
    9,258
    
    
    
    9,050
    
    
    
    9,159
    
    
    
    8,978Income per share:Basic
    
    $
    0.55
    
    
    $
    0.22
    
    
    $
    1.03
    
    
    $
    0.19Diluted
    
    $
    0.54
    
    
    $
    0.22
    
    
    $
    1.01
    
    
    $
    0.19Dividends declared per common share
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.18
    
    
    $
    0.18
 The accompanying notes are an integral part of these
statements.
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PENFORD CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
  Nine Months Ended(In thousands)
    
    May 31, 2007
    
    
    May 31, 2006Cash flows from operating activities:Net income
    
    $
    9,234
    
    
    $
    1,675Adjustments to reconcile net income to net cash provided by
(used in) operations:Depreciation and amortization
    
    
    11,798
    
    
    
    11,663Stock-based compensation
    
    
    870
    
    
    
    937Loss (gain) on sale of assets
    
    
    336
    
    
    
    (68
    )Deferred income taxes
    
    
    (695
    )
    
    
    71Loss (gain) on derivative transactions
    
    
    (366
    )
    
    
    309Other
    
    
    (121
    )
    
    
    (48
    )Change in assets and liabilities:Trade accounts receivable
    
    
    (5,943
    )
    
    
    (2,373
    )Prepaid expenses
    
    
    (463
    )
    
    
    (31
    )Inventories
    
    
    (4,598
    )
    
    
    (4,393
    )Accounts payable and accrued liabilities
    
    
    (2,296
    )
    
    
    (8,598
    )Taxes payable
    
    
    1,690
    
    
    
    (727
    )Other
    
    
    2,081
    
    
    
    1,460Net cash provided by (used in) operating activities
    
    
    11,527
    
    
    
    (123
    )Cash flows from investing activities:Investment in property, plant and equipment, net
    
    
    (22,101
    )
    
    
    (12,110
    )Proceeds from investments
    
    
    
    
    
    
    612Other
    
    
    (75
    )
    
    
    (107
    )Net cash used in investing activities
    
    
    (22,176
    )
    
    
    (11,605
    )Cash flows from financing activities:Proceeds from short-term borrowings
    
    
    7,785
    
    
    
    11,510Payments on short-term borrowings
    
    
    (9,497
    )
    
    
    (1,425
    )Proceeds from revolving line of credit
    
    
    42,267
    
    
    
    17,961Payments on revolving line of credit
    
    
    (29,982
    )
    
    
    (16,333
    )Proceeds from long-term debt
    
    
    4,200
    
    
    
    Payments of long-term debt
    
    
    (3,249
    )
    
    
    (2,983
    )Payments under capital lease obligation
    
    
    (42
    )
    
    
    (22
    )Exercise of stock options
    
    
    723
    
    
    
    473Payment of loan fees
    
    
    (836
    )
    
    
    (74
    )Increase in cash overdraft
    
    
    2,093
    
    
    
    43Payment of dividends
    
    
    (1,610
    )
    
    
    (1,597
    )Other
    
    
    116
    
    
    
    84Net cash provided by financing activities
    
    
    11,968
    
    
    
    7,637Effect of exchange rate changes on cash and cash equivalents
    
    
    (866
    )
    
    
    (80
    )Net increase (decrease) in cash and cash equivalents
    
    
    453
    
    
    
    (4,171
    )Cash and cash equivalents, beginning of period
    
    
    939
    
    
    
    5,367Cash and cash equivalents, end of period
    
    $
    1,392
    
    
    $
    1,196
 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
  6




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Recent Accounting Pronouncements
      3STOCK-BASED COMPENSATION
 Stock Compensation Plans
  7




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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
    
    
    75,000
    
    
    
    16.72Exercised
    
    
    (60,430
    )
    
    
    11.97Cancelled
    
    
    (15,250
    )
    
    
    13.14Outstanding Balance, May 31, 2007
    
    
    1,170,383
    
    
    $
    14.27
    
    
    
    5.75
    
    
    $
    5,638,052Options Exercisable at May 31, 2007
    
    
    785,133
    
    
    $
    13.76
    
    
    
