**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 

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| **x** | **Quarterly  report pursuant to Section 13 or 15(d) of the Securities Exchange  Act of 1934** |
|-------|---------------------------------------------------------------------------------------------------------|

 

| **For the period  November 30, 2007** |
|--------------------------------------------|

#  

## **Commission file number:  33-83868**

##  

**AMERICAN CRYSTAL SUGAR COMPANY**

(Exact name of registrant as specified in its charter)

 

| **Minnesota**                                                  |   | **84-0004720**                       |
|----------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization) |   | (I.R.S. Employer Identification No.) |

 

**101 North Third Street**

**Moorhead, Minnesota 56560**

(Address of principal executive offices)

 

**Telephone Number (218) 236-4400**

(Registrant’s telephone number, including area code)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months, and (2) has been subject to suchfiling requirements for the past 90 days.

 

| YES x |   |   |   | NO o |
|------------|--------|--------|--------|-----------|

 

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

| Large  accelerated filer o |   | Accelerated filer o |   | Non-accelerated filer x |
|---------------------------------|--------|--------------------------|--------|------------------------------|

 

Indicateby check mark whether the registrant is a shell company (as defined in rule 12b-2of the Act).

 

| Yes o |   |   |   | NO x |
|------------|--------|--------|--------|-----------|

 

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date.

 

| ** **                               | ** ** | **Outstanding at**       |
|------------------------------------------|------------|-------------------------------|
| **Class of Common Stock** | ** ** | **January 7, 2008** |
| **$10 Par Value**                        | ** ** | **2,875**                     |

 

 

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**AMERICAN CRYSTAL SUGAR COMPANY**

 

**FORM 10-Q**

 

**INDEX**

 
| ** **       | ** **                | ** **                                         | **PAGE  NO.** |
|------------------|---------------------------|----------------------------------------------------|---------------|
|             |                      |                                               | ** **    |
| **PART I**  | **FINANCIAL INFORMATION** | ** **                                         |
|             |                      |                                               | ** **    |
| ** **       | **ITEM 1.**               | **CONSOLIDATED FINANCIAL STATEMENTS**              | ** **    |
|             |                      |                                               | ** **    |
| ** **       | ** **                | **CONSOLIDATED BALANCE SHEETS**                    | **1**         |
|             |                      |                                               | ** **    |
| ** **       | ** **                | **CONSOLIDATED STATEMENTS OF OPERATIONS**          | **3**         |
|             |                      |                                               | ** **    |
| ** **       | ** **                | **CONSOLIDATED STATEMENTS OF CASH FLOWS**          | **4**         |
|             |                      |                                               | ** **    |
| ** **       | ** **                | **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS** | **5**         |
| ** **       | ** **                | ** **                                         | ** **    |
| ** **       | **ITEM 2.**               | **MANAGEMENT’S  DISCUSSION AND ANALYSIS**     | ** **    |
| ** **       | ** **                | **  OF  RESULTS OF OPERATIONS AND**      | ** **    |
| ** **       | ** **                | **  FINANCIAL  CONDITION**               | **10**        |
| ** **       | **ITEM 3.**               | **QUANTITATIVE  AND QUALITATIVE DISCLOSURES**      | ** **    |
| ** **       | ** **                | **  ABOUT  MARKET RISK**                 | **15**        |
| ** **       | **ITEM 4.**               | **CONTROLS AND  PROCEDURES**                       | **15**        |
| ** **       | ** **                | ** **                                         | ** **    |
| **PART II** | **OTHER INFORMATION**     | ** **                                         |
|             |                      |                                               | ** **    |
| ** **       | **ITEM 1.**               | **LEGAL PROCEEDINGS**                              | **16**        |
| ** **       | **ITEM 1A.**              | **RISK FACTORS**                                   | **16**        |
| ** **       | **ITEM 2.**               | **UNREGISTERED  SALES OF EQUITY SECURITIES**       | ** **    |
| ** **       | ** **                | **  AND  USE OF PROCEEDS**               | **16**        |
| ** **       | **ITEM 3.**               | **DEFAULTS  UPON SENIOR SECURITIES**               | **16**        |
| ** **       | **ITEM 4.**               | **SUBMISSION  OF MATTERS TO A VOTE**               | ** **    |
| ** **       | ** **                | **  OF  SECURITY HOLDERS**               | **16**        |
| ** **       | **ITEM 5.**               | **OTHER INFORMATION**                              | **17**        |
| ** **       | **ITEM 6.**               | **EXHIBITS**                                       | **18**        |
|             | ** **                |
| **SIGNATURES**   |                      | **21**                                             |
|                  |                           |                                                    |               |  |  |  |

** **

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**American Crystal Sugar Company**

**ConsolidatedBalance Sheets**

**(Unaudited)**

**(In Thousands)**

** **

**Assets**

** **
| ** **                                    | ** ** | **November 30** | ** ** | **August 31** | ** ** |
|-----------------------------------------------|------------|----------------------|------------|--------------------|------------|
| ** **                                    | ** ** | **2007**             | ** ** | **2006**           | ** ** | **2007*** | ** ** |
| **Current Assets:**                           |       |                 |       |               |       |   |   |
| Cash and Cash Equivalents                     |       | $                    | 254        |               | $          | 236 |   | $ | 222 |   |
| Receivables:                                  |       |                 |       |               |       |   |   |
| Trade                                         |       | 58,290               |       | 65,751             |       | 77,010 |   |
| Members                                       |       | 3,199                |       | 2,901              |       | 2,746 |   |
| Other                                         |       | 9,704                |       | 3,272              |       | 5,532 |   |
| Advances to Related Parties                   |       | 2,582                |       | 80                 |       | 7,796 |   |
| Inventories                                   |       | 587,973              |       | 623,694            |       | 216,563 |   |
| Prepaid Expenses                              |       | 2,306                |       | 5,596              |       | 1,204 |   |
|                                          |       |                 |       |               |       |   |   |
| **Total Current Assets**                      |       | 664,308              |       | 701,530            |       | 311,073 |   |
|                                          |       |                 |       |               |       |   |   |
| **Property and Equipment:**                   |       |                 |       |               |       |   |   |
| Land and Land Improvements                    |       | 58,137               |       | 55,959             |       | 57,738 |   |
| Buildings                                     |       | 110,457              |       | 103,215            |       | 109,123 |   |
| Equipment                                     |       | 851,085              |       | 802,837            |       | 846,467 |   |
| Construction in Progress                      |       | 26,182               |       | 19,011             |       | 23,513 |   |
| Less Accumulated Depreciation                 |       | (687,317             | )          | (650,450           | )          | (672,896 | ) |
|                                          |       |                 |       |               |       |   |   |
| **Net Property and Equipment**                |       | 358,544              |       | 330,572            |       | 363,945 |   |
|                                          |       |                 |       |               |       |   |   |
| **Net Property and Equipment Held for Lease** |       | 127,666              |       | 137,267            |       | 129,795 |   |
|                                          |       |                 |       |               |       |   |   |
| **Other Assets:**                             |       |                 |       |               |       |   |   |
| Investments in CoBank, ACB                    |       | 11,627               |       | 13,138             |       | 11,627 |   |
| Investments in Marketing Cooperatives         |       | 5,722                |       | 5,702              |       | 5,659 |   |
| Investments in Crystech, LLC                  |       | —               |       | 15,665             |       | — |   |
| Pension Asset                                 |       | 37,428               |       | 43,683             |       | 37,400 |   |
| Other Assets                                  |       | 16,996               |       | 18,312             |       | 15,816 |   |
|                                          |       |                 |       |               |       |   |   |
| **Total Other Assets**                        |       | 71,773               |       | 96,500             |       | 70,502 |   |
|                                          |       |                 |       |               |       |   |   |
| **Total Assets**                              |       | $                    | 1,222,291  |               | $          | 1,265,869 |   | $ | 875,315 |   |

 

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TheAccompanying Notes are an Integral Part of These Consolidated FinancialStatements.

