**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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**FORM 10-Q**

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**x  Quarterlyreport pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**

# **For theperiod November 30, 2006**

## **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)      |

`

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months, and (2) has been subjectto such filing requirements for the past 90 days.   YES  x       NO  o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.  See definition of“accelerated filer and large accelerated filer” in Rule 12b-2 of the ExchangeAct. (Check one)

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

 

Indicate by check mark whether the registrant is ashell company (as defined in rule 12b-2 of the Act).   YES  o       NO  x

Indicate the number of shares outstanding of each ofthe issuer’s classes of common stock, as of the latest practicable date.

|               | **Class of Common Stock** | ** ** | ** ** | ** ** | **Outstanding at  January 5, 2007** | ** ** |
|---------------|---------------------------|------------|------------|------------|-------------------------------------|------------|
| $10 Par Value |                      | 2,875      |

** **

 

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**AMERICAN CRYSTALSUGAR COMPANY**

**FORM 10-Q**

**INDEX**
|                | ** ** | ** **                                                                                      | ** ** | ** ** | ** ** |
|----------------|------------|-------------------------------------------------------------------------------------------------|------------|------------|------------|
| ** **     | ** ** | ** **                                                                                      | ** ** | ** ** | ** ** |
| **PART I**     | ** ** | **FINANCIAL INFORMATION**                                                                       |       |       |       |
| ** **     | ** ** | ** **                                                                                      |       |       |       |
| **ITEM 1**     | ** ** | **CONSOLIDATED FINANCIAL  STATEMENTS**                                                          |       |       |       |
| ** **     | ** ** | ** **                                                                                      |       |       |       |
| ** **     | ** ** | **CONSOLIDATED  BALANCE SHEETS**                                                                | ** ** | ** ** | ** ** |
| ** **     | ** ** | ** **                                                                                      | ** ** | ** ** | ** ** |
| ** **     | ** ** | **CONSOLIDATED STATEMENTS OF OPERATIONS**                                                       | ** ** | ** ** | ** ** |
| ** **     | ** ** | ** **                                                                                      | ** ** | ** ** | ** ** |
| ** **     | ** ** | **CONSOLIDATED STATEMENTS OF CASH FLOWS**                                                       | ** ** | ** ** | ** ** |
| ** **     | ** ** | ** **                                                                                      | ** ** | ** ** | ** ** |
| ** **     | ** ** | **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**                                              | ** ** | ** ** | ** ** |
| ** **     | ** ** | ** **                                                                                      | ** ** | ** ** | ** ** |
| **ITEM 2.**    | ** ** | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION** | ** ** | ** ** | ** ** |
| ** **     | ** ** | ** **                                                                                      | ** ** | ** ** | ** ** |
| **ITEM 3.**    | ** ** | **QUANTITATIVE AND  QUALITATIVE DISCLOSURES ABOUT MARKET RISK**                                 | ** ** | ** ** | ** ** |
| ** **     | ** ** | ** **                                                                                      | ** ** | ** ** | ** ** |
| **ITEM 4.**    | ** ** | **CONTROLS AND  PROCEDURES**                                                                    | ** ** | ** ** | ** ** |
| ** **     | ** ** | ** **                                                                                      | ** ** | ** ** | ** ** |
| **PART  II**   | ** ** | **OTHER  INFORMATION**                                                                          |       |       |       |
| ** **     | ** ** | ** **                                                                                      |       |       |       |
| **ITEM  1.**   | ** ** | **LEGAL  PROCEEDINGS**                                                                          | ** ** | ** ** | ** ** |
| ** **     | ** ** | ** **                                                                                      | ** ** | ** ** | ** ** |
| **ITEM  1A.**  | ** ** | **RISK FACTORS**                                                                                | ** ** | ** ** | ** ** |
| ** **     | ** ** | ** **                                                                                      | ** ** | ** ** | ** ** |
| **ITEM 2.**    | ** ** | **UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF  PROCEEDS**                                |       |       |       |
| ** **     | ** ** | ** **                                                                                      | ** ** | ** ** | ** ** |
| **ITEM 3.**    | ** ** | **DEFAULTS UPON SENIOR SECURITIES**                                                             | ** ** | ** ** | ** ** |
| ** **     | ** ** | ** **                                                                                      | ** ** | ** ** | ** ** |
| **ITEM 4.**    | ** ** | **SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**                                         |       |       |       |
| ** **     | ** ** | ** **                                                                                      | ** ** | ** ** | ** ** |
| **ITEM  5.**   | ** ** | **OTHER  INFORMATION**                                                                          | ** ** | ** ** | ** ** |
| ** **     | ** ** | ** **                                                                                      | ** ** | ** ** | ** ** |
| **ITEM 6.**    | ** ** | **EXHIBITS**                                                                                    | ** ** | ** ** | ** ** |
| ** **     | ** ** | ** **                                                                                      | ** ** | ** ** | ** ** |
| **SIGNATURES** | ** ** | ** **                                                                                      | ** ** |

** **

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**AmericanCrystal Sugar Company**Consolidated BalanceSheets(Unaudited)(In Thousands)

**Assets**
| ** **                                     | ** ** | **November 30** | ** ** | **August 31 ** | ** ** |
|------------------------------------------------|------------|----------------------|------------|--------------------------|------------|
| ** **                                     | ** ** | **2006**             | ** ** | **2005**                 | ** ** | **2006*** | ** ** |
| **Current Assets:**                            |       |                 |       |                     |       |   |   |
| Cash and Cash  Equivalents                     |       | $               | 236        |                     | $          | 1,075 |   | $ | 345 |   |
| Receivables:                                   |       |                 |       |                     |       |   |   |
| Trade                                          |       | 65,751               |       | 45,079                   |       | 78,242 |   |
| Members                                        |       | 2,901                |       | 1,971                    |       | 3,383 |   |
| Other                                          |       | 3,272                |       | 3,338                    |       | 4,036 |   |
| Advances to  Related Parties                   |       | 80                   |       | 2,287                    |       | 4,737 |   |
| Inventories                                    |       | 623,694              |       | 460,589                  |       | 174,761 |   |
| Prepaid Expenses                               |       | 5,596                |       | 6,842                    |       | 4,390 |   |
|                                           |       |                 |       |                     |       |   |   |
| **Total Current Assets**                       |       | 701,530              |       | 521,181                  |       | 269,894 |   |
| ** **                                     |       |                 |       |                     |       |   |   |
| **Property and Equipment:**                    |       |                 |       |                     |       |   |   |
| Land and Land  Improvements                    |       | 55,959               |       | 53,467                   |       | 55,808 |   |
| Buildings                                      |       | 103,215              |       | 98,815                   |       | 102,986 |   |
| Equipment                                      |       | 802,837              |       | 773,407                  |       | 799,175 |   |
| Construction in  Progress                      |       | 19,011               |       | 12,924                   |       | 11,754 |   |
| Less Accumulated  Depreciation                 |       | (650,450)            |       | (616,508                 | )          | (637,583) |   |
|                                           |       |                 |       |                     |       |   |   |
| **Net  Property and Equipment**                |       | 330,572              |       | 322,105                  |       | 332,140 |   |
| ** **                                     |       |                 |       |                     |       |   |   |
| **Net Property and Equipment Held  for Lease** |       | 137,267              |       | 148,352                  |       | 140,041 |   |
| ** **                                     |       |                 |       |                     |       |   |   |
| **Other Assets:**                              |       |                 |       |                     |       |   |   |
| Investments in  CoBank, ACB                    |       | 13,138               |       | 15,828                   |       | 13,138 |   |
| Investments in  Marketing Cooperatives         |       | 5,702                |       | 6,119                    |       | 5,638 |   |
| Investments in  Crystech, LLC                  |       | 15,665               |       | 15,642                   |       | 15,399 |   |
| Prepaid Pension  Expense                       |       | 43,683               |       | 42,670                   |       | 45,425 |   |
| Other Assets                                   |       | 18,312               |       | 20,250                   |       | 18,322 |   |
|                                           |       | 96,500               |       | 100,509                  |       | 97,922 |   |
| **Total Other AssetsTotal Assets**             |       | $               | 1,265,869  |                     | $          | 1,092,147 |   | $ | 839,997 |   |