    5.20
    
    
    $
    4,188,414
   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$ 7.73  13.00
    
    
    453,713
    
    
    
    5.08
    
    
    $
    12.04
    
    
    
    418,588
    
    
    $
    11.9813.01  16.00
    
    
    371,670
    
    
    
    6.27
    
    
    
    14.65
    
    
    
    179,795
    
    
    
    14.4516.01  19.77
    
    
    345,000
    
    
    
    6.06
    
    
    
    16.81
    
    
    
    186,750
    
    
    
    17.071,170,383
    
    
    
    
    
    
    
    
    
    
    
    785,133
 Valuation and Expense Under SFAS No. 123R
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Three Months Ended
    
    Nine Months EndedMay 31,
    
    May 31,2007
    
    2006
    
    2007
    
    2006Expected volatility
    
    
    45
    %
    
    
    51
    %
    
    
    45
    %
    
    
    52
    %Expected life (years)
    
    
    5.5
    
    
    
    5.5
    
    
    
    5.5
    
    
    
    5.0Interest rate (percent)
    
    
    4.4-4.9
    
    
    
    4.9-5.1
    
    
    
    4.4-4.9
    
    
    
    4.4-4.5Dividend yield
    
    
    1.5
    %
    
    
    1.6
    %
    
    
    1.5
    %
    
    
    1.7
    %Weighted-average fair values
    
    $
    7.79
    
    
    $
    7.25
    
    
    $
    6.88
    
    
    $
    7.25
  Nine Months EndedMay 31, 2006Expected volatility
    
    
    52
    %Expected life (years)
    
    
    5.0Interest rate (percent)
    
    
    4.4-4.5Dividend yield
    
    
    1.7
    %Weighted-average fair values
    
    $
    6.01
    Three Months Ended
    
    
    Nine Months EndedMay 31,
    
    
    May 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Cost of sales
    
    $
    25
    
    
    $
    29
    
    
    $
    66
    
    
    $
    81Operating expenses
    
    
    239
    
    
    
    288
    
    
    
    757
    
    
    
    794Research and development expenses
    
    
    5
    
    
    
    10
    
    
    
    15
    
    
    
    31Total stock-based compensation expense
    
    $
    269
    
    
    $
    327
    
    
    $
    838
    
    
    $
    906Tax benefit
    
    
    100
    
    
    
    111
    
    
    
    310
    
    
    
    308Total stock-based compensation
expense, net of tax
    
    $
    169
    
    
    $
    216
    
    
    $
    528
    
    
    $
    598
  Restricted Stock
  9




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4INVENTORIES
  May 31,
    
    
    August 31,2007
    
    
    2006(In thousands)Raw materials
    
    $
    21,518
    
    
    $
    18,531Work in progress
    
    
    855
    
    
    
    449Finished goods
    
    
    19,925
    
    
    
    15,973Total inventories
    
    $
    42,298
    
    
    $
    34,953
 5PROPERTY, PLANT AND EQUIPMENT
  May 31,
    
    
    August 31,2007
    
    
    2006(In thousands)Land
    
    $
    17,697
    
    
    $
    16,659Plant and equipment
    
    
    336,529
    
    
    
    322,169Construction in progress
    
    
    17,425
    
    
    
    7,078371,651
    
    
    
    345,906Accumulated depreciation
    
    
    (233,478
    )
    
    
    (221,077
    )Net property, plant and equipment
    
    $
    138,173
    
    
    $
    124,829
   6DEBT
    10




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7TAXES
   11




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8OTHER COMPREHENSIVE INCOME
  Three months ended
    
    
    Nine months endedMay 31,
    
    
    May 31,
    
    
    May 31,
    
    
    May 31,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Net income
    
    $
    4,955
    
    
    $
    1,991
    
    
    $
    9,234
    
    
    $
    1,675Foreign currency translation adjustments
    
    
    2,418
    
    
    
    1,387
    
    
    
    5,343
    
    
    
    307Net unrealized gain (loss) on derivative
instruments that qualify as cash flow
hedges
    
    
    1,708
    
    
    