* Derived fromaudited financial statements

 

1

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**American Crystal Sugar Company**

**Consolidated Balance Sheets**

**(Unaudited)**

**(In Thousands)**

**Liabilities and Members’ Investments**

 
| ** **                                          | ** ** | **November 30** | ** ** | **August 31** | ** ** |
|-----------------------------------------------------|------------|----------------------|------------|--------------------|------------|
| ** **                                          | ** ** | **2007**             | ** ** | **2006**           | ** ** | **2007*** | ** ** |
| **Current Liabilities:**                            |       |                 |       |               |       |   |   |
| Short-Term Debt                                     |       | $                    | 250,612    |               | $          | 276,531 |   | $ | 24,980 |   |
| Current Maturities of Long-Term Debt                |       | 25,627               |       | 20,962             |       | 31,227 |   |
| Accounts Payable                                    |       | 26,358               |       | 22,872             |       | 38,998 |   |
| Advances Due to Related Parties                     |       | 3,741                |       | 14,581             |       | 2,874 |   |
| Accrued Continuing Costs                            |       | 42,094               |       | 40,283             |       | — |   |
| Other Current Liabilities                           |       | 26,575               |       | 25,059             |       | 32,805 |   |
| Amounts Due Growers                                 |       | 237,576              |       | 250,408            |       | 143,260 |   |
|                                                |       |                 |       |               |       |   |   |
| **Total Current Liabilities**                       |       | 612,583              |       | 650,696            |       | 274,144 |   |
|                                                |       |                 |       |               |       |   |   |
| **Long-Term Debt, Net of Current Maturities**       |       | 160,321              |       | 184,273            |       | 157,974 |   |
|                                                |       |                 |       |               |       |   |   |
| **Accrued Employee Benefits**                       |       | 41,896               |       | 40,989             |       | 39,337 |   |
|                                                |       |                 |       |               |       |   |   |
| **Other Liabilities**                               |       | 7,673                |       | 8,239              |       | 8,240 |   |
|                                                |       |                 |       |               |       |   |   |
| **Total Liabilities**                               |       | 822,473              |       | 884,197            |       | 479,695 |   |
|                                                |       |                 |       |               |       |   |   |
| **Commitments and Contingencies**                   |       |                 |       |               |       |   |   |
|                                                |       |                 |       |               |       |   |   |
| **Minority Interest in ProGold Limited**            |       |                 |       |               |       |   |   |
| **Liability Company**                               |       | 64,235               |       | 57,318             |       | 61,735 |   |
|                                                |       |                 |       |               |       |   |   |
| **Members’ Investments:**                      |       |                 |       |               |       |   |   |
| Preferred Stock                                     |       | 38,275               |       | 38,275             |       | 38,275 |   |
| Common Stock                                        |       | 29                   |       | 29                 |       | 29 |   |
| Additional Paid-In Capital                          |       | 152,261              |       | 152,261            |       | 152,261 |   |
| Unit Retains                                        |       | 170,363              |       | 153,961            |       | 170,363 |   |
| Equity Retention                                    |       | 2,687                |       | 2,694              |       | 2,687 |   |
| Accumulated Other Comprehensive Income  (Loss)      |       | (8,539               | )          | (432               | )          | (8,552 | ) |
| Retained Earnings (Accumulated Deficit)             |       | (19,493              | )          | (22,434            | )          | (21,178 | ) |
|                                                |       |                 |       |               |       |   |   |
| **Total Members’ Investments**                 |       | 335,583              |       | 324,354            |       | 333,885 |   |
|                                                |       |                 |       |               |       |   |   |
| **Total Liabilities and Members’ Investments** |       | $                    | 1,222,291  |               | $          | 1,265,869 |   | $ | 875,315 |   |

 

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TheAccompanying Notes are an Integral Part of These Consolidated FinancialStatements.

* Derived fromaudited financial statements

 

2

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** **

**American Crystal Sugar Company**

**ConsolidatedStatements of Operations**

**(Unaudited)**

**(In Thousands)**

** **
| ** **                                        | ** ** | **For the Three Months  Ended November 30** | ** ** |
|---------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                                        | ** ** | **2007**                                                             | ** ** | **2006** | ** ** |
| **Net Revenue**                                   |       | $                                                                    | 304,334    |   | $ | 258,246 |   |
|                                              |       |                                                                 |       |   |   |
| **Cost of Sales**                                 |       | 8,826                                                                |       | (35,166 | ) |
|                                              |       |                                                                 |       |   |   |
| **Gross Proceeds**                                |       | 295,508                                                              |       | 293,412 |   |
|                                              |       |                                                                 |       |   |   |
| **Selling, General and Administrative  Expenses** |       | 63,032                                                               |       | 49,923 |   |
| **Accrued Continuing Costs**                      |       | 42,094                                                               |       | 40,283 |   |
|                                              |       |                                                                 |       |   |   |
| **Operating Proceeds**                            |       | 190,382                                                              |       | 203,206 |   |
|                                              |       |                                                                 |       |   |   |
| **Other Income (Expense):**                       |       |                                                                 |       |   |   |
| Interest Income                                   |       | 314                                                                  |       | 476 |   |
| Interest Expense, Net                             |       | (2,653                                                               | )          | (3,437 | ) |
| Other, Net                                        |       | 513                                                                  |       | 400 |   |
|                                              |       |                                                                 |       |   |   |
| **Total Other Expense**                           |       | (1,826                                                               | )          | (2,561 | ) |
|                                              |       |                                                                 |       |   |   |
| **Proceeds Before Minority Interest and**         |       |                                                                 |       |   |   |
| **Income Tax Expense**                            |       | 188,556                                                              |       | 200,645 |   |
|                                              |       |                                                                 |       |   |   |
| **Minority Interest**                             |       | (2,500                                                               | )          | (1,219 | ) |
|                                              |       |                                                                 |       |   |   |
| **Income Tax Expense**                            |       | (1,171                                                               | )          | (716 | ) |
|                                              |       |                                                                 |       |   |   |
| **Net Proceeds Resulting from Member and**        |       |                                                                 |       |   |   |
| **Non-Member Business**                           |       | $                                                                    | 184,885    |   | $ | 198,710 |   |
|                                              |       |                                                                 |       |   |   |
| **Distributions of Net Proceeds:**                |       |                                                                 |       |   |   |
| Credited/(Charged) to Members’ Investments:  |       |                                                                 |       |   |   |
| Non-Member Business Income                        |       | $                                                                    | 1,685      |   | $ | 1,030 |   |
| Unit Retains Declared to Members                  |       | —                                                               |       | — |   |
| Net Credit to Members’ Investments           |       | 1,685                                                                |       | 1,030 |   |
| Payments To/Due Members for Sugarbeets,           |       |                                                                 |       |   |   |
| Net of Unit Retains Declared                      |       | 183,200                                                              |       | 197,680 |   |
| **Total**                                         |       | $                                                                    | 184,885    |   | $ | 198,710 |   |

 

TheAccompanying Notes are an Integral Part of These Consolidated FinancialStatements.

 

3

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** **

**American Crystal Sugar Company**

**ConsolidatedStatements of Cash Flows**

**For the Three Months Ended November 30**

**(Unaudited)**

**(In Thousands)**

 
| ** **                                                            | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|-----------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **Cash Provided By (Used In) Operating  Activities:**                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net Proceeds Resulting from Member and  Non-Member Business           |       | $          | 184,885    |       | $          | 198,710 |   |
| Payments To/Due Members for Sugarbeets, Net  of Unit Retains Declared |       | (183,200   | )          | (197,680   | )          |
| Add (Deduct) Non-Cash Items:                                          |       |       |       |       |       |
| Depreciation and Amortization                                         |       | 17,958     |       | 17,770     |       |
| Income from Equity Method Investees                                   |       | (14        | )          | (288       | )          |
| (Gain)/Loss on the Disposition of Property  and Equipment             |       | (6         | )          | 78         |       |
| Deferred Gain Recognition                                             |       | (49        | )          | (49        | )          |
| Minority Interest in ProGold Limited  Liability Company               |       | 2,500      |       | 1,219      |       |
| Changes in Assets and Liabilities:                                    |       |       |       |       |       |
| Receivables                                                           |       | 14,095     |       | 13,737     |       |
| Inventories                                                           |       | (371,410   | )          | (448,933   | )          |
| Prepaid Expenses                                                      |       | (1,089     | )          | (1,138     | )          |
| Non Current Pension Asset                                             |       | (28        | )          | 1,742      |       |
| Advances To/Due to Related Parties                                    |       | 6,081      |       | 12,205     |       |
| Accounts Payable                                                      |       | (12,640    | )          | (4,248     | )          |
| Accrued Continuing Costs                                              |       | 42,094     |       | 40,283     |       |
| Other Liabilities                                                     |       | (4,238     | )          | (2,255     | )          |
| Amounts Due Growers                                                   |       | 94,316     |       | 126,760    |       |
| **Net Cash Used In Operating Activities**                             |       | (210,745   | )          | (242,087   | )          |
|                                                                  |       |       |       |       |       |
| **Cash Provided By (Used In) Investing  Activities:**                 |       |       |       |       |       |
| Purchases of Property and Equipment                                   |       | (9,110     | )          | (12,830    | )          |
| Purchases of Property and Equipment Held  for Lease                   |       | (650       | )          | (3         | )          |
| Proceeds from the Sale of Property and  Equipment                     |       | 16         |       | 5          |       |
| Changes in Other Assets                                               |       | (1,858     | )          | (661       | )          |
| **Net Cash Used In Investing Activities**                             |       | (11,602    | )          | (13,489    | )          |
|                                                                  |       |       |       |       |       |
| **Cash Provided By (Used In) Financing  Activities:**                 |       |       |       |       |       |
| Net Proceeds from Short-Term Debt                                     |       | 225,632    |       | 271,231    |       |
| Proceeds from Issuance of Long-Term Debt                              |       | 3,061      |       | —     |       |
| Long-Term Debt Repayment                                              |       | (6,314     | )          | (15,764    | )          |
| **Net Cash Provided By Financing Activities**                         |       | 222,379    |       | 255,467    |       |
| **Increase/(Decrease) In Cash and Cash  Equivalents**                 |       | 32         |       | (109       | )          |
| **Cash and Cash Equivalents, Beginning of  Year**                     |       | 222        |       | 345        |       |
|                                                                  |       |       |       |       |       |
| **Cash and Cash Equivalents, End of Period**                          |       | $          | 254        |       | $          | 236 |   |

 

The Accompanying Notes are an Integral Part of These ConsolidatedFinancial Statements.