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*                    Derivedfrom audited financial statements

The Accompanying Notes are an Integral Part of TheseConsolidated Financial Statements.

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**AmericanCrystal Sugar Company**Consolidated BalanceSheets(Unaudited)(In Thousands)

**Liabilities andMembers’ Investments**
| ** **                                           | ** ** | **November 30** | ** ** | **August 31** | ** ** |
|------------------------------------------------------|------------|----------------------|------------|--------------------|------------|
| ** **                                           | ** ** | **2006**             | ** ** | **2005**           | ** ** | **2006*** | ** ** |
| **Current  Liabilities:**                            |       |                 |       |               |       |   |   |
| Short-Term Debt                                      |       | $                    | 276,531    |               | $          | 169,567 |   | $ | 5,300 |   |
| Current Maturities of Long-Term Debt                 |       | 20,962               |       | 20,947             |       | 20,962 |   |
| Accounts Payable                                     |       | 22,872               |       | 26,835             |       | 27,120 |   |
| Advances Due to Related Parties                      |       | 14,581               |       | 9,799              |       | 7,033 |   |
| Accrued Continuing Costs                             |       | 40,283               |       | 36,488             |       | — |   |
| Other Current Liabilities                            |       | 25,059               |       | 26,097             |       | 27,617 |   |
| Amounts Due Growers                                  |       | 250,408              |       | 173,738            |       | 123,648 |   |
|                                                 |       |                 |       |               |       |   |   |
| **Total  Current Liabilities**                       |       | 650,696              |       | 211,680            |       | 463,471 |   |
| ** **                                           |       |                 |       |               |       |   |   |
| **Long-Term  Debt, Net of Current Maturities**       |       | 184,273              |       | 212,081            |       | 200,037 |   |
| ** **                                           |       |                 |       |               |       |   |   |
| **Accrued  Employee Benefits**                       |       | 40,989               |       | 39,189             |       | 40,987 |   |
| ** **                                           |       |                 |       |               |       |   |   |
| **Other  Liabilities**                               |       | 8,239                |       | 8,759              |       | 7,938 |   |
| ** **                                           |       |                 |       |               |       |   |   |
| **Total  Liabilities**                               |       | 884,197              |       | 723,500            |       | 460,642 |   |
| ** **                                           |       |                 |       |               |       |   |   |
| **Commitments  and Contingencies**                   |       |                 |       |               |       |   |   |
| ** **                                           |       |                 |       |               |       |   |   |
| **Minority  Interest in ProGold Limited Liability**  |       | 57,318               |       | 52,616             |       | 56,099 |   |
| ** **                                           |       |                 |       |               |       |   |   |
| **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                                         |       | 153,961              |       | 148,907            |       | 153,961 |   |
| Equity Retention                                     |       | 2,694                |       | 2,702              |       | 2,694 |   |
| Accumulated Other Comprehensive Income (Loss)        |       | (432)                |       | (832)              |       | (500) |   |
| Retained Earnings (Accumulated Deficit)              |       | (22,434)             |       | (25,311)           |       | (23,464) |   |
|                                                 |       |                 |       |               |       |   |   |
| **Total  Members’ Investments**                 |       | 324,354              |       | 316,031            |       | 323,256 |   |
| ** **                                           |       |                 |       |               |       |   |   |
| **Total Liabilities and Members’  Investments** |       | $                    | 1,265,869  |               | $          | 1,092,147 |   | $ | 839,997 |   |

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*                    Derivedfrom audited financial statements

The Accompanying Notes are an Integral Part of TheseConsolidated Financial Statements.

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**AmericanCrystal Sugar Company**ConsolidatedStatements of OperationsFor the Three Months Ended November 30(Unaudited)(In Thousands)
| ** **                                                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------------------------------------------|------------|----------|------------|----------|------------|
| **Net  Revenue**                                                  |       | $        | 258,246    |     | $          | 231,271 |   |
| ** **                                                        |       |     |       |     |       |
| **Cost of  Sales**                                                |       | (35,166  | )          | 13,892   |       |
| ** **                                                        |       |     |       |     |       |
| **Gross  Proceeds**                                               |       | 293,412  |       | 217,379  |       |
| ** **                                                        |       |     |       |     |       |
| **Selling,  General and Administrative Expenses**                 |       | 49,923   |       | 49,984   |       |
| **Accrued  Continuing Costs**                                     |       | 40,283   |       | 36,488   |       |
| ** **                                                        |       |     |       |     |       |
| **Operating  Proceeds**                                           |       | 203,206  |       | 130,907  |       |
| ** **                                                        |       |     |       |     |       |
| **Other  Income (Expense):**                                      |       |     |       |     |       |
| Interest Income                                                   |       | 476      |       | 144      |       |
| Interest Expense, Net                                             |       | (3,437   | )          | (3,930   | )          |
| Other, Net                                                        |       | 400      |       | 928      |       |
|                                                              |       |     |       |     |       |
| **Total  Other (Expense)**                                        |       | (2,561   | )          | (2,858   | )          |
| ** **                                                        |       |     |       |     |       |
| **Proceeds  Before Minority Interest and Income Tax Expense**     |       | 200,645  |       | 128,049  |       |
| ** **                                                        |       |     |       |     |       |
| **Minority  Interest**                                            |       | (1,219   | )          | (1,084   | )          |
| ** **                                                        |       |     |       |     |       |
| **Income  Tax Expense**                                           |       | (716     | )          | (276     | )          |
| ** **                                                        |       |     |       |     |       |
| **Net  Proceeds Resulting from Member and Non-Member Business**   |       | $        | 198,710    |     | $          | 126,689 |   |
| ** **                                                        |       |     |       |     |       |
| **Distributions  of Net Proceeds:**                               |       |     |       |     |       |
| Credited to Members’ Investments:                            |       |     |       |     |       |
| Non-Member Business Income                                        |       | $        | 1,030      |     | $          | 399 |   |
| Unit Retains Declared to Members                                  |       | —   |       | —   |       |
| Net Credit to Members’ Investments                           |       | 1,030    |       | 399      |       |
| Payments to Members for Sugarbeets, Net of Unit  Retains Declared |       | 197,680  |       | 126,290  |       |
| **Total**                                                         |       | $        | 198,710    |     | $          | 126,689 |   |

 

The Accompanying Notes are an Integral Part of TheseConsolidated Financial Statements.

