**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-K**

 

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

**For thefiscal year endedAugust 31, 2007**

 

**or**

 

**o****  Transition ReportPursuant to Section 13 or 15(d) ofthe Securities Exchange Act of 1934**

 

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**CommissionFile**

**Nos.****33-83868;333-11693 and 333-32251**

 

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**AMERICAN CRYSTAL SUGAR COMPANY**

(Exact name ofregistrant as specified in its charter)

 

 

| **Minnesota**                             | ** ** | **84-0004720**                           |
|-------------------------------------------|------------|------------------------------------------|
| (State of  incorporation)                 |       | (I.R.S. Employer  Identification Number) |
| * *                                  | * *   | * *                                 |
| **101  North Third Street**               | ** ** | ** **                               |
| **Moorhead,  MN 56560**                   | ** ** | **(218)  236-4400**                      |
| (Address of  principal executive offices) |       | (Registrant’s  telephone number)    |

 

Securitiesregistered pursuant to Section 12(b) of the Act:

**NONE**

 

Securitiesregistered pursuant to Section 12(g) of the Act:

**NONE**

 

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Indicate by check mark if the registrant is a wellknown seasoned issuer, as defined in Rule 405 of the Securities Act.Yes o   No  x

 

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Indicate by check mark if the registrant is not requiredto file reports pursuant to Section 13 or 15(d) of the Act. Yes o   No  x

 

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Indicate by check mark whether the Registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the Registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes  x  No o

 

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Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. x

 

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Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2 ofthe Exchange Act. 
| (Check one)  Large accelerated filero |   | Accelerated  filero |   | Non-accelerated  filer x |
|---------------------------------------|--------|---------------------|--------|--------------------------|

 

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Indicate by check mark whether the registrant is ashell company (as defined in rule 12b-2 of the Act). Yes oNo  x

 

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As of November 15,2007, 2,878 shares of the Registrant’s Common Stock and 498,570 shares of theRegistrant’s Preferred Stock were outstanding. There is no established publicmarket for the Registrant’s Common Stock or Preferred Stock. Although there isa limited, private market for shares of the Registrant’s stock, the Registrantdoes not obtain information regarding the transfer price in transactionsbetween its members and therefore is unable to estimate the aggregate marketvalue of the Registrant’s shares held by non-affiliates.

 

**DOCUMENTS INCORPORATED BYREFERENCE**

# **NONE **

 

 

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# **PART I**

# ** **

*This report contains forward-looking statements andinformation based upon assumptions by the American Crystal Sugar Company’smanagement, including assumptions about risks and uncertainties faced by theCompany. These forward-looking statements can be identified by the use offorward-looking terminology such as “expects”, “believes”, “will” or similarverbs or expressions. If any of management’s assumptions prove incorrect orshould unanticipated circumstances arise, the Company’s actual results couldmaterially differ from those anticipated by such forward-looking statements. Thedifferences could be caused by a number of factors or combination of factors,including, but not limited to, those factors influencing the Company and itsbusiness which are described in this report in the “Risk Factors” section below.Readers are urged to consider these factors when evaluating any forward-lookingstatement. The Company undertakes no obligation to update any forward-lookingstatements in this report to reflect future events or developments.*

 

**Item 1.**                                        BUSINESS

** **

**GENERAL**

 

The Company is a Minnesota agricultural cooperativecorporation owned by approximately 2,900 sugarbeet growers in the Minnesota andNorth Dakota portions of the Red River Valley. The Red River Valley is thelargest sugarbeet growing area in the United States, forming a bandapproximately 35 miles wide on either side of the North Dakota and Minnesotaborder and extending approximately 200 miles south from the border of theUnited States and Canada. The Company was organized in 1973 by sugarbeetgrowers to acquire the business and assets of the American Crystal SugarCompany, then a publicly held New Jersey corporation in operation since 1899. TheCompany currently processes sugarbeets from a base level of approximately500,000 acres in the Red River Valley (the Red River Valley Crop), subject totolerances for over-planting and under-planting established by the Board ofDirectors each year. By owning and operating five sugarbeet processingfacilities in the Red River Valley, the Company provides its shareholders withthe ability to process their sugarbeets into sugar and agri-products such as:molasses; sugarbeet pulp; and by-products of the molasses desugarizationprocess, betaine and concentrated separated by-product (CSB).

 

The Company, through its wholly-owned subsidiary,Sidney Sugars Incorporated (Sidney Sugars), owns two sugarbeet processingfacilities. The Company processes the sugarbeets from approximately 35,000acres grown by non-member growers at the Sidney, Montana, facility. TheTorrington, Wyoming, facility has been leased on a long-term basis to anothersugar producer.

 

 The Company, through its wholly-ownedsubsidiary, Crab Creek Sugar Company (Crab Creek), controls the long-termproduction of sugar at a sugarbeet processing facility at Moses Lake,Washington. Neither Crab Creek nor the Company currently operates or intends tooperate the Moses Lake facility.

 

The Company is the controlling member of ProGoldLimited Liability Company (ProGold), which owns a corn wet-milling plant inWahpeton, North Dakota, that is currently being leased to Cargill, Incorporated(Cargill). On November 6,2007, ProGold entered into an amended lease agreement with Cargill thatsupersedes and replaces the existing 10 year lease between ProGold and Cargilland provides that (1) Cargill will pay ProGold average annual rental paymentsequal to $21,900,000, and (2) that the term of the lease be extended untilDecember 31, 2017.

 

On May 1, 2007, the Company acquired CIT Capital USAInc.’s  50 percent ownership interest inCrystech, LLC (Crystech) resulting in the Company’s 100 percent ownership ofCrystech. Crystech owned the molasses desugarization facility adjacent to theCompany’s processing facility in Hillsboro, 

 

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North Dakota. EffectiveMay 31, 2007, Crystech was dissolved with all assets and liabilitiestransferred to the Company.

 

The Company’s sugar marketing agent, United SugarsCorporation (United), is a cooperative owned by the Company, Minn-Dak FarmersCooperative and United States Sugar Corporation. The Company’s agri-productsare marketed through a marketing agent, Midwest Agri-Commodities Company(Midwest). Midwest is a cooperative owned by the Company, Minn-Dak FarmersCooperative, Southern Minnesota Beet Sugar Cooperative and Michigan SugarCompany.

 

**OperatingSegments**

 

The Company has identifiedtwo reportable operating segments: Sugar and Leasing. The Sugar segment isengaged primarily in the production and marketing of sugar from sugarbeets. Italso sells agri-products and sugarbeet seed. The Leasing segment is engaged inthe leasing of a corn wet milling plant used in the production of high-fructosecorn syrup. For financial information by segment see Note 12 of “Notes to theConsolidated Financial Statements.”