 

4

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# **AMERICANCRYSTAL SUGAR COMPANY**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**FOR THETHREE MONTHS ENDED**

**November 30,2007 AND 2006**

**(Unaudited)**

 

**Note 1:  Basisof Presentation**

 

The unaudited consolidatedfinancial statements of American Crystal Sugar Company (the Company) containedherein have been prepared pursuant to the rules and regulations of theSecurities and Exchange Commission. Accordingly, they do not include all the information and footnotesrequired by accounting principles generally accepted in the United States ofAmerica.  However, in the opinion ofmanagement, all adjustments, consisting of normal recurring accruals,considered necessary for a fair presentation have been included.

 

TheCompany’s consolidated financial statements are comprised of: American CrystalSugar Company; its wholly-owned subsidiaries Sidney Sugars Incorporated (SidneySugars) and Crab Creek Sugar Company (Crab Creek); and ProGold LimitedLiability Company (ProGold), a limited liability company in which the Companyholds a 51 percent ownership interest.

 

Allmaterial inter-company transactions have been eliminated.

 

The operating results forthe three months ended November 30, 2007, are not necessarily indicativeof the results that may be expected for the year ended August 31, 2008.

 

The amount paid toshareholders for sugarbeets (member beet payment) depends on the future sellingprices of sugar and agri-products as well as processing and other costsincurred during the remainder of the fiscal year associated with the 2007 RedRiver Valley sugarbeet crop (RRV crop). The amount paid to non-member growers for sugarbeets (non-member beetpayment) depends on the future selling prices of sugar and the related sellingexpenses associated with the 2007 Sidney Sugars sugarbeet crop (Sidneycrop).  For the purposes of this report,the amount of the beet payments, future revenues and costs have beenestimated.  Therefore, adjustments withrespect to these estimates may be necessary in the future, as additionalinformation becomes available.

 

These financial statementsshould be read in conjunction with the consolidated financial statements andnotes included in the Company’s Annual Report on Form 10-K for the yearended August 31, 2007.

 

**Note 2: Recently Issued Accounting Pronouncements**

 

TheFinancial Accounting Standards Board has issued Interpretation No. 48, *Accounting for Uncertainty in Income Taxes—aninterpretation of FASB Statement No. 109*.  This Interpretation clarifies the accountingfor uncertainty in income taxes recognized in the financial statements inaccordance with FASB Statement No. 109, *Accountingfor Income Taxes.*  Thisinterpretation became effective for the Company in the first quarter of fiscal2008.  See Note 12 to the ConsolidatedFinancial Statements for further information.

 

The Financial Accounting Standards Board recently issued Statement No. 160,*Noncontrolling Interests in ConsolidatedFinancial Statements – an amendment of ARB  No. 51*.  This Statement requires all entities toreport noncontrolling (minority) interests in subsidiaries as equity in theconsolidated financial statements*.*  Its intention is to eliminate the diversityin practice regarding the accounting for transactions between an entity andnoncontrolling interests.  This statementbecomes effective for the Company in the first quarter of fiscal 2010.

 

5

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**Note 3: Inventories**

 

Themajor components of inventories are as follows (In Thousands):

 
| ** **                           | ** ** | **November 30  2007** | ** ** | **November 30  2006** | ** ** | **August 31  2007** | ** ** |
|--------------------------------------|------------|----------------------------|------------|----------------------------|------------|--------------------------|------------|
| Refined Sugar, Pulp, Molasses, Other |       |                       |       |                       |       |                     |       |
| Agri-Products and Sugarbeet Seed     |       | $                          | 247,284    |                       | $          | 256,219                  |       | $ | 178,078 |   |
| Unprocessed Sugarbeets               |       | 312,221                    |       | 337,732                    |       | 9,231                    |       |
| Maintenance Parts and Supplies       |       | 28,468                     |       | 29,743                     |       | 29,254                   |       |
|                                 |       |                       |       |                       |       |                     |       |
| Total Inventories                    |       | $                          | 587,973    |                       | $          | 623,694                  |       | $ | 216,563 |   |

 

Sugar, pulp, molasses andother agri-products inventories are valued at estimated net realizablevalue.  Unprocessed sugarbeets are valuedat the estimated gross beet payment. Maintenance parts and supplies and sugarbeet seed inventories are valuedat the lower of average cost or market.

 

# **Note 4: Short-Term Debt**

#  

The Company has a seasonal line of credit with a consortium of lendersled by CoBank, ACB of $390 million and a line of credit with Wells FargoBank for $1 million.  The Company’scommercial paper program provides short-term borrowings of up to $325million.  Any borrowings under the commercial paper program along withoutstanding short-term letters of credit will act to reduce the availablecredit under the CoBank, ACB seasonal line of credit by a commensurateamount.  The Company also utilizes theCommodity Credit Corporation (CCC) to meet its short-term borrowing needs.

 

As of November 30, 2007, the Company had outstanding commercialpaper of $200.6****million at anaverage interest rate of 5.98% and maturity dates between December 1, 2007and February 29, 2008.  The Companyalso had $50.0 million of outstanding short-term debt with CoBank, ACB as of November 30,2007, at an interest rate of 5.75% and a maturity date of January 22,2008.  The Company had no outstandingshort-term debt with the CCC as of November 30, 2007.  The Company had $2.1 million of short-termletters of credit outstanding as of November 30, 2007.  The unused seasonal line of credit as of November 30,2007 was $138.3 million.

 

As of November 30, 2006, the Company had outstanding commercialpaper of $236.5****million at anaverage interest rate of 4.54% and maturity dates between December 1, 2006and February 28, 2007.  The Companyalso had $40.0 million of outstanding short-term debt with CoBank, ACB as of November 30,2006, at an interest rate of 5.05% and a maturity date of December 18,2006.  The Company had no outstandingshort-term debt with the CCC as of November 30, 2006.  The Company had $5.5 million of short-termletters of credit outstanding as of November 30, 2006.  The unused seasonal line of credit as of November 30,2006 was $119.0 million.

 

**Note 5: Interest Paid and Interest Capitalized**

 

Interest paid, net ofamounts capitalized, was $1.0 million and $2.2 million for the three monthsended November 30, 2007 and 2006, respectively.  Interest capitalized, was $ .4 million forboth the three months ended November 30, 2007 and 2006.

 

**Note 6:  AccruedContinuing Costs**

 

For interim reporting, the net proceeds from member business is basedon the forecasted gross beet payment and the percentage of the tons ofsugarbeets processed to the total estimated tons of sugarbeets to process for agiven crop year.  The net proceeds fromthe operations of Sidney Sugars is based on the forecasted net income for thefiscal year and the percentage of the tons of non-member sugarbeets processedto the total estimated tons of non-member sugarbeets to process for a givenfiscal year.

 

6

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Accrued continuing costs represent the difference between the netproceeds as determined above and actual member business crop year and SidneySugars fiscal year revenues realized and expenses incurred through the end ofthe reporting period.  Accrued continuingcosts are reflected in the Consolidated Financial Statements as a cost on theConsolidated Statements of Operations and as a current liability on theConsolidated Balance Sheets.

 

**Note 7:  NetPeriodic Pension and Post-Retirement Costs**

 

Thefollowing schedules provide the components of the Net Periodic Pension andPost-Retirement Costs for the three months ended November 30, 2007 and2006:

 

***Components of Net Periodic Pension Cost***

(In Thousands)

 
| ** **                          | ** ** | **For the Three Months Ended** | ** ** |
|-------------------------------------|------------|----------------------------------------------------|------------|
| ** **                          | ** ** | **November 30**                               | ** ** |
| ** **                          | ** ** | **2007**                                           | ** ** | **2006** | ** ** |
| Service Cost                        |       | $                                                  | 941        |   | $ | 883 |   |
| Interest Cost                       |       | 2,038                                              |       | 1,977 |   |
| Expected Return on Plan Assets      |       | (3,241                                             | )          | (2,727 | ) |
| Multiple Employer Adjustment        |       | —                                             |       | (14 | ) |
| Amortization of Prior Service Costs |       | 329                                                |       | 728 |   |
| Amortization of Net Actuarial Loss  |       | 15                                                 |       | 108 |   |
| Net Periodic Pension Cost           |       | $                                                  | 82         |   | $ | 955 |   |

 

***Components of Net Periodic Post-Retirement Cost***

(In Thousands)

 
| ** **                                | ** ** | **For the Three Months Ended** | ** ** |
|-------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                | ** ** | **November 30**                               | ** ** |
| ** **                                | ** ** | **2007**                                           | ** ** | **2006** | ** ** |
| Service Cost                              |       | $                                                  | 269        |   | $ | 275 |   |
| Interest Cost                             |       | 466                                                |       | 481 |   |
| Amortization of Net Actuarial (Gain)/Loss |       | (56                                                | )          | (5 | ) |
| Net Periodic Post-Retirement Cost         |       | $                                                  | 679        |   | $ | 751 |   |

 

The Company does not expectto make any contributions to the pension plans during this fiscal year.  The Company made payments of approximately$25,000 related to the Supplemental Executive Retirement Plans during the threemonths ended November 30, 2007.  TheCompany expects to make contributions this fiscal year of approximately $3.3million related to the Supplemental Executive Retirement Plans.