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**American Crystal SugarCompanyConsolidated Statements of Cash Flows**

**Forthe Three Months Ended November 30(In Thousands)(Unaudited)**
| ** **                                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------------------------------------------|------------|----------|------------|----------|------------|
| **Cash Provided  By (Used In) Operating Activities:**                 |       |     |       |     |       |
| Net Proceeds Resulting from Member and Non-Member  Business           |       | $        | 198,710    |     | $          | 126,689 |   |
| Payments To/Due Members for Sugarbeets, Net of Unit  Retains Declared |       | (197,680 | )          | (126,290 | )          |
| Add (Deduct) Non-Cash Items:                                          |       |     |       |     |       |
| Depreciation and Amortization                                         |       | 17,770   |       | 17,602   |       |
| Income from Equity Method Investees                                   |       | (288     | )          | (284     | )          |
| (Gain)/Loss on the Disposition of Property and  Equipment             |       | 78       |       | (6       | )          |
| Deferred Gain Recognition                                             |       | (49      | )          | (49      | )          |
| Minority Interest in ProGold Limited Liability  Company               |       | 1,219    |       | 1,084    |       |
| Changes in Assets and Liabilities:                                    |       |     |       |     |       |
| Receivables                                                           |       | 13,737   |       | (3,463   | )          |
| Inventories                                                           |       | (448,933 | )          | (337,962 | )          |
| Prepaid Expenses                                                      |       | (1,138   | )          | (1,260   | )          |
| Long-Term Prepaid Pension Expense                                     |       | 1,742    |       | 1,118    |       |
| Advances To/Due to Related Parties                                    |       | 12,205   |       | 14,589   |       |
| Accounts Payable                                                      |       | (4,248   | )          | (330     | )          |
| Accrued Continuing Costs                                              |       | 40,283   |       | 36,488   |       |
| Other Liabilities                                                     |       | (2,255   | )          | 4,355    |       |
| Amounts Due Growers                                                   |       | 126,760  |       | 140,304  |       |
| **Net  Cash (Used In) OperatingActivities**                           |       | (242,087 | )          | (127,415 | )          |
| ** **                                                            |       |     |       |     |       |
| **Cash  Provided By (Used In) Investing Activities:**                 |       |     |       |     |       |
| Purchases of Property and Equipment                                   |       | (12,830  | )          | (6,503   | )          |
| Purchases of Property and Equipment Held for Lease                    |       | (3       | )          | (238     | )          |
| Proceeds from the Sale of Property and Equipment                      |       | 5        |       | 125      |       |
| Equity Refund from CoBank, ACB                                        |       | —   |       | 888      |       |
| Changes in Other Assets                                               |       | (661     | )          | (174     | )          |
| **Net  Cash (Used In) Investing Activities**                          |       | (13,489  | )          | (5,902   | )          |
| ** **                                                            |       |     |       |     |       |
| **Cash  Provided By (Used In) Financing Activities:**                 |       |     |       |     |       |
| Net Proceeds from (Payments on) Short-Term Debt                       |       | 271,231  |       | 138,882  |       |
| Long-Term Debt Repayment                                              |       | (15,764  | )          | (4,761   | )          |
| Payment of Unit Retains and Equity Retention                          |       | —   |       | (66      | )          |
| **Net  Cash Provided ByFinancingActivities**                          |       | 255,467  |       | 134,055  |       |
| **Increase  (Decrease) In Cash and Cash Equivalents**                 |       | (109     | )          | 738      |       |
| **Cash  and Cash Equivalents, Beginningof Year**                      |       | 345      |       | 337      |       |
| ** **                                                            |       |     |       |     |       |
| **Cash and Cash Equivalents, End  of Period**                         |       | $        | 236        |     | $          | 1,075 |   |

 

TheAccompanying Notes are an Integral Part of These Consolidated FinancialStatements.

** **

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**AMERICANCRYSTAL SUGAR COMPANYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE THREE MONTHS ENDEDNovember 30, 2006 AND 2005(Unaudited)**

**Note 1:  Basis of Presentation**

The unaudited consolidated financial statements of American CrystalSugar Company (the Company) contained herein have been prepared pursuant to therules and regulations of the Securities and Exchange Commission.  Accordingly, they do not include all theinformation and footnotes required by accounting principles generally acceptedin the United States of America. However, in the opinion of management, all adjustments, consisting ofnormal recurring accruals, considered necessary for a fair presentation havebeen included.

The Company’s consolidated financial statements are comprised of:American Crystal Sugar Company; its wholly-owned subsidiaries Sidney SugarsIncorporated (Sidney Sugars) and Crab Creek Sugar Company (Crab Creek); andProGold Limited Liability Company (ProGold), a limited liability company inwhich the Company holds a 51 percent ownership interest.

All material inter-company transactions have been eliminated.

The operating results for the three month period ended November 30,2006, are not necessarily indicative of the results that may be expected forthe year ended August 31, 2007.

The amount paid to shareholders for sugarbeets (member beet payment)depends on the future selling prices of sugar and agri-products as well asprocessing and other costs incurred during the remainder of the fiscal yearassociated with the 2006 Red River Valley sugarbeet crop (RRV crop).  The amount paid to non-member growers forsugarbeets (non-member beet payment) depends on the future selling prices ofsugar and the related selling expenses associated with the 2006 Sidney Sugarssugarbeet crop (Sidney crop).  For thepurposes of this report, the amount of the beet payments, future revenues andcosts have been estimated.  Therefore,adjustments with respect to these estimates may be necessary in the future, asadditional information becomes available.

These financial statements should be read in conjunction with theconsolidated financial statements and notes included in the Company’s AnnualReport on Form 10-K for the year ended August 31, 2006.

**Note 2:  Recently Issued Accounting Pronouncements**

The Financial Accounting Standards Board has recently issued StatementNo. 158, *Employers’ Accounting for Defined Benefit Pensionand Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106,and 132(R)*.  This Statementwill require the Company to recognize the overfunded or underfunded status of adefined benefit postretirement plan as an asset or liability in its statementof financial position and to recognize changes in that funded status in theyear in which the changes occur through comprehensive income.  This requirement becomes effective for theCompany as of August 31, 2007.  ThisStatement will also require the Company to measure the funded status of a planas of the date of its year-end statement of financial position.  This requirement becomes effective for theCompany as of August 31, 2009.  TheCompany estimates that the adoption of this statement would have had the effectof reducing Prepaid Pension Expense and Members’ Investments on the Company’sConsolidated Balance Sheet by approximately $32.2 million as of November 30,2006.  Due to changes during theremainder of the fiscal year in such items as: the return on plan assets; thediscount rate; and contributions, the actual amount of the effect on theCompany’s Balance Sheet as of August 31, 2007 will not be known until the endof the fiscal year.