 

**Principal Products Produced**

 

The Company is engaged primarily in the production andmarketing of sugar from sugarbeets. Total sugar sales accounted for 88.6percent, 88.5 percent and 88.1 percent of the Company’s consolidated totalrevenues for the years ended August 31, 2007, 2006 and 2005, respectively. UnitedSugars Corporation, the Company’s sugar marketing agent, sells sugar primarilyto industrial users such as confectioners, breakfast cereal manufacturers andbakeries. For the fiscal year ended August 31, 2007, 89.9 percent (byweight) of the sugar was sold to industrial users. The remaining portion ismarketed by United Sugars Corporation through sugar brokers to wholesalers andretailers under the “Crystal Sugar” and various private labels for householdconsumption. With regard to brand name sales, the Company licenses the use ofthe “Crystal” trademark to United Sugars Corporation.

 

The majority of United Sugars Corporation’s sugarsales are contracted one or more quarters in advance.

 

The Company also sells agri-products such as:molasses; sugarbeet pulp; betaine and concentrated separated by-product (CSB),by-products of the molasses desugarization process; and sugarbeet seed. Substantiallyall of the Company’s agri-products are marketed through MidwestAgri-Commodities Company, a common marketing agency. Sugarbeet pulp is marketedto livestock feed mixers and livestock feeders in the United States and foreignmarkets. A large proportion of the Company’s pulp production is exported toJapan and Europe. The market for sugarbeet pulp is affected by the availabilityand quality of competitive feedstuffs and foreign exchange rates. Sugarbeetmolasses is marketed primarily to yeast manufacturers, livestock feed mixersand livestock feeders. Total agri-product sales accounted for 8.8 percent ofthe Company’s consolidated total revenues during fiscal 2007, of which exportagri-product sales accounted for 3.3 percent of such revenues. In the past,agri-products sales accounted for 8.2 percent and 8.2 percent of the Company’sconsolidated total revenues in fiscal 2006 and fiscal 2005, respectively, whileagri-product export sales accounted for 3.8 percent and 4.3 percent of the Company’stotal revenues in fiscal 2006 and fiscal 2005, respectively.

 

There is no single customer of United SugarsCorporation or Midwest Agri-Commodities Company attributable to the Companythat accounts for 10 percent or more of the revenues of the Company.

 

The Company’s total annual sugar and agri-productproduction is influenced by the amount and the quality of sugarbeets grown byits members and non-members, the processing capacity of the 

 

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Company’s plants, by itsability to store harvested sugarbeets and by government programs andregulations.

 

**Raw Materials**

 

The Company purchases all of its Red River Valleysugarbeets from members under contract with the Company. All members havefive-year contracts with the Company covering the growing seasons of 2003through 2007. In September 2007, the Board of Directors approved a new fiveyear contract for the 2008 through 2012 crop years. These five-year contractsautomatically renew for additional five-year terms unless terminated by one ofthe parties at the end of the current term. In addition, each member has anannual contract with the Company specifying the number of acres the member isobligated to grow during that year. Each share of Preferred Stock held by amember requires that member to grow one acre of sugarbeets for sale to theCompany. The Company’s Board of Directors has the discretion to adjust theacreage that is required to be planted for each share of Preferred Stock heldby the members. The Board of Directors has historically tried to maintain therelationship between shares of Preferred Stock and acres of sugarbeetproduction at a ratio as close to 1 to 1 as possible, subject to tolerances forover-planting and under-planting established by the Board each year andreductions or increases caused by the Company’s marketing allocationsestablished by the United States Department of Agriculture (USDA). The Companyannounced to its shareholders on November 1, 2007, that the Company iscurrently anticipating that the Company shareholders will be authorized toplant between 400,000 and 450,000 acres for the 2008 sugarbeet crop orapproximately .8 to .9 acres per share of Preferred Stock. The Board of Directors and managementcontinue to review and determine the relationship between the ownership ofPreferred Stock and acreage planting.

 

The gross beet payment is the value of recovered sugarfrom the sugarbeets a member delivers plus the member’s share of agri-productrevenues, minus the member’s share of member business operating costs. Thefollowing allowances, costs and deductions, if applicable, are used to adjustthe gross beet payment to arrive at the net beet payment: hauling programallowance and costs, pre-pile quality premium and costs, tare incentivepremium/penalty program, late harvest program costs and unit retains. Membersare paid a hauling allowance based on the distance they must transportsugarbeets for delivery to the Company and may also receive an allowance forearly delivery of sugarbeets prior to the commencement of the stockpiling ofharvested sugarbeets. The costs of these programs are shared among members onthe basis of the net tonnage of sugarbeets delivered by each member.

 

Under the grower contracts, payments to members forsugarbeets must be made in at least three installments: (i) on or aboutNovember 15, the Company pays its members an amount equal to 65 percent ofthe Company’s estimate of the member’s net beet payment; (ii) on or aboutMarch 31, the Company pays an amount, which combined with theNovember payment, equals 90 percent of the member’s estimated net beetpayment; (iii) and not more than 15 days after completion and acceptanceof the audit of the Company’s annual consolidated financial statements, theCompany pays the remainder of the member’s net beet payment. Except for unitretains, the Company must pay to its members for their sugarbeets all proceedsfrom the sale of the members’ sugar and agri-products in excess of relatedmember business operating costs, as described above.

 

All of the sugarbeetsprocessed at the Sidney, Montana, factory are purchased from non-member growersunder contract with Sidney Sugars. Each non-member grower has an annualcontract with Sidney Sugars specifying the number of acres the non-membergrower is obligated to grow during each year.

 

The price per ton ofsugarbeets paid to the growers who deliver to Sidney Sugars (the Scale Payment)is determined according to the sugarbeet payment scale contained in the growercontract and is calculated based on Sidney Sugars’ average net return for sugarfrom that year’s crop and the adjusted average sugar content of each grower’ssugarbeets.

 

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Under grower contractsbetween Sidney Sugars and its growers, payments to these growers for sugarbeetsmust be made in three installments following delivery of the crop: (i) inNovember, Sidney Sugars pays the growers an amount equal to 65 percent of theestimated Scale Payment for that year’s crop; (ii) in April, Sidney Sugarspays an amount, which combined with the November payment, equals 90percent of the estimated Scale Payment for that year’s crop; (iii) and inOctober, Sidney Sugars pays the remainder of the actual Scale Payment.

 

**Seasonality**

 

The period during whichthe Company’s plants are in operation to process sugarbeets into sugar andagri-products is referred to as the “campaign.” During the campaign, the Company’s factories operate twenty-four hoursper day, seven days per week. In the Red River Valley, the campaign typicallybegins in September and continues until the available supply of sugarbeets hasbeen depleted, which generally occurs in May of the following year. Basedon current processing capacity, an average campaign lasts approximately 260days, assuming normal crop yields. In Sidney, Montana, the campaign also beginsin September and lasts approximately 170 days.