    (51
    )
    
    
    367
    
    
    
    1,062Total comprehensive income
    
    $
    9,081
    
    
    $
    3,327
    
    
    $
    14,944
    
    
    $
    3,044
 9NON-OPERATING INCOME, NET
  Three months ended
    
    
    Nine months endedMay 31,
    
    
    May 31,
    
    
    May 31,
    
    
    May 31,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Royalty and licensing income
    
    $
    486
    
    
    $
    503
    
    
    $
    1,409
    
    
    $
    1,338Gain (loss) on sale of assets
    
    
    (194
    )
    
    
    
    
    
    
    (336
    )
    
    
    68Other
    
    
    52
    
    
    
    60
    
    
    
    22
    
    
    
    4Total
    
    $
    344
    
    
    $
    563
    
    
    $
    1,095
    
    
    $
    1,410
   12




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10  PENSION AND POST-RETIREMENT BENEFIT PLANS
  Defined benefit pension plans
    
    Three months ended
    
    
    Nine months endedMay 31,
    
    
    May 31,
    
    
    May 31,
    
    
    May 31,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Service cost
    
    $
    366
    
    
    $
    418
    
    
    $
    1,099
    
    
    $
    1,254Interest cost
    
    
    551
    
    
    
    526
    
    
    
    1,651
    
    
    
    1,578Expected return on plan assets
    
    
    (593
    )
    
    
    (529
    )
    
    
    (1,779
    )
    
    
    (1,587
    )Amortization of prior service cost
    
    
    46
    
    
    
    46
    
    
    
    139
    
    
    
    138Amortization of actuarial losses
    
    
    48
    
    
    
    150
    
    
    
    144
    
    
    
    450Net periodic benefit cost
    
    $
    418
    
    
    $
    611
    
    
    $
    1,254
    
    
    $
    1,833
 Post-retirement health care plans
    
    Three months ended
    
    
    Nine months endedMay 31,
    
    
    May 31,
    
    
    May 31,
    
    
    May 31,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Service cost
    
    $
    77
    
    
    $
    98
    
    
    $
    232
    
    
    $
    294Interest cost
    
    
    204
    
    
    
    196
    
    
    
    613
    
    
    
    588Amortization of prior service cost
    
    
    (38
    )
    
    
    (38
    )
    
    
    (114
    )
    
    
    (114
    )Amortization of actuarial losses
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    108Net periodic benefit cost
    
    $
    243
    
    
    $
    292
    
    
    $
    731
    
    
    $
    876
 11SEGMENT REPORTING
  13




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Three months ended
    
    
    Nine months endedMay 31,
    
    
    May 31,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Sales:Industrial IngredientsNorth America
    
    $
    52,965
    
    
    $
    41,809
    
    
    $
    143,650
    
    
    $
    121,454Food IngredientsNorth America
    
    
    17,091
    
    
    
    13,747
    
    
    
    46,892
    
    
    
    42,404Australia/New Zealand operations
    
    
    25,668
    
    
    
    23,718
    
    
    
    76,296
    
    
    
    70,795Intercompany sales
    
    
    (318
    )
    
    
    (144
    )
    
    
    (691
    )
    
    
    (542
    )$
    95,406
    
    
    $
    79,130
    
    
    $
    266,147
    
    
    $
    234,111Income (loss) from operations:Industrial IngredientsNorth America
    
    $
    7,066
    
    
    $
    3,521
    
    
    $
    13,896
    
    
    $
    4,877Food IngredientsNorth America
    
    
    2,918
    
    
    
    1,750
    
    
    
    7,931
    
    
    
    5,636Australia/New Zealand operations
    
    
    856
    
    
    
    276
    
    
    
    1,607
    
    
    
    1,071Corporate and other
    
    
    (2,384
    )
    
    
    (2,091
    )
    
    
    (6,964
    )
    
    
    (6,601
    )$
    8,456
    
    
    $
    3,456
    
    
    $
    16,470
    
    
    $
    4,983
 May 31,
    
    
    August 31,2007
    
    
    2006(In thousands)Total assets:Industrial IngredientsNorth America
    
    $
    123,855
    
    
    $
    98,733Food IngredientsNorth America
    
    
    32,561
    
    
    