5

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**Note3:  Inventories**

The major components of inventories are as follows (In Thousands):

|                                                                       | ** ** | **November 30  2006** | ** ** | **November 30  2005** | ** ** | **August 31  2006** | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|--------------------------|------------|
| Refined Sugar,  Pulp, Molasses, OtherAgri-Products and Sugarbeet Seed |       | $                          | 256,219    |                       | $          | 182,721                  |       | $ | 134,211 |   |
| Unprocessed  Sugarbeets                                               |       | 337,732                    |       | 250,614                    |       | 8,721                    |       |
| Maintenance  Parts and Supplies                                       |       | 29,743                     |       | 27,254                     |       | 31,829                   |       |
|                                                                  |       |                       |       |                       |       |                     |       |
| Total Inventories                                                     |       | $                          | 623,694    |                       | $          | 460,589                  |       | $ | 174,761 |   |

 

Sugar, pulp, molasses and other agri-products inventories are valued atestimated net realizable value. Unprocessed sugarbeets are valued at the estimated gross beetpayment.  Maintenance parts and suppliesand sugarbeet seed inventories are valued at the lower of average cost ormarket.

**Note 4:  Short-Term Debt**

TheCompany has a seasonal line of credit with a consortium of lenders led byCoBank, ACB of $400 million and a line of credit with Wells Fargo Bank for$1 million.  The Company’s commercialpaper program provides short-term borrowings of up to $325 million.  Anyborrowings under the commercial paper program along with outstanding short-termletters of credit will act to reduce the available credit under the CoBank, ACBseasonal line of credit by a commensurate amount.  The Company also utilizes the CommodityCredit Corporation (CCC) to meet its short-term borrowing needs.

As of November 30, 2006,the Company had outstanding commercial paper of $236.5****millionat an average interest rate of 4.54% and maturity dates between December 1,2006 and February 28, 2007.  The Companyalso had $40.0 million of outstanding short-term debt with CoBank, ACB as ofNovember 30, 2006, at an interest rate of 5.05% and a maturity date of December18, 2006.  The Company had no outstandingshort-term debt with the CCC as of November 30, 2006. The Company had $5.5million of short-term letters of credit outstanding as of November 30, 2006.The unused seasonal line of credit as of November 30, 2006 was $119.0 million.

As of November 30, 2005,the Company had outstanding commercial paper of $119.6****millionat an average interest rate of 4.31% and maturity dates between December 1,2005 and March 22, 2006.  The Companyalso had $50.0 million of outstanding short-term debt with CoBank, ACB as ofNovember 30, 2005, at an interest rate of 5.0% and a maturity date of January17, 2006.  The Company had no outstandingshort-term debt with the CCC as of November 30, 2005. The Company had $4.6million of short-term letters of credit outstanding as of November 30, 2005.The unused seasonal line of credit as of November 30, 2005 was $106.8 million.

**Note 5:  Interest Paid**

Interest paid, net of amounts capitalized, was $2.2 million and $2.6million for the three months ended November 30, 2006 and 2005, respectively.

**Note 6:  Accrued Continuing Costs**

For interim reporting, the net proceeds from memberbusiness is based on the forecasted gross beet payment and the percentage ofthe tons of sugarbeets processed to the total estimated tons of sugarbeets toprocess for a given crop year.  The netproceeds from the operations of Sidney Sugars is based on the forecasted netincome for the fiscal year and the percentage of the tons of non-member sugarbeetsprocessed to the total estimated tons of non-member sugarbeets to process for agiven fiscal year.

Accrued continuing costs represent the differencebetween the net proceeds as determined above and actual member business cropyear and Sidney Sugars fiscal year revenues realized and expenses 

6

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incurred throughthe end of the reporting period.  Accruedcontinuing costs are reflected in the Consolidated Financial Statements as acost on the Consolidated Statements of Operations and as a current liability onthe Consolidated Balance Sheets.

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

The following schedules provide the components ofthe Net Periodic Pension and Post-Retirement Costs for the three months endedNovember, 2006 and 2005:

***Components of Net Periodic PensionCost***

(In Thousands)

|                                      | ** ** | **For the Three Months Ended** | ** ** |
|--------------------------------------|------------|----------------------------------------------------|------------|
| ** **                           | ** ** | **November 30,**                              | ** ** |
| ** **                           | ** ** | **2006**                                           | ** ** | **2005** | ** ** |
| Service Cost                         |       | $                                                  | 883        |   | $ | 1,056 |   |
| Interest Cost                        |       | 1,977                                              |       | 1,796 |   |
| Expected Return  on Plan Assets      |       | (2,727                                             | )          | (2,464 | ) |
| Multiple  Employer Adjustment        |       | (14                                                | )          | (15 | ) |
| Amortization of  Prior Service Costs |       | 728                                                |       | 343 |   |
| Amortization of  Net Actuarial Loss  |       | 108                                                |       | 747 |   |
| Net Periodic Pension  Cost           |       | $                                                  | 955        |   | $ | 1,463 |   |

 

 

***Components of Net PeriodicPost-Retirement Cost***

(In Thousands)

|                                     | ** ** | **For the Three Months Ended** | ** ** |
|-------------------------------------|------------|----------------------------------------------------|------------|
| ** **                          | ** ** | **November 30,**                              | ** ** |
| ** **                          | ** ** | **2006**                                           | ** ** | **2005** | ** ** |
| Service Cost                        |       | $                                                  | 275        |   | $ | 353 |   |
| Interest Cost                       |       | 481                                                |       | 522 |   |
| Amortization of  Net Actuarial Loss |       | (5                                                 | )          | 97 |   |
| Net Periodic  Post-Retirement Cost  |       | $                                                  | 751        |   | $ | 972 |   |

 

 

For the three months ended November 30, 2006, the Company made nocontributions to the pension plans.  TheCompany expects to make contributions of approximately $4.0 million during theremainder of the current fiscal year. The Company has made payments for post-retirement benefits ofapproximately $258,000 for the three months ended November 30, 2006, andexpects total payments for the current fiscal year to be approximately $1.0million.

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**Note 8:  Members’ Investments**

|                    | ** ** | ** **         | ** ** | **Shares**     | ** ** | **Shares Issued**     | ** ** |
|--------------------|------------|--------------------|------------|----------------|------------|----------------------------|------------|
| ** **         | ** ** | **Par Value** | ** ** | **Authorized** | ** ** | **& Outstanding** | ** ** |
| Preferred Stock:   |       |               |       |           |       |                       |       |
| January 5, 2007    |       | $                  | 76.77      |           | 600,000    |                       | 498,570    |   |
| November 30, 2006  |       | $                  | 76.77      |           | 600,000    |                       | 498,570    |   |
| August 31, 2006    |       | $                  | 76.77      |           | 600,000    |                       | 498,570    |   |
| November 30, 2005  |       | $                  | 76.77      |           | 600,000    |                       | 498,570    |   |
|               |       |               |       |           |       |                       |       |
| Common Stock:      |       |               |       |           |       |                       |       |
| January 5, 2007    |       | $                  | 10.00      |           | 4,000      |                       | 2,875      |   |
| November 30, 2006  |       | $                  | 10.00      |           | 4,000      |                       | 2,874      |   |
| August 31, 2006    |       | $                  | 10.00      |           | 4,000      |                       | 2,874      |   |
| November 30,  2005 |       | $                  | 10.00      |           | 4,000      |                       | 2,904      |   |

 

 

**Note 9: Shippingand Handling Costs**

The costs incurred for the shipping and handling ofproducts sold are classified in the financial statements as a selling expenseon the Statements of Operations. Shipping and handling costs were $32.8 million and $32.5 million for thethree months ended November 30, 2006 and 2005, respectively.