 

The sales of sugar andagri-products occur ratably throughout the year with modest increases in sugarsales occurring prior to holiday seasons.

 

**Sales Backlog**

 

The backlog of anyunfilled sales orders at August 31, 2007 and 2006, was not material to theCompany.

 

**Market and Competition**

 

Current United States government statistics estimatetotal United States sugar consumption at approximately 188 millionhundredweight for the year beginning October 1, 2006 and endingSeptember 30, 2007. For the same period ending September 2006, totalconsumption was approximately 193 million hundredweight. Comparing the twoyears shows a decrease in demand of approximately three percent.

 

The United States refined sugar market has grown overthe past twenty years, despite the demand lost to the substitution of highfructose corn syrups for sugar in beverages and certain food products. Non-nutritivesweeteners such as aspartame have also been developed to substitute for sugar. Cornsweeteners and non-nutritive sweeteners constitute a large portion of theoverall sweetener market. The Company believes that the United States marketfor sugar will reflect minimal increases or be relatively flat in the nearfuture.

 

The United States sugar industry has been subject toindustry consolidation. Today there are fewer than 10 sugar sellers,****with approximately 73 percent of United States sugar marketshare concentrated in the top three sellers. The Company’s sugar production andsales represent approximately 21 percent of the total domestic market forrefined sugar in 2006/2007. The Company had the right to market, or to havemarketed on its behalf, approximately 34 million hundredweight of sugar fromthe 2006 crop. Sugar sales by United Sugars Corporation, the Company’smarketing agent, represent approximately 27 percent of the United States sugarmarket.

 

United Sugars Corporation’s main competitors in the domesticmarket are Imperial Sugar Corporation, Amalgamated Sugar Company, The AmericanSugar Refining Company and Western Sugar Cooperative. Because sugar is afungible commodity, competition in the United States industry is primarilybased upon price, customer service and reliability as a supplier. United SugarsCorporation is currently the second largest marketer of sugar in the UnitedStates.

 

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## **Government Programs and Regulations**

## ** **

### **Farm Security and Rural Investment Act of 2002**

###  

The Farm Security and Rural Investment Act of 2002(the Farm Bill) was enacted on May 13, 2002. The Farm Bill contains severalprovisions related to the domestic sugar industry, with the ultimate goal ofsuch provisions to achieve balance and stability in the U.S. sugar market whileminimizing the cost to the Federal government. The Farm Bill applies to the2002 through 2007 crop years. Generally, the Farm Bill restricts imports offoreign sugar, maintains a non-recourse loan program, and establishes a systemof marketing allocations for sugarbeet and sugar cane producers in an attemptto balance the supply and demand for sugar in the U.S. domestic sugar market.

 

Under the Farm Bill, sugar processors can borrow fundson a non-recourse basis from the Commodity Credit Corporation (CCC), withrepayment of such funds secured by sugar. If the price of sugar drops below theforfeiture price, the processors can forfeit the sugar securing the loans tothe CCC in lieu of repayment. Processors may also obtain CCC loans for “in-process”sugar or syrups at 80 percent of the loan rate.

 

The USDA has historically maintained sugar pricesabove the forfeiture price without cost to the U.S. Treasury by regulating thesupply of sugar in the U.S. market through regulating the quantity of sugarimports. Under the Tariff Rate Quota (TRQ) implemented October 1, 1990, sugarproducing countries are allowed to export a fixed quantity of sugar into theUnited States duty-free or subject to minimal duties. Unlimited additionalquantities may be exported to the United States upon payment of a tariff of15.36 cents per pound prior to shipment. To date, only immaterial quantities ofsugar have been imported under this higher tariff level.

 

The Farm Bill sets an 18 cent per pound loan rate forraw cane sugar and a 22.90 cent per pound loan rate for refined beet sugar. Bothloan rates were effective for the 2006 year crop.

 

In order to reduce the risk of sugar forfeitures tothe CCC and to provide balance in the marketplace, the Farm Bill establishesannual flexible marketing allotments for both cane and beet sugar processors. TheUSDA determines the overall allotment quantity (OAQ) for the U.S. domesticsugar market for each crop year by estimating sugar consumption, adding stocksexpected to be carried into the succeeding year, and then subtracting 1,532,000short tons, raw value of sugar (the maximum level of imports allowed beforemarketing allotments are expected to be suspended if the imports would lead toa reduction of the overall allotment quantity), and subtracting carry-in stocksof sugar, including CCC inventory. Once the USDA has determined the OAQ for acrop year, it then determines the allotment for beet and cane sugar bymultiplying the OAQ by 54.35 percent for beet and 45.65 percent for cane. Anindividual processor’s allocation of the allotment for a crop year isdetermined by a formula set forth in the Farm Bill. Sugarbeet processorallocations are based on each sugar processor’s sugar production history, whilesugar cane processor allocations are based on past marketings, ability tomarket and past processings. The USDA annually establishes individual processor’sallocations. The Company’s marketing allocations for the 2006, 2005 and 2004crops were approximately 34 million hundredweight, 32 million hundredweight and33 million hundredweight, respectively, while the marketing allocation for the2007 crop is currently set at approximately 33 million hundredweight.

 

Under the Farm Bill, a processor may market sugar inexcess of its allocation if such sales (i) enable another processor to meet itsallocation, (ii) facilitate the export of sugar or (iii) are made for nonhumanconsumption. The USDA can assess a penalty equal to three times the U.S. marketvalue of any quantity of sugar marketed in excess of a processor’s allocation. TheFarm Bill and its related 

 

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regulations do notallow marketing allocations to be traded among processors. The Farm Bill does,however, provide for the transfer of allocations associated with a particularprocessing facility in the event ownership of the facility is transferred.

 

The marketing allotments and allocations set forthunder the Farm Bill affect the sugar processed from the 2002 crop through the2007 crop. On an annual basis, the marketing allotments, and the correspondingallocation to the Company, will determine the amount of sugar the Company cansell into the domestic market. The Company’s allocation may reduce the amountof sugar the Company can market for a given year, thus reducing the number ofacres of sugarbeets required for processing to produce that amount of sugar.

 

Currently Congress is considering language that willeither extend or revise the Farm Security and Rural Investment Act of 2002. TheCompany has no way to predict the outcome, but the impact could be material andsignificant. Final language is expected prior to the 2008 crop planting.