 

TheCompany made payments of approximately $164,000 related to the post-retirementplans during the three months ended November 30, 2007.  The Company expects to contributeapproximately $700,000 related to the post-retirement plans during the currentfiscal year.

 

7

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**Note 8:  Members’Investments**

 
| ** **                         | ** ** | ** **         | ** ** | **Shares**     | ** ** | **Shares Issued**     | ** ** |
|------------------------------------|------------|--------------------|------------|----------------|------------|----------------------------|------------|
| ** **                         | ** ** | **Par Value** | ** ** | **Authorized** | ** ** | **& Outstanding** | ** ** |
| Preferred Stock:                   |       |               |       |           |       |                       |       |
|   January 7, 2008   |       | $                  | 76.77      |           | 600,000    |                       | 498,570    |   |
|   November 30, 2007 |       | $                  | 76.77      |           | 600,000    |                       | 498,570    |   |
|   August 31, 2007   |       | $                  | 76.77      |           | 600,000    |                       | 498,570    |   |
|   November 30, 2006 |       | $                  | 76.77      |           | 600,000    |                       | 498,570    |   |
|                               |       |               |       |           |       |                       |       |
| Common Stock:                      |       |               |       |           |       |                       |       |
|   January 7, 2008   |       | $                  | 10.00      |           | 4,000      |                       | 2,875      |   |
|   November 30, 2007 |       | $                  | 10.00      |           | 4,000      |                       | 2,878      |   |
|   August 31, 2007   |       | $                  | 10.00      |           | 4,000      |                       | 2,878      |   |
|   November 30, 2006 |       | $                  | 10.00      |           | 4,000      |                       | 2,874      |   |

 

**Note 9: Shipping and Handling Costs**

 

The costs incurred for the shipping and handling of products sold areclassified in the financial statements as a selling expense on the Statementsof Operations.  Shipping and handlingcosts were $43.3 million and $32.8 million for the three months ended November 30,2007 and 2006, respectively.

 

**Note 10: ProGold Limited Liability Company**

 

The Company is the controlling member of ProGold Limited LiabilityCompany (ProGold), which owns a corn wet-milling plant in Wahpeton, NorthDakota, that is currently being leased to Cargill, Incorporated (Cargill).  On November 6, 2007, ProGold enteredinto an amended lease agreement with Cargill that supersedes and replaces theexisting 10 year lease between ProGold and Cargill and provides that (1) Cargillwill pay ProGold average annual rental payments equal to $21,900,000, and (2) thatthe term of the lease be extended until December 31, 2017.

 

**Note 11: Segment Reporting**

 

The Company has identified two reportable segments: Sugar andLeasing.  The sugar segment is engagedprimarily in the production and marketing of sugar from sugarbeets.  It also sells agri-products and sugarbeetseed.  The leasing segment is engaged inthe leasing of a corn wet-milling plant used in the production of high-fructosecorn syrup sweetener.  The segments aremanaged separately.  There are nointer-segment sales.  The leasing segmenthas a major customer that accounts for all of that segment’s revenue.

 

Summarized financial information concerning the Company’s reportablesegments for three months ended November 30, 2007 and 2006, is shownbelow:

 
| ** **                          | ** ** | **For the Three Months Ended November 30, 2007** | ** ** |
|-------------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| ** **                          | ** ** | **(Dollars In Thousands)**                                                | ** ** |
| ** **                          | ** ** | **Sugar**                                                                           | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from External Customers |       | $                                                                                   | 297,505    |   | $ | 6,829 |   | $ | 304,334 |   |
| Gross Proceeds                      |       | $                                                                                   | 290,196    |   | $ | 5,312 |   | $ | 295,508 |   |
| Depreciation and Amortization       |       | $                                                                                   | 15,179     |   | $ | 2,779 |   | $ | 17,958 |   |
| Interest Income                     |       | $                                                                                   | 308        |   | $ | 6 |   | $ | 314 |   |
| Interest Expense                    |       | $                                                                                   | 2,479      |   | $ | 174 |   | $ | 2,653 |   |
| Income from Equity Method Investees |       | $                                                                                   | 14         |   | $ | — |   | $ | 14 |   |
| Other Income, Net                   |       | $                                                                                   | 499        |   | $ | — |   | $ | 499 |   |
| Net Proceeds                        |       | $                                                                                   | 182,283    |   | $ | 2,602 |   | $ | 184,885 |   |
|                                |       |                                                                                |       |   |   |   |   |
| Capital Expenditures                |       | $                                                                                   | 9,110      |   | $ | 650 |   | $ | 9,760 |   |

 

8

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| ** **                          | ** ** | **For the Three Months Ended November 30, 2006** | ** ** |
|-------------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| ** **                          | ** ** | **(Dollars In Thousands)**                                                | ** ** |
| ** **                          | ** ** | **Sugar**                                                                           | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from External Customers |       | $                                                                                   | 252,063    |   | $ | 6,183 |   | $ | 258,246 |   |
| Gross Proceeds                      |       | $                                                                                   | 290,243    |   | $ | 3,169 |   | $ | 293,412 |   |
| Depreciation and Amortization       |       | $                                                                                   | 14,992     |   | $ | 2,778 |   | $ | 17,770 |   |
| Interest Income                     |       | $                                                                                   | 467        |   | $ | 9 |   | $ | 476 |   |
| Interest Expense                    |       | $                                                                                   | 2,772      |   | $ | 665 |   | $ | 3,437 |   |
| Income from Equity Method Investees |       | $                                                                                   | 288        |   | $ | — |   | $ | 288 |   |
| Other Income, Net                   |       | $                                                                                   | 112        |   | $ | — |   | $ | 112 |   |
| Net Proceeds                        |       | $                                                                                   | 197,441    |   | $ | 1,269 |   | $ | 198,710 |   |
|                                |       |                                                                                |       |   |   |   |   |
| Capital Expenditures                |       | $                                                                                   | 12,830     |   | $ | 3 |   | $ | 12,833 |   |

 
| ** **                  | ** ** | **As of November 30, 2007** | ** ** |
|-----------------------------|------------|-------------------------------------------------|------------|
| ** **                  | ** ** | **(Dollars In Thousands)**            | ** ** |
| ** **                  | ** ** | **Sugar**                                       | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Property and Equipment, Net |       | $                                               | 358,544    |   | $ | — |   | $ | 358,544 |   |
| Assets Held for Lease, Net  |       | $                                               | —     |   | $ | 127,666 |   | $ | 127,666 |   |
| Segment Assets              |       | $                                               | 1,086,500  |   | $ | 135,791 |   | $ | 1,222,291 |   |

** **
| ** **                  | ** ** | **As of November 30, 2006** | ** ** |
|-----------------------------|------------|-------------------------------------------------|------------|
| ** **                  | ** ** | **(Dollars In Thousands)**            | ** ** |
| ** **                  | ** ** | **Sugar**                                       | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Property and Equipment, Net |       | $                                               | 330,572    |   | $ | — |   | $ | 330,572 |   |
| Assets Held for Lease, Net  |       | $                                               | —     |   | $ | 137,267 |   | $ | 137,267 |   |
| Segment Assets              |       | $                                               | 1,119,417  |   | $ | 146,452 |   | $ | 1,265,869 |   |

 

**Note 12: Income Taxes**

 

On September 1, 2007, the Company adopted the provisions of theFinancial Accounting Standards Board Interpretation No. 48, *Accounting for Uncertainty in Income Taxes—aninterpretation of FASB Statement No. 109*.  This Interpretation clarifies the accountingfor uncertainty in income taxes recognized in the financial statements inaccordance with FASB Statement No. 109, *Accountingfor Income Taxes.*

 

The Company had no unrecognized tax benefits on September 1,2007.  No interest or penalties arerecognized in the consolidated statements of operations or in the consolidatedbalance sheets.  The Company is no longersubject to U.S. Federal or state income tax examinations by tax authorities forfiscal years 2004 and earlier.