**Note 10: SegmentReporting**

The Company hasidentified two reportable segments: Sugar and Leasing.  The sugar segment is engaged primarily in theproduction 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 theCompany’s reportable segments for the three months ended November 30, 2006 and2005, is shown below:

|                                      | ** ** | **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 |   |

 

8

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|                                      | ** ** | **For the Three Months Ended November 30, 2005  (Dollars In Thousands)** | ** ** |
|--------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------|------------|
| ** **                           | ** ** | **Sugar**                                                                                                             | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from  External Customers |       | $                                                                                                                     | 224,853    |   | $ | 6,418 |   | $ | 231,271 |   |
| Gross Proceeds                       |       | $                                                                                                                     | 213,976    |   | $ | 3,403 |   | $ | 217,379 |   |
| Depreciation and  Amortization       |       | $                                                                                                                     | 14,823     |   | $ | 2,779 |   | $ | 17,602 |   |
| Interest Income                      |       | $                                                                                                                     | 135        |   | $ | 9 |   | $ | 144 |   |
| Interest Expense                     |       | $                                                                                                                     | 2,759      |   | $ | 1,171 |   | $ | 3,930 |   |
| Income from  Equity Method Investees |       | $                                                                                                                     | 284        |   | $ | — |   | $ | 284 |   |
| Other Expense,  Net                  |       | $                                                                                                                     | 644        |   | $ | — |   | $ | 644 |   |
| Net Proceeds                         |       | $                                                                                                                     | 125,560    |   | $ | 1,129 |   | $ | 126,689 |   |
|                                 |       |                                                                                                                  |       |   |   |   |   |
| Capital Expenditures                 |       | $                                                                                                                     | 6,503      |   | $ | 238 |   | $ | 6,741 |   |

 

 

|                              | ** ** | **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 |   |

 

 

|                              | ** ** | **As of November 30, 2005  (Dollars In Thousands)** | ** ** |
|------------------------------|------------|-----------------------------------------------------------------------------------|------------|
| ** **                   | ** ** | **Sugar**                                                                         | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Property and  Equipment, Net |       | $                                                                                 | 322,105    |   | $ | — |   | $ | 322,105 |   |
| Assets Held for  Lease, Net  |       | $                                                                                 | —     |   | $ | 148,352 |   | $ | 148,352 |   |
| Segment Assets               |       | $                                                                                 | 932,263    |   | $ | 159,884 |   | $ | 1,092,147 |   |

 

 

**Note 11:  Environmental Matters:**

The Company’s East Grand Forks, Minnesota factory has experiencedhydrogen sulfide emissions from its water treatment ponds that have exceededpermissible limits.  The Company isworking with the Minnesota Pollution Control Agency and is aggressivelyaddressing the situation.  While theCompany may be assessed penalties and/or fines related to this occurrence, asof the date of this report none have been assessed.  Any potential penalties and/or fines are notexpected to be material to the Company. Capital expenditures will be required to prevent future occurrences ofthe emissions.  The Company’s fiscal 2007budget includes capital expenditures of approximately $4.0 million at the EastGrand Forks, Minnesota factory to address this situation.  The amount and timing of any additionalcapital expenditures that may be required is not currently known.

 

**Note 12:  Legal Matters:**

Another sugar company has appealed to federal court a decision by theUSDA relative to the determination and transfer of sugar marketing allocationsmade by the USDA.  While the Company isnot a party to this case, it is solely an intervenor.  If the decision by the chief judicial officerof the USDA in this case is overturned, it would result in the Companyexperiencing a reduction in marketing allocations equal to the loss ofapproximately 25,000 acres in future crop years assuming no other related factorswere to change.

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**Item 2.   Management’sDiscussion and Analysis of Results of Operations and Financial Condition forthe Three Months Ended November 30, 2006 and 2005**

This report containsforward-looking statements that involve risks and uncertainties.  Such forward-looking statements include,among others, those statements including the words “expect”, “anticipate”, “believe”,“may” and similar expressions.  TheCompany’s actual results could differ materially from those indicated.  Risk factors that could cause or contributeto such differences include, without limitation, market factors, weather andgeneral economic conditions, farm and trade policy, available quantity andquality of sugarbeets.  For a morecomplete discussion of “Risk Factors”, please refer to the Company’s 2006 Form10-K.

**Overview**

Dueto the large size of the 2006 Red River Valley crop, the Company instituted aneight percent reduction in the number of acres harvested by its members,approximately 40,000 acres, in order to manage the quantity and quality of thesugarbeets available for processing during fiscal 2007.  Alsodue to the large size of the 2006 Red River Valley crop, the Company commencedthe harvest and processing of the crop in August 2006 this year as compared toa typical start-up in September 2006. All the costs incurred prior to the beginning of the Company’s 2007fiscal year that related to receiving and processing the 2006 sugarbeet cropwere deferred in fiscal 2006 and recognized in fiscal 2007.  Similarly, the net realizable values ofproducts produced prior to the beginning of the Company’s 2007 fiscal year thatrelated to the 2006 sugarbeet crop were deferred in fiscal 2006 and recognizedin fiscal 2007.

Theharvest of the sugarbeet crop (Red River Valley crop and Sidney crop) grown during2006 and to be processed during fiscal 2007 produced a total of12.8 million tons of sugarbeets, or approximately 25.3 tons of sugarbeetsper acre from approximately 507,000 acres. This represents an increase in total tons harvested of approximately33.4 percent compared to the 2005 crop. The sugar content of the 2006 crop is 18.2 percent as compared to the18.0 percent sugar content of the 2005 crop. The Company expects to produce a total of approximately36.7 million hundredweight of sugar from the 2006 crop, an increase ofapproximately 23.6 percent compared to the 2005 crop.

Whilethe Company expects higher production volumes of its products this fiscal yearas compared to the previous fiscal year, the average selling prices for theseproducts are anticipated to decrease during the year due to supply and demandfactors.  Net Proceeds from Member andNon-Member Business for fiscal 2007 are expected to be approximately 15 percenthigher than in fiscal 2006.  Thisincrease is primarily the result of the anticipated increase in productionvolumes being partially offset by lower average selling prices, higherprocessing costs and higher selling expenses.

**Comparisonof the Three Months Ended November 30, 2006 and 2005**

Revenue for the three months ended November 30, 2006, was $258.2million, an increase of $27.0 million from the same period last year.  The table below reflects the percentagechanges in product revenues, prices and volumes for the three months endedNovember 30, 2006, as compared to the same period last year.