 

### **North American Free Trade Agreement**

###  

The North American Free Trade Agreement (NAFTA)governs sweetener trade between the United States and Mexico.  Under anagreement reached between the two countries on July 27, 2006, Mexico iseligible to ship, tariff-free, 250,000 metric tons of raw sugar tothe United States in fiscal year 2007 and up to an additional 250,000 metrictons in the first quarter of fiscal year 2008.  Reciprocal quantitiesof high fructose corn syrup may be shipped from the United States to Mexicoduring the respective time periods.  Under the NAFTA, tariffs onover-quota imports of sugar from Mexico are set to expire by January 1,2008.  For 2007, the over-quota tariff for raw cane sugar stands at 1.51cents per pound.  Depending on market conditions in Mexico and the UnitedStates, over-quota imports of Mexican sugar beyond the tariff-free amountscould be feasible in 2007 and beyond.  Excessive imports of Mexican sugarcould cause material harm to the U.S. sugar market.  The Company has noway to predict the extent to which Mexico will fulfill its tariff-free orover-quota export opportunities**.**

 

### **Regional and Bilateral Free Trade Agreements**

###  

The United States governmentis pursuing an aggressive agenda on international trade. It is seeking tonegotiate new free trade agreements with a number of countries and regions thatare major producers of sugar. The Company believes these agreements, if theyreach fruition, could negatively impact the Company’s profitability. Ifincreases in guaranteed access or reductions in sugar tariffs are included inthese agreements, excess sugar from these regions could enter the U.S. marketand put pressure on domestic sugar prices.

 

Negotiations on some ofthese agreements have been completed. The U.S.-Colombian Free Trade Agreementwas completed on February 27, 2006, the U.S.-Peru Free Trade Agreement wascompleted on April 12, 2006 and the U.S.-Panama Free Trade Agreement wascompleted on December 18, 2006. The Company expects that these trade agreementsmay be brought before Congress for a vote later in 2007. Quantities of sugarfrom these countries expected to be permitted into the United States if theseagreements are approved 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 than 60,000 tons in year15, with the first-year increase tripling the duty-free sugar market accessColombia already enjoys.

 

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•                  Peru – the proposed agreement establishes aduty-free TRQ, in addition to that provided under the World Trade Organization(WTO), for those sugar and sugar-containing products for which overall TRQ’sunder the U.S. sugar import program are in operation. This TRQ is set at 9,000metric tons in year 1 of the agreement and rises to 11,250 metric tons in year15; after year 15 the in-quota quantity grows by 180 metric tons per year.Eligibility for this TRQ, however, is limited to the amount of Peru’s tradesurplus in sugar. In addition to the TRQ described above, a duty-free TRQ of2,000 metric tons has been established for specialty sugars. This TRQ does notincrease and is not subject to the “net exporter” provision described above.

 

•                  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.

 

The Administration hasindicated its interest in pursuing other bilateral or regional free tradeagreements. These include the Free Trade Area of the Americas, the Associationof Southeast Asian Nations, South Africa, Thailand, and others. Since thesenegotiations are in some cases stalled or at various stages of development theCompany is unable to assess the risk associated with these potentialagreements.

 

The Doha Round negotiationsof the WTO continue to be pursued by the U.S. Administration and some of itsinternational counterparts. It is unclear at this time whether negotiationswill be completed. If the negotiations are completed, the outcome of anynegotiated arrangement could have significant adverse consequences for theCompany.

 

The U.S. sugar industry andthe Company, as an influential member of such industry, recognize the potentialnegative impact that could result if these agreements are entered into by theUnited States and are taking steps to attempt to positively influence theoutcome. The Company and the sugar industry intend to continue to focussignificant attention 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 will ultimatelybe implemented. It is possible, however, that the passage of various tradeagreements could have a material adverse effect on the Company through areduction in acreage that can be planted by the Company’s shareholders and bythe growers for Sidney Sugars Incorporated, and/or a reduction in sugar sellingprices, and a corresponding reduction in the beet payment to the shareholdersand the Company earnings. Although the magnitude of the impact cannot bedetermined 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 40,000, which wouldnegatively impact shareholder profits.

 

**Employees**

 

As of October 1, 2007, the Company had****1,380full-time employees, of which 1,130 were hourly and 250 were salaried. TheCompany had 20 part-time employees. In addition, the Company employsapproximately 782 hourly seasonal workers, approximately 435 during thesugarbeet harvest and approximately 347 during the remainder of the sugarbeetprocessing campaign. During the sugarbeet harvest, the Company also contractswith third party agencies for approximately another 1,300 additional workers.

 

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Substantially all of the hourly employees at theCompany’s factories, including full-time and seasonal employees, arerepresented by the Bakery, Confectionery, Tobacco Workers and Grain Millers(BCTGM) AFL-CIO, and are covered by collective bargaining agreements expiringJuly 31, 2011 for the Red River Valley factory employees and April 30,2008 for the Sidney, Montana, factory employees. Office, clerical andmanagement employees are not unionized, except for certain office employees atthe Moorhead and Crookston, Minnesota, and Hillsboro, North Dakota, factorieswho are covered by the collective bargaining agreement with the BCTGM. TheCompany considers its employee relations to be good.

 

### **EnvironmentalMatters**

###  

### The Company is subject to extensive federal and state environmentallaws and regulations with respect to water and air quality, solid wastedisposal and odor and noise control. The Company conducts an on-going programdesigned to meet these environmental laws and regulations. The Company believesthat it is in substantial compliance with applicable environmental laws andregulations. The Company cannot predict whether future changes in environmentallaws or regulations might increase the cost of operating its facilities andconducting its business. Any such changes could have adverse financialconsequences for the Company.

###  

The Company’s Crookston,East Grand Forks and Moorhead, Minnesota factories have experienced hydrogensulfide emissions from their water treatment ponds that have exceededpermissible limits. On July 19, 2007, the Company received a notice ofviolation from the Minnesota Pollution Control Agency (MPCA) related toemissions that occurred in fiscal 2005 and 2006. A penalty assessment iscurrently under consideration by the MPCA. The Company’s Crookston, East GrandForks and Moorhead, Minnesota factories have also experienced hydrogen sulfideemissions from their water treatment ponds in fiscal 2007 that have exceededpermissible limits. While it is likely that the Company may be assessedpenalties and/or fines related to these occurrences, as of the date of thisreport none have been assessed. Any potential penalties and/or fines are notexpected to be material to the Company.

 

Capital expenditures will berequired to prevent future occurrences of the emissions. The Company’sfiscal 2007 budget included capital appropriations of approximately $5.0million for environmentally related projects at the Company’s factory locations.Expenditures in fiscal 2007 on these projects were approximately $1.0 million. The Company’s fiscal 2008 budget includesadditional capital appropriationsof approximately $1.0 million for environmentally related projects. The amountand timing of any additional capital expenditures that may be required is notcurrently known.

 

Harvesting, storing andprocessing recent large crops has also negatively impacted operating costsassociated with compliance with federal and state environmental laws.