 

**Note 13: Environmental Matters**

 

TheCompany’s Crookston, East Grand Forks and Moorhead, Minnesota factories haveexperienced hydrogen sulfide emissions from their water treatment ponds thathave exceeded permissible limits.  On July 19,2007, the Company received a notice of violation from the Minnesota PollutionControl Agency (MPCA) related to emissions that occurred in fiscal 2005 and2006.  A penalty assessment is currentlyunder consideration by the MPCA.  TheCompany’s Crookston, East Grand Forks and Moorhead, Minnesota factories alsoexperienced hydrogen sulfide emissions from their water treatment ponds infiscal 2007 that exceeded permissible limits. While it is likely that the Company may be assessed penalties and/orfines related to these occurrences, as of the date of this report none havebeen

 

9

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assessed.  Any potential penalties and/or fines, whilepossibly significant, are not expected to be material to the Company.

 

Capitalexpenditures will be required to prevent future occurrences of theemissions.  The Company’s capitalappropriations budgets at the beginning of the current fiscal year includedapproximately $6.2 million for environmentally related projects at the Company’sfactory locations.  Expenditures duringthe three months ended November 30, 2007 on these projects wereapproximately $624,000 while total-to-date spending on these projects has been$3.9 million.  Environmental relatedprojects that were placed into service during the three months ended November 30,2007 totaled approximately $191,000.  Theamount and timing of any additional capital expenditures that may be requiredis not currently known.

 

InOctober 2007, the East Grand Forks, Minnesota factory experiencedemissions from its pellet cooler that exceeded permissible limits.  In July and November 2007, theCompany received Compliance Monitoring Survey-Letters of Warning from the MPCAfor the East Grand Forks and Moorhead, Minnesota factories.  Corrective actions have been taken relatedthese occurrences.  While the Company maybe assessed penalties for these occurrences, as of the date of this report nonehave been assessed.   Any potentialpenalties assessed are not expected to be material to the Company.

 

**Note 14: Legal Matters**

 

Anothersugar company has appealed to the Ninth Circuit Court of Appeals a decision ofthe United States District Court relative to the determination and transfer ofsugar marketing allocations made by the USDA. If this case is overturned, it could result in the Company experiencinga reduction in marketing allocations equal to the loss of approximately 15,000acres in future crop years assuming no other related factors were to change.

 

**Item2.   Management’s Discussion and Analysisof Results of Operations and Financial Condition for the Three Months Ended November 30,2007 and 2006**

 

This report contains forward-looking statements that involve risks anduncertainties.  Such forward-lookingstatements include, among others, those statements including the words “expect”,“anticipate”, “believe”, “may” and similar expressions.  The Company’s actual results could differmaterially from those indicated.  Riskfactors that could cause or contribute to such differences include, withoutlimitation, market factors, weather and general economic conditions, farm andtrade policy, available quantity and quality of sugarbeets.  For a more complete discussion of “RiskFactors”, please refer to the Company’s 2007 Form 10-K.

 

**Overview**

 

Due to the large size of the 2007 Red River Valley crop, the Company,for the second consecutive year, commenced the harvest and processing of thecrop in August as compared to a typical start-up in September.  All the costs incurred prior to the beginningof the Company’s 2008 fiscal year that related to receiving and processing the2007 sugarbeet crop were deferred in fiscal 2007 and recognized in fiscal2008.  Similarly, the net realizablevalues of products produced prior to the beginning of the Company’s 2008 fiscalyear that related to the 2007 sugarbeet crop were deferred in fiscal 2007 andrecognized in fiscal 2008.

 

The harvest of the sugarbeet crop (Red River Valley crop and Sidneycrop) grown during 2007 and to be processed during fiscal 2008 produced a totalof 12.5 million tons of sugarbeets, or approximately 23.6 tons ofsugarbeets per acre from approximately 529,000 acres.  This represents a decrease in total tons harvestedof approximately 3.0 percent compared to the 2006 crop.  The sugar content of the 2007 crop is 18.1percent as compared to the 18.2 percent sugar content of the 2006 crop.  The Company expects to produce a total ofapproximately 35.4 million hundredweight of sugar from the 2007 crop, adecrease of approximately 4.9 percent compared to the 2006 crop.  Due to the limits imposed by government sugarmarketing allocations, it is anticipated that approximately 3.0 million

 

10

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hundredweight of sugar producedfrom the 2007 crop will not be permitted to be sold during the time period of October 1,2007 to September 30, 2008.

 

Net Proceeds from Member and Non-Member Business for fiscal 2008 areexpected to be approximately 22 percent lower than in fiscal 2007.  This decrease is primarily the result of thelower anticipated sugar selling prices along with reduced sugar production.

 

**Comparison of the Three Months Ended November 30, 2007and 2006**

 

Revenuefor the three months ended November 30, 2007, was $304.3 million, anincrease of $46.1 million from the same period last year.  The table below reflects the percentagechanges in product revenues, prices and volumes for the three months ended November 30,2007, as compared to the same period last year.

 
| **Product** | ** ** | **Revenue** | ** ** | **Selling Price** | ** ** | **Volume** | ** ** |
|-------------|------------|-------------|------------|------------------------|------------|------------|------------|
| Sugar       |       | 14.0        | %          | -6.8                   | %          | 22.4       | %          |
| Pulp        |       | 21.2        | %          | 13.4                   | %          | 6.9        | %          |
| Molasses    |       | 56.6        | %          | 3.6                    | %          | 51.2       | %          |
| CSB         |       | 34.1        | %          | 13.7                   | %          | 18.0       | %          |
| Betaine     |       | 108.9       | %          | 13.0                   | %          | 85.0       | %          |

 

Thesubstantial increases in the volumes of molasses and betaine sold are primarilydue to increased availability of saleable product resulting from higherbeginning inventory levels as of September 1, 2007 as compared to theinventory levels as of September 1, 2006.

 

Rentalrevenue on the ProGold operating lease was $6.8 million and $6.2 million forthe three months ended November 30, 2007 and 2006, respectively.

 

Costof sales for the three months ended November 30, 2007, exclusive ofpayments to members for sugarbeets, increased $44.0 million as compared to sameperiod last year.  Operating costsdecreased $3.5 million primarily as a result of harvesting 3.0 percent lesssugarbeets and processing 7.1 percent less sugarbeets during the first threemonths of fiscal 2008 as compared to the same period last year.  At the end of each reporting period, productinventories are recorded at their net realizable value.  The change in the net realizable value of theproduct inventories from the beginning of the reporting period is recorded onthe balance sheet as either an increase or decrease to inventories with acorresponding dollar for dollar adjustment to cost of sales on the statement ofoperations.  The increase in the netrealizable value of product inventories for the three months ended November 30,2007 was $88.9 million as compared to an increase of $138.6 million for theprevious year’s three month period ended November 30, 2006 resulting in a$49.7 million unfavorable change in the cost of sales between the two years asshown in the table below:

 
| **Change in the Net Realizable Value of Product Inventories** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                            | ** ** | **For the Three Months Ended November 30** | ** ** |
| **(In Millions)**                                                                                | ** ** | **2007** | ** ** | **2006** | ** ** | **Change** | ** ** |
| Beginning Product Inventories at Net  Realizable Value                                                |       | $ | (156.4 | ) | $ | (116.0 | ) | $ | (40.4 | )(1) |
| Ending Product Inventories at Net  Realizable Value                                                   |       | 245.3 |   | 254.6 |   | (9.3 | )(2) |
| Increase in the Net Realizable Value of  Product Inventories                                          |       | $ | 88.9 |   | $ | 138.6 |   | $ | (49.7 | ) |

 

----

(1)The change is primarily due to a 47 percent increase in the hundredweight ofsugar inventory as of August 31, 2007 as compared to August 31, 2006partially offset by a 10 percent decrease in the per hundredweight netrealizable value of sugar inventory as of August 31, 2007 as compared to August 31,2006.

 

(2)The change is primarily due to a 7.6 percent decrease in the per hundredweightnet realizable value of sugar inventory as of November 30, 2007 ascompared to November 30, 2006 partially offset by a 3.6 percent increasein the hundredweight of sugar inventory as of November 30, 2007 as comparedto November 30, 2006.

 

Selling,general and administrative expenses increased $13.1 million for the threemonths ended November 30, 2007, as compared to the same period lastyear.  Selling expenses increased $12.3million

 

11

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primarily due to the increasein the volumes of products sold resulting in increased shipping and handlingexpenses.  General and Administrativeexpenses increased $ .8 million due to general cost increases.

 

Interestexpense decreased $ .8 million for the three months ended November 30,2007 as compared to the same period last year. This reflects a decrease in the average borrowing level of short-termand long-term debt and a lower average interest rate for long-term debtpartially offset by a higher average interest rate for short-term debt.

 

Non-memberbusiness activities resulted in a gain of $1.7 million for the three monthsended November 30, 2007, as compared to a gain of $1.0 million for thesame period last year.  The increase wasprimarily related to increased income from the activities of ProGold.

 

**Pending Legislation**

 

OnJuly 27, 2007, the U.S. House of Representatives passed the Farm,Nutrition, and Bioenergy Act of 2007.  OnDecember 14, 2007, the U.S. Senate passed the Food and Energy Security Actof 2007.  Currently these bills are in aHouse-Senate Conference Committee.  Theresulting legislation, if signed into law, would replace the Farm Security andRural Investment Act of 2002.  TheCompany has no way to predict the outcome, but the impact could be material andsignificant.  Final language is expectedprior to the 2008 crop planting.