 

| Product  | ** ** | **Revenue** | ** ** | **Selling Price** | ** ** | **Volume** | ** ** |
|----------|------------|-------------|------------|------------------------|------------|------------|------------|
| Sugar    |       | 11.0        | %          | 15.1                   | %          | -3.6       | %          |
| Pulp     |       | 13.1        | %          | 4.3                    | %          | 8.4        | %          |
| Molasses |       | 179.2       | %          | 23.6                   | %          | 125.9      | %          |
| CSB      |       | 50.5        | %          | 20.1                   | %          | 25.3       | %          |
| Betaine  |       | -19.6       | %          | 12.4                   | %          | -28.4      | %          |
|     |       |        |       |                   |       |       |       |

 

Rentalrevenue on the ProGold operating lease was $6.2 million and $6.4 million forthe three months ended November 30, 2006 and 2005, respectively.

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Cost of sales for the three months ended November 30, 2006, exclusiveof payments to members for sugarbeets, decreased $49.1 million as compared tothe same period last year.  The change inthe net realizable value of product inventories impacted the cost of salesfavorably by $53.6 million.  The costsassociated with sugar purchased to meet customer needs decreased by $ .9million due to an earlier campaign start-up this year.  The cost recognized associated with thenon-member sugarbeets decreased   $ .2million for the three months ended November 30, 2006, when compared to the sameperiod last year.  This decrease wasprimarily due to a lower per ton estimated grower payment this year resultingfrom the lower sugar content of the 2006 Sidney crop partially offset by anincrease in tons processed.  Directprocessing costs for sugar and pulp increased 13.2 percent.  The increase in direct processing costs wasdue to a 39.1 percent increase in tons processed partially offset by increasedfactory slice efficiencies and favorable natural gas prices.  Fixed and committed expenses increased 8.4percent reflecting increased maintenance, depreciation and other general costincreases.

Selling, general and administrative expenses decreased $ .1 million forthe three months ended November 30, 2006, as compared to the same period lastyear.  Selling expenses decreased $ .3million due to less sugar sold partially offset by an increase in freight,warehousing and packaging costs.  Generaland Administrative expenses increased $ .2 million due to general costincreases.

Interest expense decreased $ .5 million for the three months endedNovember 30, 2006 as compared to the same period last year. This reflects adecreased average borrowing level for long-term debt partially offset by higheraverage interest rates for long-term and short-term debt and a higher averageborrowing level for short-term debt.

Non-member business activities resulted in a gain of $1.0 million forthe three months ended November 30, 2006, as compared to a gain of $ .4 millionfor the same period last year.  The gainin both years was due primarily to activities related to Sidney Sugars.

**NorthAmerican Free Trade Agreement**

The North American Free Trade Agreement (NAFTA) governs sweetener tradebetween the United States and Mexico.  Under an agreement reached betweenthe two countries on July 27, 2006, Mexico is eligible toship, tariff-free, 250,000 metric tons of raw sugar to the UnitedStates in fiscal year 2007 and up to an additional 250,000 metric tons in thefirst quarter of fiscal year 2008.  Reciprocal quantities of highfructose corn syrup may be shipped from the United States to Mexico during therespective time periods.  Under the NAFTA, tariffs on over-quota importsof sugar from Mexico are set to expire by January 1, 2008.  For 2007,the over-quota tariff for raw cane sugar stands at 1.51 cents per pound. Depending on market conditions in Mexico and the United States, over-quotaimports of Mexican sugar beyond the tariff-free amounts could be feasible in2007 and beyond.  Excessive imports of Mexican sugar could cause materialharm to the U.S. sugar market.  The Company does not know the extent towhich Mexico will fulfill its tariff-free or over-quota export opportunities**.**

**Regionaland Bilateral Free Trade Agreements**

The United States government is pursuing an aggressive agenda oninternational trade.  It is seeking tonegotiate new free trade agreements with a number of countries and regions thatare major producers of sugar.  TheCompany believes these agreements, if they reach fruition, could negativelyimpact the Company’s profitability.  Theprimary agreements under consideration that affect sugar, to the Company’sknowledge, are the Andean Free Trade Agreement; the Thailand Free TradeAgreement; the U.S.-Panama Free Trade Agreement; and the Association ofSoutheastern Nations Free Trade Agreement. Many of the countries included in these agreements are major sugarproducers and exporters.  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.

Portions of these agreements have been completed.  Within the Andean Free Trade Agreement, theU.S.-Peru Free Trade Agreement was signed on April 12, 2006.  The U.S.-Colombia Free Trade Agreementis also nearing completion.  The Companyexpects that these two trade agreements may be brought before Congress for avote in 2007.

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The Doha Round negotiations of the World Trade Organization havestalled and it is unclear at this time when they will be revived.  If the negotiations begin again, the outcomeof any negotiated arrangement could have adverse consequences for the Company.

The U.S. sugar industry and the Company, as an influential member ofsuch industry, recognize the potential negative impact that would result ifthese agreements are entered into by the United States and are taking steps toattempt to manage the situation.  TheCompany and the sugar industry intend to continue to focus significantattention on trade issues in the future.

The impact of the various trade agreements on the Company cannot beassessed at this time due to the uncertainty concerning the terms of theagreements and whether they will ultimately be implemented.  It is possible, however, that the passage ofvarious trade agreements could have a material adverse effect on the Companythrough a reduction in acreage that can be planted by the Company’sshareholders and by the growers for Sidney Sugars, and/or a reduction in sugarselling prices, and a corresponding reduction in the beet payment to theshareholders and the Company earnings. Although the magnitude of the impact cannot be determined at this time,the Company estimates that for every 500,000 tons of sugar entering the U.S.market and therefore reducing the overall allotment quantity (and assuming noother variables change), the Company may need to reduce planted acres byapproximately 40,000, which would negatively impact shareholder profits.

**Environmental**

The Company’s East Grand Forks, Minnesota factory has experiencedhydrogen sulfide emissions from its water treatment ponds that have exceededpermissible limits.  The Company isworking with the Minnesota Pollution Control Agency and is aggressivelyaddressing the situation.  While theCompany may be assessed penalties and/or fines related to this occurrence, asof the date of this report none have been assessed.  Any potential penalties and/or fines are notexpected to be material to the Company. Capital expenditures will be required to prevent future occurrences ofthe emissions.  The Company’s fiscal 2007budget includes capital expenditures of approximately $4.0 million at the EastGrand Forks, Minnesota factory to address this situation.  The amount and timing of any additionalcapital expenditures that may be required is not currently known.

**Liquidityand Capital Resources**

Under the Company’s Bylaws and Member Grower Contracts, payments formember-delivered sugarbeets, the principal raw material used in producing thesugar and agri-products it sells, are subordinated to all member businessexpenses.  In addition, the beet paymentsmade to member growers and non-member growers are paid in three payments overthe course of a year, and the member payments are made net of any anticipatedunit retain for the crop.  Theseprocedures have the effect of providing the Company with an additional sourceof short-term financing.  This financingarrangement may result in an additional source of liquidity and reduced needfor outside financing in comparison to a similar business operated on a non-cooperativebasis.