 

Two Administrative PenaltyOrders were issued by the MPCA during 2007 for violation of the air emissionpermit at the Company’s East Grand Forks, Minnesota factory. The Ordersrequired a total payment of $4,950. In July 2007, the Company also received aCompliance Monitoring Survey-Letter of Warning from the MPCA for the East GrandForks and Moorhead, Minnesota factories. Corrective actions have been takenrelated these occurrences. A penalty may be assessed but is not expected to besubstantial.

 

## **Available Information**

## ** **

The Company’s corporate headquarters are located at101 North Third Street, Moorhead, Minnesota 56560, telephone number(218) 236-4400. The Company’s fiscal year ends August 31. The Company’swebsite is www.crystalsugar.com. The Company files annual, quarterly andperiodic reports with the United States Securities and Exchange Commission(SEC). These reports can be accessed by selecting “Links” on the Company’swebsite or electronic or paper copies can be obtained free of charge 

 

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upon request. Inaddition, the Company’s reports may be read or copied at the SEC PublicReference Room at 100 F. Street, N.E., Washington, D.C. 20549. The public mayobtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.The SEC maintains an Internet site at http://www.sec.gov that contains reportsand other information filed electronically about the Company.

 

**Item 1A.           RISKFACTORS**

 

The risks described below together with all of theother information included in this Annual Report on Form 10-K should beconsidered carefully. The risks and uncertainties described below and elsewherein this Annual Report on Form 10-K are not the only ones we face. If any of thefollowing risks actually occur, our business, financial condition or results ofoperations would likely suffer. In that case, the beet payments made to ourshareholders may decrease, the value of our Preferred Stock could fall, and ashareholder could lose all or part of their investment.

 

**If we do not continue to minimize our operating expenses, wemay not be able to compete effectively in our industry.**

 

Our strategy involves, to a substantial degree,maximizing profitability by continuing to control operating expenses. Infurtherance of this strategy, we have engaged in ongoing, company-wideefficiency activities intended to increase productivity and reduce costs. Theseactivities have included realigning and streamlining our operations andoptimizing the efficiency of our production facilities. We cannot assure youthat our continued efforts will result in our continued or increasedprofitability.

 

**Whilewe believe that we currently have adequate internal control procedures inplace, we are still exposed to potential risks from recent legislationrequiring companies to evaluate controls under Section 404 of theSarbanes-Oxley Act of 2002.**

 

As directed by Section 404 of the Sarbanes-Oxley Actof 2002, the Securities and Exchange Commission adopted rules requiring us toinclude a report of management on our internal control over financial reportingin our annual reports on Form 10-K that contains an assessment by management ofthe effectiveness of our internal control over financial reporting. Inaddition, the independent registered public accounting firm auditing ourfinancial statements must attest to and report on management’s assessment ofthe effectiveness of our internal control over financial reporting. When we arerequired to comply, management plans to conduct a rigorous review of ourinternal control over financial reporting in order to assure compliance withthe Section 404 requirements. However, if our independent auditors interpretthe Section 404 requirements and the related rules and regulations differentlyfrom us or if our independent auditors are not satisfied with our internalcontrol over financial reporting or with the level at which it is documented,operated or reviewed, they may decline to attest to management’s assessment orissue a qualified report. Additionally, ifwe are not able to meet the requirements of Section 404 in a timely manner orwith adequate compliance, we might be subject to sanctions or investigation byregulatory authorities, such as the SEC.

 

**Anoversupply of sugar could adversely affect the price of sugar and our resultsof operations.**

 

The domestic sugar market is reactive to anyoversupply of refined sugar. Many factors can lead to an oversupply of sugar. Excesssupply may result in a decline in domestic sugar prices. Lower sugar pricesdirectly impact profitability of selling refined sugar in the United States. Ifthe selling price of sugar decreases, our revenues will decrease which willresult in a direct negative impact on our profitability.

 

10

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**Unregulatedforeign competition could result in an oversupply of sugar which could decreasethe price of sugar and impact our business.**

 

Under the current terms of the NAFTA and other governmentregulations, imports of sugar from Mexico may enter the U.S. market. Theseimports could oversupply the U.S. market and negatively affect the price ofsugar. We, along with the domestic sugar industry, are seeking improvements toNAFTA and are also pursuing legal remedies to address the matter. If the sugarindustry is unsuccessful in these and any other endeavors it pursues to preventthe influx of Mexican sugar into the U.S. market, we could experience adversefinancial consequences which would in turn be experienced by our members.

 

**Regional and bilateral tradeagreements could result in an increase in the amount of sugar available in theUnited States sugar market which may impact our business.**

 

The United States government has been engaged inregional and bilateral trade negotiations with countries that produce sugar. Ifthe United States government enters into bilateral trade agreements with sugarproducing countries, the amount of sugar in the domestic sugar market couldincrease. A change in the supply of sugar could put pressure on the price ofsugar, which would impact our profitability.

 

### **Thesuccess or failure of our business is linked to certain government programs,regulations and legislation that may change in the future.**

###  

The nature and scope of future legislation andregulation affecting the sugar market and industry cannot be predicted. Thecurrent price supports and market protections for sugar in place may notcontinue in their present forms. If the price support programs were eliminated intheir entirety, or if certain protections the federal government provides fromforeign competitors were materially reduced, the amount of sugar we can sell,the amount of sugarbeets we can process and the price for which we can sell oursugar may be impacted, which could reduce the profitability of our business. Iflegislation or government programs change, we may not be able to adoptstrategies that would allow us to compete effectively in a greatly changeddomestic market for sugar and the adverse effects could negatively impact thedesirability of growing sugarbeets for delivery to us for processing, ourfinancial results, and our continued viability.

 

### **Changesin the Farm Bill may change our results of operations or require a change inour strategic plans.**

###  

The impact of changes to the Farm Bill on ouroperations cannot be completely predicted. The long term ramifications of thecurrent marketing allotment and allocation program depend on our ability tomaintain our marketing allocation on an annual basis and to obtain access, ifnecessary, to additional allocations at a reasonable price. Any changes in theFarm Bill may impact our business. We cannot predict the changes to the FarmBill or the impact such changes will have at this time.

 

**If we are unable to compete inthe sweetener market, our operating results may suffer.**

 

Sugar is a fungible commodity with competition forsales volume based primarily upon customer service, price and reliability,though differences in proximity to various geographic markets within the UnitedStates result in differences in freight and shipping costs which in turngenerally affect pricing and competitiveness. The overall sweetener market, inaddition to sugar, includes corn-based sweeteners, such as regular and highfructose corn syrups, and non-nutritive, high-intensity sweeteners such asaspartame. Differences in functional properties and prices have tended todefine the use of these various sweeteners. Although the various sweeteners arenot interchangeable in all application, the substitution of other sweetenersfor sugar has occurred in certain products, such as soft drinks. We cannotpredict the availability, development or potential use of these and otheralternative sweeteners and their possible 

 

11

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impact on us orour members. We believe that we possess the ability to compete successfullywith other producers of sugar in the United States. In spite of thiscompetitive advantage, substitute products and sugar imports could reduce thedemand for sugar which could lower the price of sugar, resulting in a change toour operations in the future.