 

**North American Free Trade Agreement**

 

TheNorth American Free Trade Agreement (NAFTA) governs sweetener trade between theUnited States and Mexico.  Under the NAFTA, tariffs on over-quota importsof sugar from Mexico expired on January 1, 2008.  Excessiveimports of Mexican sugar could cause material harm to the U.S. sugarmarket.  The Company has no way to predict the extent to which Mexico willtake advantage of its export opportunities*.*

 

**Regional and Bilateral Free Trade Agreements**

 

TheUnited States government is pursuing an aggressive agenda on internationaltrade.  It is seeking to negotiate newfree trade agreements with a number of countries and regions that are majorproducers of sugar.  The Company believesthese agreements, if they reach fruition, could negatively impact the Company’sprofitability.  If increases inguaranteed access or reductions in sugar tariffs are included in theseagreements, excess sugar from these regions could enter the U.S. market and putpressure on domestic sugar prices.

 

OnDecember 14, 2007, the U.S. President signed the U.S.-Peru Free TradeAgreement.  This agreement establishes aduty-free Tariff Rate Quota (TRQ), in addition to that provided under the WorldTrade Organization (WTO), for those sugar and sugar-containing products forwhich overall TRQ’s under the U.S. sugar import program are in operation.  This TRQ is set at 9,000 metric tons in year 1of the agreement and rises to 11,250 metric tons in year 15; after year 15 thein-quota quantity grows by 180 metric tons per year. Eligibility for this TRQ,however, is limited to the amount of Peru’s trade surplus in sugar. In additionto the TRQ described above, a duty-free TRQ of 2,000 metric tons has beenestablished for specialty sugars.  ThisTRQ does not increase and is not subject to the “net exporter” provisiondescribed above.

 

Negotiationson other agreements have been completed. The U.S.-Colombian Free Trade Agreement was completed on February 27,2006, and the U.S.-Panama Free Trade Agreement was completed on December 18,2006.  The Company expects that thesetrade agreements may be brought before Congress for a vote in 2008.  Quantities of sugar from these countriesexpected to be permitted into the United States if these agreements areapproved by Congress and implemented are as follows:

 

·                  Colombia – the proposed agreement would allowColombia to export to the U.S. an additional 50,000 metric tons of sugar in thefirst year of the agreement, rising to more

 

12

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                        than 60,000 tons in year 15, with thefirst-year increase tripling the duty-free sugar market access Colombia alreadyenjoys.

 

·                  Panama – the proposed agreement includes7,000 metric tons of additional duty-free access to the U.S. sugar market andprovides for duty-free access for U.S. sugar shipments into Panama and requiresthat at least 6,000 tons of the Panamanian sugar sent to the U.S. be in a rawform.

 

TheAdministration has indicated its interest in pursuing other bilateral orregional free trade agreements.  Theseinclude the Free Trade Area of the Americas, the Association of Southeast AsianNations, South Africa, Thailand, and others. Since these negotiations are in some cases stalled or at various stagesof development the Company is unable to assess the risk associated with thesepotential agreements.

 

TheDoha Round negotiations of the WTO continue to be pursued by the U.S.Administration and some of its international counterparts.  It is unclear at this time whethernegotiations will be completed.  If thenegotiations are completed, the outcome of any negotiated arrangement couldhave significant adverse consequences for the Company.

 

TheU.S. sugar industry and the Company, as an influential member of such industry,recognize the potential negative impact that could result if these agreementsare entered into by the United States and are taking steps to attempt topositively influence the outcome.  TheCompany and the sugar industry intend to continue to focus significantattention on trade issues in the future.

 

The impact of the varioustrade agreements on the Company cannot be assessed at this time due to theuncertainty concerning the terms of the agreements and whether they willultimately be implemented.  It ispossible, however, that the passage of various trade agreements could have amaterial adverse effect on the Company through a reduction in acreage that canbe planted by the Company’s shareholders and by the growers for Sidney SugarsIncorporated, and/or a reduction in sugar selling prices, and a corresponding reductionin the beet payment to the shareholders and the Company earnings.  Although the magnitude of the impact cannotbe determined at this time, the Company estimates that for every additional500,000 tons of sugar entering the U.S. market and therefore reducing theoverall allotment quantity (and assuming no other variables change), theCompany may need to reduce planted acres by approximately 30,000, which wouldnegatively impact shareholder profits.

 

**Environmental**

 

TheCompany’s Crookston, East Grand Forks and Moorhead, Minnesota factories haveexperienced hydrogen sulfide emissions from their water treatment ponds thathave exceeded permissible limits.  On July 19,2007, the Company received a notice of violation from the Minnesota PollutionControl Agency (MPCA) related to emissions that occurred in fiscal 2005 and2006.  A penalty assessment is currentlyunder consideration by the MPCA.  TheCompany’s Crookston, East Grand Forks and Moorhead, Minnesota factories alsoexperienced hydrogen sulfide emissions from their water treatment ponds infiscal 2007 that exceeded permissible limits. While it is likely that the Company may be assessed penalties and/orfines related to these occurrences, as of the date of this report none havebeen assessed.  Any potential penaltiesand/or fines, while possibly significant, are not expected to be material tothe Company.

 

Capitalexpenditures will be required to prevent future occurrences of theemissions.  The Company’s capitalappropriations budgets at the beginning of the current fiscal year includedapproximately $6.2 million for environmentally related projects at the Company’sfactory locations.  Expenditures duringthe three months ended November 30, 2007 on these projects wereapproximately $624,000 while total to date spending on these projects has been$3.9 million.  Environmental relatedprojects that were placed into service during the three months ended November 30,2007 totaled approximately $191,000.  Theamount and timing of any additional capital expenditures that may be requiredis not currently known.

 

13

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InOctober 2007, the East Grand Forks, Minnesota factory experiencedemissions from its pellet cooler that exceeded permissible limits.  In July and November 2007, theCompany received Compliance Monitoring Survey-Letters of Warning from the MPCAfor the East Grand Forks and Moorhead, Minnesota factories.  Corrective actions have been taken relatedthese occurrences.  While the Company maybe assessed penalties for these occurrences, as of the date of this report nonehave been assessed.   Any potentialpenalties assessed are not expected to be material to the Company.

 

**Liquidity and Capital Resources**

 

Under the Company’s Bylawsand Member Grower Contracts, payments for member-delivered sugarbeets, theprincipal raw material used in producing the sugar and agri-products it sells,are subordinated to all member business expenses.  In addition, the beet payments made to membergrowers and non-member growers are paid in three payments over the course of ayear, and the member payments are made net of any anticipated unit retain forthe crop.  These procedures have theeffect of providing the Company with an additional source of short-termfinancing.  This financing arrangementmay result in an additional source of liquidity and reduced need for outsidefinancing in comparison to a similar business operated on a non-cooperativebasis.

 

Becausesugar is sold throughout the year (while sugarbeets are processed primarily inthe fall, winter and spring) and because substantial amounts of equipment arerequired for its operations, the Company has utilized substantial outsidefinancing on both a seasonal and long-term basis to fund its operations.  The majority of such financing has beenprovided by a consortium of lenders led by CoBank, ACB.

 

TheCompany has long-term debt availability with CoBank, ACB of****$196.5 million, of which $76.9million in loans and $69.3 million in long-term letters of credit wereoutstanding as of November 30, 2007. The unused long-term line of credit as of November 30, 2007, was$50.3 million.  In addition, the Companyhad long-term debt outstanding, as of November 30, 2007, of$50 million from a private placement of Senior Notes that occurred in September of1998; $6.4 million from a private placement of Senior Notes that occurred in January of2003; $51.0 million from ten separate issuances of Pollution Control and Industrial Development Revenue Bonds; and a termloan with Bank of North Dakota of $1.6 million.

 

TheCompany also has a seasonal line of credit with a consortium of lenders led byCoBank, ACB of $390 million, against which there was a $50 millionoutstanding balance as of November 30, 2007 and a line of credit withWells Fargo Bank for $1 million, against which there was no outstandingbalance as of November 30, 2007. The Company’s commercial paper program provides short-term borrowings ofup to $325 million of which approximately $200.6 million was outstanding as of November 30,2007.  The Company had $2.1 million ofshort-term letters of credit outstanding as of November 30, 2007.  Any borrowings under the commercial paperprogram along with outstanding short-term letters of credit will act to reducethe available credit under the CoBank, ACB seasonal line of credit by acommensurate amount.  The unusedshort-term line of credit as of November 30, 2007, was $138.3 million.

 

TheCompany had outstanding purchase commitments totaling $10.6 million as of November 30,2007, for equipment and construction contracts related to various capital andmaintenance projects.