Because sugar is sold throughout the year (while sugarbeets areprocessed primarily in the fall, winter and spring) and because substantialamounts of equipment are required for its operations, the Company has utilizedsubstantial outside financing on both a seasonal and long-term basis to fundits operations.  The majority of suchfinancing has been provided by a consortium of lenders led by CoBank, ACB.

The Company has long-term debt availability with CoBank, ACB of****$231.3 million, of which $101.2 million in loans and$53.3 million in long-term letters of credit were outstanding as of November30, 2006.  The unused long-term line ofcredit as of November 30, 2006, was $76.8 million.  In addition, the Company has long-term debtoutstanding, as of November 30, 2006, of $50 million from a privateplacement of Senior Notes that occurred in September of 1998; $9.3 million froma private placement of Senior Notes that occurred in January of 2003;$42.3 million from nine separate issuances of Pollution

12

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Control and Industrial Development Revenue Bonds; and aterm loan with Bank of North Dakota of $2.4 million.

The Company also has a seasonal line of credit with a consortium oflenders led by CoBank, ACB of $400 million, against which there was $40.0million outstanding as of November 30, 2006 and a line of credit with WellsFargo Bank for $1 million, against which there was no outstanding balanceas of November 30, 2006.  The Company’scommercial paper program provides short-term borrowings of up to $325 millionof which approximately $236.5 million was outstanding as of November 30,2006.  The Company had $5.5 million ofshort-term letters of credit outstanding as of November 30, 2006.  The unused short-term line of credit as ofNovember 30, 2006, was $119.0 million. Any borrowings under the commercial paper program along with outstandingshort-term letters of credit will act to reduce the available credit under theCoBank, ACB seasonal line of credit by a commensurate amount.

The Company had outstanding purchase commitments totaling $16.5 millionas of November 30, 2006, for equipment and construction contracts related tovarious capital and maintenance projects.

The changes that have occurred in the Company’s financial statementsfrom August 31, 2006, to November 30, 2006, were primarily due to normalbusiness seasonality.  The first threemonths of the Company’s fiscal year includes: the completion of the sugarbeetharvest, start of the processing campaign; the final payments to growers for sugarbeetsdelivered from the previous year’s crop; and the initial payments to growersfor sugarbeets delivered from the current year’s crop.

The Company controls 50 percent of Crystech, LLC, a special purposeentity that operates a molasses desugarization facility at the Company’sHillsboro, North Dakota sugar factory. The Company accounts for its investment using the equity method.  As of November 30, 2006, Crystech hadoutstanding debt of $6.1 million.

The net cash used by operations was $242.1 million for the three monthsended November 30, 2006, as compared to $127.4 million for the same period lastyear.  This increase of $114.7 millionwas primarily due to changes in inventories of $111.0 million and changes in theamounts due growers of $13.5 million partially offset by the changes inreceivables of $17.2 million.  The changein inventories was due primarily to an increase in the quantity of productinventories this year due to an earlier campaign start up in the Red RiverValley and the increased quantity of unprocessed sugarbeets this year due tothe large 2006 crop.

The net cash used in investing activities was $13.5 million for thethree months ended November 30, 2006, as compared to $5.9 million for sameperiod last year.  The increase of $7.6million was primarily related to increased purchases of property and equipment.

The net cash provided by financing activities was $255.5 million forthe three months ended November 30, 2006, as compared to $134.1 million for thesame period last year.  This increase of$121.4 million was primarily due to increased borrowings of short-term debtpartially offset by increased payments on long-term debt.

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

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

Market risk is the risk of loss to future earnings, to fair values orto future cash flows that may result from changes in the price of a financialinstrument.  The value of a financialinstrument may change as a result of changes in the interest rates, exchangerates, commodity prices, equity prices and other market changes.  Market risk is attributed to all market-risksensitive financial instruments, including long term debt.

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The Company does not believe that there is any material market riskexposure with respect to interest rates, exchange rates, commodity prices,equity prices and other market changes that would require disclosure under thisitem.

**Item 4.  Controls and Procedures**

The Company’s chief executive officer and chief financial officer havereviewed and evaluated the effectiveness of the Company’s disclosure controlsand procedures (as defined in Rules 240.13a-15(e) and 15d-15(e) promulgatedunder the Securities Exchange Act of 1934) as of November 30, 2006.  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.

## **PARTII. OTHER INFORMATION**

#### **Item1.  Legal Proceedings**

From time to time and in the ordinary course of its business, theCompany is named as a defendant in legal proceedings related to various issues,including worker’s compensation claims, tort claims and contractualdisputes.  The Company is currentlyinvolved in certain legal proceedings, which have arisen in the ordinary courseof the Company’s business.  The Companyis also aware of certain other potential claims, which could result in thecommencement of legal proceedings.  TheCompany carries insurance, which provides protection against certain types ofclaims.  With respect to currentlitigation and potential claims of which the Company is aware, the Company’smanagement believes that (i) the Company has insurance protection to coverall or a portion of any judgments which may be rendered against the Companywith respect to certain claims or actions and (ii) any judgments which maybe entered against the Company and which may exceed such insurance coverage orwhich may arise in actions involving potential liabilities not covered byinsurance policies are not likely to have a material adverse effect upon theCompany, or its assets or operations.

Another sugar company has appealed to federal court a decision by theUSDA relative to the determination and transfer of sugar marketing allocationsmade by the USDA.  While the Company isnot a party to this case, it is solely an intervenor.  If the decision by the chief judicial officerof the USDA in this case is overturned, it would result in the Companyexperiencing a reduction in marketing allocations equal to the loss ofapproximately 25,000 acres in future crop years assuming no other relatedfactors were to change.

**Item1A.  Risk Factors.**

For a detailed discussion of certain risk factors that could affect theCompany’s operations, financial condition or results for future periods, seethe risk factor discussed below, and Item 1A, Risk Factors, in the Company’s2006 Annual Report on Form 10-K.

**Quantityand quality of sugarbeets is sensitive to weather and other factors such asseed varieties.**

The sugarbeet, as with most other crops, is affected by many factors,including seed varieties and weather conditions during the growing season.  Additionally, the quantity of sugarbeets tobe processed

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andweather conditions during the processing season affect our ability to storesugarbeets held for processing.  Growingand storage conditions different from what we predict or expect may change thequantity and quality of sugarbeets available for processing and therefore mayaffect the quantity of the sugar we produce.

A significant increase in the quantity or quality of sugarbeetsharvested due to good weather conditions or improved seed varieties couldresult in an unpredictably large quantity of sugarbeets to be processed.  If we are required to process a larger thananticipated quantity of sugarbeets we may experience increased per unitprocessing cost or a decrease in production which in turn would have an adversefinancial consequence to us and our members.

Inorder to manage the quantity and quality of sugarbeets that are harvested oravailable for processing, our Grower Contract allows for a reduction in thenumber of acres to be planted at the beginning of a crop year or harvested atthe end of a crop year.  Up through the2005 crop year, we had not instituted or required a reduction in the number ofacres harvested at the end of a crop year. Due to the large size of the 2006 Red River Valley crop, we institutedan eight percent, approximately 40,000 acres, reduction in the number of acresharvested by our members in order to manage the quantity and quality of thesugarbeets that we have available for processing.  Also due to the large size of the 2006 RedRiver Valley crop, the Company commenced the harvest and processing of the cropin August this year as compared to a typical start-up in September.