 

On June 27, 2007, our Board of Directors authorizedthe planting of Roundup Ready® sugarbeets for the 2008 crop year. Sugar and agri-productsproduced from Roundup Ready® sugarbeets have received regulatory approval inmost of the countries in which we have direct or indirect sales of our products.While the sale of sugar and agri-products from Roundup Ready® sugarbeet seedhas been approved in most markets, marketing risks still exist. United SugarsCorporation and Midwest Agri-Commodities, our sugar and agri-product marketingagents, respectively, feel they can successfully sell and distribute productsfrom Roundup Ready® sugarbeets with minimal affect on our revenue. However,customers’ views on the use of products from biotechnology derived crops suchas Roundup Ready® sugarbeets may change over time which could negatively impactour profitability.

 

**Our operations are sensitive to energy prices.**

 

The prices we pay for energyrelated products, such as natural gas, coal and coke, have been volatile andmay continue to be volatile. We use substantial amounts of these products inour manufacturing process. We believe that the prices for energy relatedproducts including natural gas, coal and coke will continue to be volatile andhigher than historical levels. Higher energy prices may also increase the costsof many goods and services we acquire. These higher prices may materially increaseour cost of production, thus impacting our financial results.

 

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

 

The sugarbeet, as with mostother crops, is affected by many factors, including seed varieties and weatherconditions during the growing season. Additionally, the quantity of sugarbeetsto be processed and weather conditions during the processing season affect ourability to store sugarbeets held for processing. Growing and storage conditionsdifferent from what we predict or expect may change the quantity and quality ofsugarbeets available for processing and therefore may affect the quantity ofthe sugar we produce.

 

A significant decrease inthe quantity or quality of sugarbeets harvested due to poor weather conditionswould result in higher operating costs and lower earnings.

 

A significant increase inthe quantity or quality of sugarbeets harvested due to good weather conditionsor improved seed varieties could result in an unpredictably large quantity ofsugarbeets to be processed. If we are required to process a larger thananticipated quantity of sugarbeets we may experience increased per unit ofsugar processing cost which in turn would have an adverse financial consequenceto us and our members.

 

In order to manage thequantity and quality of sugarbeets that are harvested or available forprocessing, our Grower Contract allows for a reduction in the number of acresto be planted at the beginning of a crop year or harvested at the end of a cropyear. Up through the 2005 crop year, we had not instituted or required areduction in the number of acres harvested at the end of a crop year. Due tothe large size of the 2006 Red River Valley crop, we instituted an eightpercent, approximately 40,000 acres, reduction in the number of acres harvestedby our members in order to manage the quantity and quality of the sugarbeetsavailable for processing. The harvest of the 2006 Red River Valley cropresulted in a total of 11.9 million tons or an average of 25.4 tons per acreharvested. This represents the 

 

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largest Red River Valley crop and the highest tonnage per acre in ourhistory. Also due to the large size of the 2006 Red River Valley crop, we commencedthe harvest and processing of the crop in August 2006 as compared to a typicalstart-up in September. The processing of the 2006 Red River Valley crop wascompleted on June 7, 2007.

 

Adequate storage conditionsduring a processing campaign are critical to ensure that the quantity andquality of sugarbeets available for processing are maintained. If we are notable to obtain or maintain adequate storage conditions, the sugarbeets storedfor processing at a later date may deteriorate, resulting in increasedproduction costs, and decreased production which in turn would have an adversefinancial consequence to us and our members.

 

Based on results of recentyield trials and crop results, we expect that new sugarbeet varieties,including Roundup Ready® varieties, may continue to result in significantincreases in the average sugarbeet crop yields over the next five years. As aresult, we anticipate that there may need to be a reduction in the number ofacres of sugarbeets that can be planted by each shareholder in order to matchthe sugarbeet crop volume to our processing and marketing capacity. Thisreduction, if necessary, would be accomplished by reducing the per shareplanting tolerance by an amount that may be material. Assuming there are nochanges in other variables, the increased yield per acre expected to resultfrom the continued use of the new sugarbeet varieties would allow shareholdersto deliver substantially the same number of tons of sugarbeets to us from feweracres. Individual shareholder profitability will continue to depend on thecircumstances unique to each shareholder. We announced to ourshareholders on November 1, 2007, that we are currently anticipating that ourshareholders will be authorized to plant between 400,000 and 450,000 acres forthe 2008 sugarbeet crop or approximately .8 to .9 acres per Preferred Stock. The Board of Directors will continue toestablish the planting tolerance on an annual basis based on the facts existingat that time.

 

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.

 

**Increased profitability ofalternative crops could adversely affect the desirability of growing sugarbeets.**

 

The prices growers receive from crops other thansugarbeets could impact their decisions as to which crop to plant and how muchto plant. Higher prices and increased profitability for alternative crops couldnegatively impact the desirability of growing sugarbeets for delivery to us forprocessing, our financial results, and our continued viability.

 

**Federal, state and localenvironmental laws and regulations may impact our operations.**

 

### We are subject to extensive federal and state environmental laws andregulations with respect to water and air quality and solid waste disposal. Weconduct on-going programs designed to meet these environmental laws andregulations. Changes in environmental laws or regulations or complying withexisting environmental laws and regulations or enforcement action brought undersuch environmental laws and regulations might increase the cost of operatingour facilities or result in significant capital investment. Any such changes orcompliance costs could have adverse financial consequences to ourprofitability.

 

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**Item2.**                                        PROPERTYAND PROCESSING FACILITIES

** **

The Company operates five sugarbeet processingfactories in the Red River Valley and one in Sidney, Montana. The Company ownsall of its factories and the land on which they are located. The factoriesrange in size from 150,000 to 400,000 square feet. These properties are used inthe Company’s sugar segment.