    31,714Australia/New Zealand operations
    
    
    109,218
    
    
    
    104,491Corporate and other
    
    
    15,975
    
    
    
    15,730$
    281,609
    
    
    $
    250,668
  Three months ended
    
    
    Nine months endedMay 31,
    
    
    May 31,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)
    
    
    (In thousands)Industrial IngredientsNorth America
    
    $
    69
    
    
    $
    71
    
    
    $
    205
    
    
    $
    191Food IngredientsNorth America
    
    
    49
    
    
    
    33
    
    
    
    147
    
    
    
    98Australia/New Zealand operations
    
    
    13
    
    
    
    19
    
    
    
    42
    
    
    
    32Corporate
    
    
    138
    
    
    
    204
    
    
    
    444
    
    
    
    585$
    269
    
    
    $
    327
    
    
    $
    838
    
    
    $
    906
 14




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12EARNINGS PER SHARE
 .
 Three months ended
    
    
    Nine months endedMay 31,
    
    
    May 31,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Weighted average
common shares
outstanding
    
    
    8,984
    
    
    
    8,914
    
    
    
    8,962
    
    
    
    8,891Dilutive stock options
    
    
    274
    
    
    
    136
    
    
    
    197
    
    
    
    87Weighted average
common shares
outstanding, assuming dilution
    
    
    9,258
    
    
    
    9,050
    
    
    
    9,159
    
    
    
    8,978
  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
    16




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Results of Operations
 Executive Overview
    Sales
    17




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Income from operations
    Corporate operating expenses
  Interest expense
  18




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Income taxes
     Non-operating income, net
  Three months ended
    
    
    Nine months endedMay 31,
    
    
    May 31,
    
    
    May 31,
    
    
    May 31,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Royalty and licensing income
    
    $
    486
    
    
    $
    503
    
    
    $
    1,409
    
    
    $
    1,338Gain (loss) on sale of assets
    
    
    (194
    )
    
    
    
    
    
    
    (336
    )
    
    
    68Other
    
    
    52
    
    
    
    60
    
    
    
    22
    
    
    
    4Total
    
    $
    344
    
    
    $
    563
    
    
    $
    1,095
    
    
    $
    1,410
  19




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Liquidity and Capital Resources
       Contractual Obligations
  20




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##### Table of Contents



(in thousands)2007
    
    
    2008-2009
    
    
    2010-2011
    
    
    2012 & After
    
    
    TotalLong-term Debt and CapitalLease Obligations
    
    $
    1,016
    
    
    $
    13,127
    
    
    $
    9,032
    
    
    $
    48,474
    
    
    $
    71,649Purchase Orders  Ethanol Construction
    
    
    12,120
    
    
    
    9,914
    
    
    
    
    
    
    
    
    
    
    
    22,034Rail Car Leases  Ethanol
    
    
    251
    
    
    
    2,574
    
    
    
    2,574
    
    
    
    1,846
    
    
    
    7,245$
    13,387
    
    
    $
    25,615
    
    
    $
    11,606
    
    
    $
    50,320
    
    
    $
    100,928
  Recent Accounting Pronouncements
  21




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##### Table of Contents



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
  Evaluation of the Allowance for Doubtful Accounts Receivable
  Hedging Activities
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Benefit Plans
  Valuation of Goodwill
  Self-insurance Program
  Income Taxes
   Stock-Based Compensation
   23




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Item 3: Quantitative and Qualitative Disclosures about Market Risk.
  
 Item 4: Controls and Procedures.
  24




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PART II  OTHER INFORMATION
 
 Item 1 Legal Proceedings
   
 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.
  25




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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 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.
  26




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Provisions of Washington law could discourage or prevent a potential takeover.
   Other uncertainties
  
 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
 27




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SIGNATURES
  Penford Corporation

(Registrant)July 10, 2007
    
    /s/ Steven O. CordierSteven O. CordierSenior Vice President and Chief Financial
Officer
 28




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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
 29