Theharvest of the 2006 Red River Valley crop resulted in a total of 11.9 milliontons or an average of 25.4 tons per acre. This represents the largest Red River Valley crop and the highesttonnage per acre in the Company’s history. Adequate storage conditions for the remainder of the processing campaignare critical to ensure that the quantity and quality of sugarbeets availablefor processing are maintained.  If we arenot able to obtain or maintain adequate storage conditions, the sugarbeetscurrently being stored for processing at a later date may deteriorate,resulting in increased production costs, and decreased production which in turnwould have an adverse financial consequence to us and our members.

In anticipation of an ever increasing quantity of sugarbeets per acre,we may be required to reduce the planting tolerances set at the beginning of acrop year.  If we are unable to managethe quantity and quality of sugarbeets available for processing, we couldexperience adverse financial consequences that would impact both us and ourmembers

**Item2.  Unregistered Sales of EquitySecurities and Use of Proceeds.**

None

**Item 3.  Defaults Upon Senior Securities**

None

**Item 4.  Submission of Matters toa Vote of Security Holders**

The Company heldmeetings in November 2006 with its shareholders from the five geographicaldistricts where the Company’s Red River Valley factories are located.

At the HillsboroFactory District Meeting held on November 6, 2006, Francis L. Kritzberger wasre-elected as a Director, receiving 53 of the 53 votes cast.  His three-year term expires in December 2009.  John Brainard and Jeff D. McInnes willcontinue as Directors for the Hillsboro Factory District.

At the Drayton Factory District Meeting held on November 6, 2006, NeilC. Widner was re-elected as a Director, receiving 140 of the 140 votes castwith two abstentions.  His three-yearterm expires in December 2009.  WilliamBaldwin and Robert M. Green will continue as Directors for the Drayton FactoryDistrict.

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At the CrookstonFactory District Meeting held on November 7, 2006, Steve Williams was electedas a Director, receiving 43 of the 80 votes cast.  His three-year term expires in December2009.  Mr. Williams is 55 years old.  Mr. Williams has raised sugarbeets and other crops on a thirdgeneration family farm near Fisher, Minnesota since 1987.  Mr. Williams has been a sugarbeet seed dealerfor Betaseed since 1976.  Mr. Williamshas served as a director of the Red River Valley Sugarbeet Growers Associationsince 1998, and has served as its president since 2003.  Mr. Williams resigned as president of the RedRiver Valley Sugarbeet Growers Association effective as of the commencement ofhis term as a director of the Company. Mr. Williams also serves on the board of directors and as president ofthe American Sugarbeet Growers Association; and as director of the Sugar Association,the Halstad Cooperative Telephone Company, and the Eldred Farmers Elevator.  Mr.Williams replaces Lonn M. Kiel who was unable to stand for re-election due tothe provisions of the Company By-Laws which prohibit a person from serving morethan four consecutive terms as a Director.  Ronald E. Reitmeier and Jim A. Ross willcontinue as Directors for the Crookston Factory District.

At the MoorheadFactory District Meeting held on November 7, 2006, Richard Borgen wasre-elected as a Director, receiving 82 of the 84 votes cast.  His three-year term expires in December2009.  Michael A. Astrup and David J.Kragnes will continue as Directors for the Moorhead Factory District.

At the East GrandForks Factory District Meeting held on November 8, 2006, John F. Gudajtes wasre-elected as a Director, receiving 106 of the 187 votes cast with one abstention.  His three-year term expires in December 2009.  BrianR. Erickson and Curtis E. Haugen will continue as Directors for the East GrandForks Factory District.

**Item5.  Other Information.**

None.

** **

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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     |       | Pledge Agreement  between Registrant and First Union Trust Company, NA.                                              |       | Incorporated by  reference to Exhibit 10(ee) from the Company’s Annual Report on Form 10-K for  the year ended August 31, 1998.                                     |
| 10.4     |       | Indemnity Agreement  between Registrant, Newcourt Capital USA Inc., Crystech, LLC and Crystech  Senior Lender Trust. |       | Incorporated by  reference to Exhibit 10(ff) from the Company’s Annual Report on Form 10-K for  the year ended August 31, 1998.                                     |
| 10.5     |       | Tolling Services  Agreement between Crystech, LLC and Registrant.                                                    |       | Incorporated by  reference to Exhibit 10(gg) from the Company’s Annual Report on Form 10-K for  the year ended August 31, 1998.                                     |
| 10.6     |       | Operations and  Maintenance Agreement between Crystech, LLC and Registrant.                                          |       | Incorporated by  reference to Exhibit 10(hh) from the Company’s Annual Report on Form 10-K for  the year ended August 31, 1998.                                     |
| +10.7    |       | Limited Liability  Company Agreement of Crystech, LLC.                                                               |       | Incorporated by  reference to Exhibit 10(ii) from the Company’s Annual Report on Form 10-K for  the year ended August 31, 1998.                                     |

 

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| 10.8    |   | 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.  |
|---------|--------|---------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------|
| 10.9    |   | 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.  |
| 10.10   |   | 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.  |
| ++10.11 |   | 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. |
| 10.12   |   | Stipulation Agreement  between Registrant and State of Minnesota Pollution Control Agency, dated  April 4, 2000.          |   | Incorporated by  reference to Exhibit 10.28 from the Company’s Form 10-Q for the quarter ended  May 31, 2000.                   |
| ++10.13 |   | 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.  |
| ++10.14 |   | 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.  |
| 10.15   |   | 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.              |
| 10.16   |   | 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.              |
| 10.17   |   | 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.              |
| 10.18   |   | 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.              |
| +10.19  |   | 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.                   |
| 10.20   |   | 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.  |
| 10.21   |   | 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.                   |

 

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| ++10.22 |   | 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.                              |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------|
| ++10.23 |   | 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. |
| 10.24   |   | 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. |
| 10.25   |   | Second Amendment to  Amended and Restated Loan Agreement between the Registrant and CoBank, ACB  dated November 3, 2006. |   | 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, 2006.  |
| 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.                                                                                              |

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+                    Confidentialtreatment under Rule 24b-2 of the Securities and Exchange Act of 1934, asamended, has been granted with respect to designated portions of this document.

++             Amanagement contract or compensatory plan required to be filed with this report.

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**SIGNATURES**

**Pursuantto the requirement of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.**
|                            | **AMERICAN CRYSTAL SUGAR COMPANY** |
|----------------------------|------------------------------------|
|                       | ** **                         | **(Registrant)** |
|                       | ** **                         | ** ** |
|                       | ** **                         | ** ** |
| **Date: January 15, 2007** | ** **                         | **/s/ Mark Kalvoda** |
| ** **                 | ** **                         | **Mark Kalvoda** |
| ** **                 | ** **                         | **Corporate Controller,** |
| ** **                 | ** **                         | **Chief Accounting Officer** |
| ** **                 | ** **                         | **Duly Authorized Officer** |

** **

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