 

The location and processing capacity of the Company’sfactories are:

 
| **Location**         | ** ** | **Approximate Daily Slicing Capacity  (Tons of Sugarbeets)** | ** ** |
|----------------------|------------|---------------------------------------------------------------------------------------|------------|
| Crookston, MN        |       | 5,900                                                                                 |       |
| East Grand Forks, MN |       | 9,200                                                                                 |       |
| Moorhead, MN         |       | 5,900                                                                                 |       |
| Drayton, ND          |       | 7,000                                                                                 |       |
| Hillsboro, ND        |       | 9,000                                                                                 |       |
| Sidney, MT           |       | 6,400                                                                                 |       |

 

Each of the processing factories includes the physicalfacilities and equipment necessary to process sugarbeets into sugar. Eachfactory has space for sugarbeet storage, including ventilated storage sites. TheRed River Valley factories also have cold storage facilities. Each of thesefactories is currently operating at or near its capacity. The Company ownsmolasses desugarization (MDS) plants at its East Grand Forks and Hillsborofacilities. The MDS plants process molasses to extract additional sugar. TheCompany has sugar packaging facilities located at the Moorhead, Hillsboro,Crookston, East Grand Forks and Sidney factories.

 

The Company also owns a sugarbeet processing plant inTorrington, Wyoming. The Torrington, Wyoming, facility is leased on a long-termbasis to another sugar company.

 

ProGold owns a corn wet-milling plant in Wahpeton,North Dakota, that is currently being leased to Cargill. The corn wet-millingplant is capable of processing corn to produce corn sweeteners (including highfructose corn syrups) and various agri-products. This property is used in theCompany’s leasing segment. OnNovember 6, 2007, ProGold entered into an amended lease agreement with Cargillthat supersedes and replaces the existing 10 year lease between ProGold andCargill and provides that (1) Cargill will pay ProGold average annual rentalpayments equal to $21,900,000, and (2) that the term of the lease be extendeduntil December 31, 2017.

 

The Company’s corporate office is located in a 30,000square foot, two-story office building in Moorhead, Minnesota. The Company alsohas a 100,000 square foot Technical Services Center situated on approximately200 acres in Moorhead, Minnesota. The Company owns both facilities. The Companyalso owns numerous sites as sugarbeet receiving and storage stations locatedwithin proximity of their factories. Substantially all non-current assets aremortgaged or pledged as collateral for its indebtedness to various financialinstitutions.

 

**Item3.**                                        LEGALPROCEEDINGS

** **

From time to time and in the ordinary course of itsbusiness, the Company is named as a defendant in legal proceedings related tovarious issues, including worker’s compensation claims, tort claims andcontractual disputes. The Company is currently involved in certain legalproceedings which have arisen in the ordinary course of the Company’s business.The Company is also aware of certain other potential claims which could resultin the commencement of legal proceedings. The Company carries insurance whichprovides protection against certain types of claims. With respect to current 

 

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litigation and potentialclaims of which the Company is aware, the Company’s management believes that(i) the Company has insurance protection to cover all or a portion of anyjudgments which may be rendered against the Company with respect to certainclaims or actions and (ii) any judgments which may be entered against theCompany and which may exceed such insurance coverage or which may arise inactions involving potential liabilities not covered by insurance policies arenot likely to have a material adverse effect upon the Company, or its assets oroperations.

 

Four administrativeproceedings have been brought against the United States Department ofAgriculture (USDA) seeking reversal of prior decisions regarding thedetermination and transfer of sugar marketing allocations made by the USDA. Whilethe Company was not a party to any of these administrative proceedings, it was,solely or in coordination with other sugar processors, an intervenor in theseadministrative proceedings. Each of the proceedings has completed theadministrative process and the decisions by the chief judicial officer of theUSDA in each were such that the Company would not experience a reduction in itsmarketing allocations. An appeal of one of the decisions was subsequently filedby another company. The decision by the chief judicial officer of the USDA wasupheld in this appeal by a decision of the United States District Court. Thedecision of the United States District Court has been appealed to the NinthCircuit Court of Appeals. If this case is overturned, it could result in theCompany experiencing a reduction in marketing allocations equal to the loss ofapproximately 25,000 acres in future crop years assuming no other relatedfactors were to change.

 

The outcome of any contestedmatter is never certain and the eventual decisions in the matters identifiedabove may result in a reduction of the Company’s marketing allocations whichwould adversely impact the amount of sugar the Company could produce andmarket.

 

**Item4.**                                        SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

** **

No matters were submitted to a vote of the Company’sshareholders during the quarter ended August 31, 2007.

 

# **PART II**

# ** **

**Item5.**                                        MARKETFOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

** **

As of August 31, 2007, the Company had 2,878 shares ofthe Common Stock and 498,570 shares of the Preferred Stock issued andoutstanding. There is no established public market for the Company’s Common Stockor Preferred Stock, as such shares may be held only by farmer-producers who areeligible for membership in the Company. The Company’s shares are not listed fortrading on any exchange or quotation system. Although transfers of the Company’sshares may occur only with the consent of the Board of the Directors, theCompany does not obtain information regarding the transfer price in connectionwith such transfers. As a result, the Company is not able to provideinformation regarding the prices at which the Company’s shares have beentransferred.

 

Because the number of acres of sugarbeets a member maygrow for sale to the Company is directly related to the number of shares ofPreferred Stock owned, a limited, private market for Preferred Stock exists. Itis not anticipated that a general public market for the Company’s shares ofCommon Stock or Preferred Stock will develop due to the limitations on transferand the various membership requirements which must be satisfied in order toacquire such shares.

 

A member desiring to sell his or her Common Stock orPreferred Stock must first offer them to the Company for purchase at par value.If the Company declines to purchase such shares, either class may be sold to anew member (i.e., another farm operator not already a member) and PreferredStock may be sold to one or more existing members or farm operators approvedfor membership, in each case

 

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subject to approval bythe Board of Directors. To date, the Company’s Board of Directors has notexercised the Company’s right of first refusal to purchase preferred sharesoffered for sale by its members. Because the Company does not require partiesseeking approval for transfers to provide information regarding the transferprice, the Company does not possess verifiable information regarding thetransfer price involved in recent transfers of the Company’s Preferred Stock.

 

**Item6.**                                        SELECTEDFINANCIAL DATA

** **

The selected financial data of the Company should beread in conjunction with the consolidated financial statements and relatednotes included in Appendix A of this report.