 

Thechanges that have occurred in the Company’s financial statements from August 31,2007, to November 30, 2007, were primarily due to normal businessseasonality.  The first three months ofthe Company’s fiscal year includes: the completion of the sugarbeet harvest;the startup of the processing campaign; the final payments to growers forsugarbeets delivered from the previous year’s crop; and the initial payments togrowers for sugarbeets delivered from the current year’s crop.

 

Thenet cash used by operations was $210.7 million for the three months ended November 30,2007, as compared to $242.1 million for the same period last year.  This decrease of $31.3 million was primarilydue to changes in inventories of $77.5 million partially offset by the changesin the amounts due growers of $32.4 million, changes in accounts payable of$8.4 million and changes in advances due to

 

14

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related parties of $6.1million.  The change in inventories wasdue primarily to increased sales this year along with a lower net realizablevalue of sugar inventory as of November 30, 2007 as compared to theprevious year.  The change in the amountsdue growers was primarily the result of a lower estimated grower payment forthe 2007 crop as compared to the 2006 crop.

 

Thenet cash used in investing activities was $11.6 million for the three monthsended November 30, 2007, as compared to $13.5 million for same period lastyear.  The decrease of $1.9 million wasprimarily related to decreased purchases of property and equipment partiallyoffset by an increase in other assets.

 

Thenet cash provided by financing activities was $222.4 million for the threemonths ended November 30, 2007, as compared to $255.5 million for the sameperiod last year.  This decrease of $33.1million was primarily due to decreased borrowings of short-term debt partiallyoffset by decreased payments on long-term debt and proceeds from thedisbursement of funds from a previous bond issuance.

 

TheCompany anticipates that the funds necessary for working capital requirementsand future capital expenditures will be derived from operations, short-termborrowings, depreciation, unit retains and long-term borrowings.

 

**Item 3. Quantitative and Qualitative Disclosures about Market Risk**

 

Marketrisk is the risk of loss to future earnings, to fair values or to future cashflows that may result from changes in the price of a financial instrument.  The value of a financial instrument maychange as a result of changes in the interest rates, exchange rates, commodityprices, equity prices and other market changes. Market risk is attributed to all market-risk sensitive financialinstruments, including long term debt.

 

TheCompany does not believe that there is any material market risk exposure withrespect to interest rates, exchange rates, commodity prices, equity prices andother market changes that would require disclosure under this item.

 

**Item 4.  Controls and Procedures**

 

TheCompany’s chief executive officer and chief financial officer have reviewed andevaluated the effectiveness of the Company’s disclosure controls and procedures(as defined in Rules 240.13a-15(e) and 15d-15(e) promulgatedunder the Securities Exchange Act of 1934) as of November 30, 2007.  Based on that review and evaluation, whichincluded inquiries made to certain other employees of the Company, the chiefexecutive officer and chief financial officer have concluded that the Company’scurrent disclosure controls and procedures, as designed and implemented, areeffective in ensuring that information relating to the Company required to bedisclosed in the reports the Company files or submits under the SecuritiesExchange Act of 1934 is recorded, processed, summarized and reported within thetime periods specified in the Securities and Exchange Commission’s rules andforms, including ensuring that such information is accumulated and communicatedto the Company’s management, including the chief executive officer and thechief financial officer, as appropriate to allow timely decisions regardingrequired disclosure.  There were nochanges in the Company’s internal controls over financial reporting thatoccurred during the Company’s most recent fiscal quarter that may havematerially affected, or are reasonably likely to materially affect, the Company’sinternal control over financial reporting.

 

15

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## ** PART II.OTHER INFORMATION**

##  

#### **Item 1.  LegalProceedings**

####  

Fromtime to time and in the ordinary course of its business, the Company is namedas a defendant in legal proceedings related to various issues, including worker’scompensation claims, tort claims and contractual disputes.  The Company is currently involved in certainlegal proceedings, which have arisen in the ordinary course of the Company’sbusiness.  The Company is also aware ofcertain other potential claims, which could result in the commencement of legalproceedings.  The Company carriesinsurance, which provides protection against certain types of claims.  With respect to current litigation andpotential claims of which the Company is aware, the Company’s managementbelieves that (i) the Company has insurance protection to cover all or aportion of any judgments which may be rendered against the Company with respectto certain claims or actions and (ii) any judgments which may be enteredagainst the Company and which may exceed such insurance coverage or which mayarise in actions involving potential liabilities not covered by insurancepolicies are not likely to have a material adverse effect upon the Company, orits assets or operations.

 

Anothersugar company has appealed to the Ninth Circuit Court of Appeals a decision ofthe United States District Court relative to the determination and transfer ofsugar marketing allocations made by the USDA. If this case is overturned, it could result in the Company experiencinga reduction in marketing allocations equal to the loss of approximately 15,000acres in future crop years assuming no other related factors were to change.

 

**Item 1A.  RiskFactors.**

 

Fora detailed discussion of certain risk factors that could affect the Company’soperations, financial condition or results for future periods, see Item 1A,Risk factors, in the Company’s 2007 Annual Report on Form 10-K.

 

**Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.**

 

None

 

**Item 3. Defaults Upon Senior Securities**

 

None

 

**Item 4. Submission of Matters to a Vote of Security Holders**

 

TheCompany held meetings in November 2007 with its shareholders from the fivegeographical districts where the Company’s Red River Valley factories arelocated.

 

Atthe Moorhead Factory District Meeting held on November 5, 2007, William A.Hejl was elected as a director, receiving 41 of the 75 votes cast with twoabstentions.  His three-year term expiresin December 2010.  Mr Hejl is 52years old and has farmed near Amenia, ND for 20 years.  Mr Hejl currently serves as a director of theAmerican Sugarbeet Growers Association and is the Manager of the Rush RiverWater Resource District.  Mr Hejl alsoserved as President of the Red River Valley Sugarbeet Growers Association andas President of the World Association of Beet and Cane Growers.  Mr. Hejl replaces David J. Kragnes whowas unable to stand for re-election due to the provisions of the Company Bylawswhich prohibit a person from serving more than four consecutive terms as aDirector.  Michael A. Astrup and RichardBorgen will continue as directors for the Moorhead Factory District.

 

Atthe Hillsboro Factory District Meeting held on November 6, 2007, Jeff D.McInnes was re-elected as a director, receiving 50 of the 52 votes cast withtwo abstentions.  His three-year termexpires in December 2010.  JohnBrainard and Francis L. Kritzberger will continue as directors for theHillsboro Factory District.

 

16

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Atthe Crookston Factory District Meeting held on November 6, 2007, CurtisKnutson was elected as a Director, receiving 50 of the 76 votes cast.  His three-year term expires in December 2010.  Mr. Knutson is 50 years old and hasfarmed near Fisher, Minnesota for 36 years. Mr. Knutson currently serves on the Polk County ExtensionBoard.  Mr. Knutson is also asugarbeet seed dealer for Crystal Sugarbeet Seed.  Mr. Knutson replaces Jim A. Ross whosought re-election.  Ronald E. Reitmeierand Steve Williams will continue as Directors for the Crookston FactoryDistrict.

 

Atthe East Grand Forks Factory District Meeting held on November 7, 2007,Curtis E. Haugen was re-elected as a Director, receiving 115 of the 116 votescast.  His three-year term expires in December 2010.  Brian R. Erickson John F. Gudajtes and willcontinue as Directors for the East Grand Forks Factory District.

 

Atthe Drayton Factory District Meeting held on November 8, 2007, WilliamBaldwin was re-elected as a Director, receiving all of the 115 votes cast withone abstentions.  His three-year termexpires in December 2010.  Robert M.Green and Neil C. Widner will continue as Directors for the Drayton FactoryDistrict.

 

**Item 5.  OtherInformation.**

 

None.

 

17

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### **Item 6. Exhibits**

 
| **Item No.** | ** ** | ** **                                                                                       | ** ** | **Method of Filing**                                                                                                                                                                |
|-------------------|------------|--------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **        | ** ** | ** **                                                                                       | ** ** | ** **                                                                                                                                                                                    |
| 3.1               |       | Restated  Articles of Incorporation of American Crystal Sugar Company                            |       | Incorporated  by reference to Exhibit 3(i) from the Company’s Registration  Statement on Form S-1 (File No. 33-83868), declared effective  November 23, 1994.   |
|              |       |                                                                                             |       |                                                                                                                                                                                          |
| 3.2               |       | Restated  By-laws of American Crystal Sugar Company                                              |       | Incorporated  by reference to Exhibit 3(ii) from the Company’s Registration  Statement on Form S-1 (File No. 333-11693), declared effective  November 13, 1996. |
|              |       |                                                                                             |       |                                                                                                                                                                                          |
| 4.1               |       | Restated  Articles of Incorporation of American Crystal Sugar Company                            |       | See  Exhibit 3.1                                                                                                                                                                         |
|              |       |                                                                                             |       |                                                                                                                                                                                          |
| 4.2               |       | Restated  By-laws of American Crystal Sugar Company                                              |       | See  Exhibit 3.2                                                                                                                                                                         |
|              |       |                                                                                             |       |                                                                                                                                                                                          |
| 10.1              |       | Form of  Operating Agreement between Registrant and ProGold Limited Liability Company       |       | Incorporated  by reference to Exhibit 10(u) from the Company’s Registration  Statement on Form S-1 (File No. 33-83868), declared effective  November 23, 1994.  |
|              |       |                                                                                             |       |                                                                                                                                                                                          |
| 10.2              |       | Form of  Member Control Agreement between Registrant and ProGold Limited Liability  Company |       | Incorporated  by reference to Exhibit 10(v) from the Company’s Registration  Statement on Form S-1 (File No. 33-83868), declared effective  November 23, 1994.  |
|              |       |                                                                                             |       |                                                                                                                                                                                          |
| 10.3              |       | Registrant’s  Senior Note Purchase Agreement                                                |       | Incorporated  by reference to Exhibit 10.24 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 1999                                             |
|              |       |                                                                                             |       |                                                                                                                                                                                          |
| 10.4              |       | Registrant’s  Senior Note Inter-creditor and Collateral Agency Agreement                    |       | Incorporated  by reference to Exhibit 10.25 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 1999                                             |
|              |       |                                                                                             |       |                                                                                                                                                                                          |
| 10.5              |       | Registrant’s  Senior Note Restated Mortgage and Security Agreement                          |       | Incorporated  by reference to Exhibit 10.26 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 1999                                             |
|              |       |                                                                                             |       |                                                                                                                                                                                          |
| ++10.6            |       | Employment  Agreement between the Registrant and James J. Horvath                                |       | Incorporated  by reference to Exhibit 10.28 from the Company’s Annual Report on  Form 10-K form the year ended August 31, 1999                                            |
|              |       |                                                                                             |       |                                                                                                                                                                                          |
| ++10.7            |       | Board  of Directors Deferred Compensation Plan, dated June 30, 1994                         |       | Incorporated  by reference to Exhibit 10.29 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2000                                             |

 

18

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| ++10.8  |   | Long  Term Incentive Plan, dated June 23, 1999                                                                            |   | Incorporated  by reference to Exhibit 10.31 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2000 |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                           |   |                                                                                                                                              |
| 10.9    |   | Uniform  Member Sugar Marketing Agreement between the Registrant and United Sugars  Corporation dated September 1, 2001.  |   | Incorporated  by reference to Exhibit 10.27 from the Company’s Form 10-Q for the  quarter ended November 30, 2001             |
|    |   |                                                                                                                           |   |                                                                                                                                              |
| 10.10   |   | Uniform  Member Marketing Agreement between the Registrant and Midwest  Agri-Commodities Company dated September 1, 2001. |   | Incorporated  by reference to Exhibit 10.28 from the Company’s Form 10-Q for the  quarter ended November 30, 2001             |
|    |   |                                                                                                                           |   |                                                                                                                                              |
| 10.11   |   | Registrant’s  Senior Note Purchase Agreement dated January 15, 2003                                                  |   | Incorporated  by reference to Exhibit 10.29 from the Company’s Form 10-Q for the  quarter ended February 28, 2003             |
|    |   |                                                                                                                           |   |                                                                                                                                              |
| 10.12   |   | Growers’  Contract (5-year Agreement) for the crop years 2003 through 2007                                                |   | Incorporated  by reference to Exhibit 10.30 from the Company’s Form 10-Q for the  quarter ended February 28, 2003             |
|    |   |                                                                                                                           |   |                                                                                                                                              |
| +10.13  |   | Beet  Loading and Hauling Agreement between the Registrant and Transystems LLC for  the crop years 2003 through 2007           |   | Incorporated  by reference to Exhibit 10.31 from the Company’s Form 10-Q for the  quarter ended May 31, 2003                  |
|    |   |                                                                                                                           |   |                                                                                                                                              |
| 10.14   |   | Stipulation Agreement  between Registrant and State of Minnesota Pollution Control Agency, dated  August 5, 2003          |   | Incorporated by reference  to Exhibit 10.30 from the Company’s Annual Report on Form 10-K for  the year ended August 31, 2003 |
|    |   |                                                                                                                           |   |                                                                                                                                              |
| 10.15   |   | Crop year 2005, 2006 and  2007 Sugarbeet Delivery Agreements between Sidney Sugars Incorporated and  Growers                   |   | Incorporated by reference  to Exhibit 10.25 from the Company’s Form 10-Q for the quarter ended  May 31, 2005                  |
|    |   |                                                                                                                           |   |                                                                                                                                              |
| ++10.16 |   | Amendment  to Employment Agreement dated September 28, 2005 between the Company and  James J. Horvath                     |   | Incorporated  by reference to Exhibit 10.1 from the Company’s Form 8-K dated  September 30, 2005                              |
|    |   |                                                                                                                           |   |                                                                                                                                              |
| ++10.17 |   | Long Term Incentive Plan,  dated August 24, 2005                                                                          |   | Incorporated by reference  to Exhibit 10.25 from the Company’s Annual Report on Form 10-K for  the year ended August 31, 2005 |
|    |   |                                                                                                                           |   |                                                                                                                                              |
| 10.18   |   | Term  and Seasonal Loan Agreements between the Registrant and CoBank, ACB dated  July 31, 2006                            |   | Incorporated  by reference to Exhibit 10.24 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2006 |
|    |   |                                                                                                                           |   |                                                                                                                                              |
| 10.19   |   | Second  Amendment to Amended and Restated Loan Agreement between the Registrant and  CoBank, ACB dated November 3, 2006.  |   | Incorporated  by reference to Exhibit 10.25 from the Company’s Form 10-Q for the  quarter ended November 30, 2006.            |
|    |   |                                                                                                                           |   |                                                                                                                                              |
| ++10.20 |   | Employment  Agreement dated March 21, 2007 between the Registrant and David A. Berg.                                      |   | Incorporated  by reference to Exhibit 10.26 from the Company’s Form 10-Q for the  quarter ended February 28, 2007.            |
|    |   |                                                                                                                           |   |                                                                                                                                              |
| 10.21   |   | Third  Amendment to Amended and Restated Loan Agreement between the Registrant and  CoBank, ACB dated April 2, 2007.      |   | Incorporated  by reference to Exhibit 10.22 from the Company’s Form 10-Q for the  quarter ended May 31, 2007                  |

 

19

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| 10.22  |   | Fourth  Amendment to Amended and Restated Loan Agreement between the Registrant and  CoBank, ACB dated July 25, 2007. |   | Incorporated  by reference to Exhibit 10.23 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2007 |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                       |   |                                                                                                                                              |
| 10.23  |   | Growers’ Contract (5-year  Agreement) for the crop years 2008 through 2012                                            |   | Incorporated by reference  to Exhibit 10.24 from the Company’s Annual Report on Form 10-K for  the year ended August 31, 2007 |
|   |   |                                                                                                                       |   |                                                                                                                                              |
| 10.24  |   | Commitment  and Acceptance Agreement between the Registrant and CoBank, ACB dated  November 6, 2007                   |   | Filed  herewith electronically                                                                                                                    |
|   |   |                                                                                                                       |   |                                                                                                                                              |
| 21.1   |   | List  of Subsidiaries of the Registrant                                                                                    |   | Incorporated  by reference to Exhibit 21.1 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2007  |
|   |   |                                                                                                                       |   |                                                                                                                                              |
| 31.1   |   | Rule 13a-14(a)/15(d)-14(a) Certification  of the Chief Executive Officer                                         |   | Accompanying herewith  electronically                                                                                                             |
|   |   |                                                                                                                       |   |                                                                                                                                              |
| 31.2   |   | Rule 13a-14(a)/15(d)-14(a) Certification  of the Chief Financial Officer                                         |   | Accompanying herewith  electronically                                                                                                             |
|   |   |                                                                                                                       |   |                                                                                                                                              |
| 32.1   |   | Section 1350  Certification of the Chief Executive Officer                                                            |   | Accompanying herewith  electronically                                                                                                             |
|   |   |                                                                                                                       |   |                                                                                                                                              |
| 32.2   |   | Section 1350  Certification of the Chief Financial Officer                                                            |   | Accompanying herewith  electronically                                                                                                             |

 

----

+              Confidential treatment under Rule 24b-2 of the Securitiesand Exchange Act of 1934, as amended, has been granted with respect todesignated portions of this document.

 

++           A management contract or compensatoryplan required to be filed with this report.

 

20

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SIGNATURES

 

**Pursuant to the requirement of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned thereunto duly authorized.**

 

 
|      |                        | **AMERICAN CRYSTAL SUGAR COMPANY** |                     |
|-----------|-----------------------------|------------------------------------|--------------------------|
|      | **(Registrant)**            |
|      |                        |
|      |                        |
| **Date:** | **January 14, 2008**   | ** **                         | **/s/ Thomas S. Astrup** |   |
|      | **Thomas S. Astrup**        |
|      | **Vice President-Finance,** |
|      | **Chief Financial Officer** |
|      | **Duly Authorized Officer** |
|           |                             |                                    |                          |  |  |  |  |

 

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