 
| ** **                                           | ** ** | **Fiscal Year Ended August 31,  (In Thousands, except for ratios)** | ** ** |
|------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|
| ** **                                           | ** ** | **2007**                                                                                                    | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                 |       |                                                                                                        |       |   |   |   |   |   |   |   |   |
| Net Revenues                                         |       | $                                                                                                           | 1,222,170  |   | $ | 1,005,716 |   | $ | 965,474 |   | $ | 1,033,088 |   | $ | 829,246 |   |
| Net Proceeds (1)                                     |       | $                                                                                                           | 601,392    |   | $ | 445,091 |   | $ | 373,260 |   | $ | 473,122 |   | $ | 361,902 |   |
| Total Assets                                         |       | $                                                                                                           | 875,315    |   | $ | 839,997 |   | $ | 774,024 |   | $ | 822,155 |   | $ | 809,751 |   |
| Long-Term Debt, Net of Current Maturities            |       | $                                                                                                           | 157,974    |   | $ | 200,037 |   | $ | 216,842 |   | $ | 250,086 |   | $ | 286,922 |   |
| Members’ Investments                            |       | $                                                                                                           | 333,885    |   | $ | 323,256 |   | $ | 315,698 |   | $ | 303,426 |   | $ | 270,346 |   |
| Property and Equipment Additions, net of retirements |       | $                                                                                                           | 63,032     |   | $ | 45,453 |   | $ | 42,595 |   | $ | 30,347 |   | $ | 46,578 |   |
| Working Capital                                      |       | $                                                                                                           | 36,929     |   | $ | 58,214 |   | $ | 47,514 |   | $ | 58,673 |   | $ | 49,572 |   |
| Ratio of Long-Term Debt to Equity (2)                |       | .47:1                                                                                                       |       | .62:1 |   | .69:1 |   | .82:1 |   | 1.06:1 |   |

 
| ** **                        | ** ** | **Fiscal Year Ended August 31,  (In Thousands, except for Tons purchased per acre harvested  and Sugar content of sugarbeets)** | ** ** |
|-----------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Crop Data (3)**       | ** ** | **2007**                                                                                                                                                                                                        | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|                              |       |                                                                                                                                                                                                            |       |   |   |   |   |   |   |   |   |
| Acres harvested                   |       | 509                                                                                                                                                                                                             |       | 507 |   | 526 |   | 537 |   | 546 |   |
| Tons purchased                    |       | 12,845                                                                                                                                                                                                          |       | 9,628 |   | 10,217 |   | 10,982 |   | 9,485 |   |
| Tons purchased per acre harvested |       | 25.3                                                                                                                                                                                                            |       | 19.0 |   | 19.4 |   | 20.4 |   | 17.6 |   |
| Sugar Content of Sugarbeets       |       | 18.2                                                                                                                                                                                                            | %          | 18.0 | % | 17.8 | % | 18.5 | % | 17.1 | % |
| Sugar hundredweight               |       |                                                                                                                                                                                                            |       |   |   |   |   |   |   |   |   |
| Produced                          |       | 37,193                                                                                                                                                                                                          |       | 29,728 |   | 30,524 |   | 33,829 |   | 26,746 |   |
| Sold, including purchased sugar   |       | 35,236                                                                                                                                                                                                          |       | 29,691 |   | 31,509 |   | 33,835 |   | 27,077 |   |
| Purchased sugar sold              |       | 7                                                                                                                                                                                                               |       | 45 |   | 523 |   | 36 |   | 707 |   |
| Agri-Products tons                |       |                                                                                                                                                                                                            |       |   |   |   |   |   |   |   |   |
| Produced                          |       | 930                                                                                                                                                                                                             |       | 717 |   | 732 |   | 876 |   | 760 |   |
| Sold                              |       | 898                                                                                                                                                                                                             |       | 721 |   | 761 |   | 864 |   | 718 |   |

 

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(1) Net Proceeds are the Company’s gross revenues,less the costs and expenses of producing and marketing sugar, agri-products andsugarbeet seed, but before payments to members for sugarbeets. (For a morecomplete description of the calculation of the payment to members forsugarbeets, see “Item 1. Business – Raw Materials.”)

 

(2) Calculatedby dividing the Company’s long term debt, exclusive of the current maturitiesof such debt, by members’ investments.

 

(3) Informationfor a fiscal year relates to the crop planted and harvested in the precedingcalendar year (i.e., information for the fiscal year ended August 31, 2007relates to the crop of 2006). Crop data for fiscal years 2003 through 2006reflect the combined data of the Red River Valley crop and the Sidney crop.

 

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**Item 7.**                                      MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

** **

*The following discussion of the financialconditions and results of operations of the Company should be read inconjunction with the Company’s consolidated financial statements and notesthereto included in Appendix A of this report.*

 

## **Liquidity and Capital Resources**

## ** **

Under the Company’s Bylaws and Grower Contracts,payments for member delivered sugarbeets, the principal raw material used inproducing the sugar and agri-products it sells, are subordinated to all memberbusiness expenses. In addition, the beet payment made to member growers andnon-member growers are paid in three payments over the course of a year, andthe payments are made net of any anticipated or declared unit retain for thecrop. These procedures have the effect of providing the Company with anadditional source of short-term financing. This financing arrangement mayresult in an additional source of liquidity and reduced need for outsidefinancing in comparison to a similar business operated on a non-cooperativebasis.

 

Because sugar is sold throughout the year (whilesugarbeets are processed primarily in the fall, winter and spring) and becausesubstantial amounts of equipment are required for its operations, the Companyhas utilized substantial outside financing on both a seasonal and long-termbasis to fund its operations. The majority of such financing has been providedby a consortium of lenders led by CoBank, ACB.

 

The Company has long-term debt availability withCoBank, ACB of****$202.2 million, of which$82.5 million in loans and $69.3 million in long-term letters of credit wereoutstanding as of August 31, 2007. The unused long-term line of credit as ofAugust 31, 2007 was $50.4 million. In addition, the Company has long-term debtoutstanding, as of August 31, 2007, of $50 million from a privateplacement of Senior Notes that occurred in September of 1998; $7.1 million froma private placement of Senior Notes that occurred in January of 2003;$47.9 million from ten separate issuances of Pollution Control andIndustrial Development Revenue Bonds; and a term loan with Bank of North Dakotaof $1.6 million.

 

The Company also has a seasonal line of credit with aconsortium of lenders led by CoBank, ACB of $360 million, of which therewas no outstanding balance as of August 31, 2007, and a line of credit withWells Fargo Bank for $1 million, of which there was no outstanding balanceas of August 31, 2007. The Company’s commercial paper program providesshort-term borrowings of up to $325 million of which approximately $25.0million was outstanding as of August 31, 2007. The Company had $2.2 million ofshort-term letters of credit outstanding as of August 31, 2007. The unusedshort-term line of credit as of August 31, 2007 was $333.8 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 had outstandingcommitments totaling $13.8 million as of August 31, 2007 for equipment andconstruction contracts related to various capital and maintenance projects.

 

On May 1, 2007, the Company acquired CIT Capital USAInc.’s 50 percent ownership interest in Crystech for $1.5 million. Thisacquisition resulted in the Company’s 100 percent ownership of Crystech. EffectiveMay 31, 2007, Crystech was dissolved with all assets and liabilitiestransferred to the Company.

 

As of August 31, 2007,Midwest had outstanding short-term debt with CoBank, ACB of $5.6 million, ofwhich $2.6 million was guaranteed by the Company.

 

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The net cash provided by operations was $95.5 millionfor the year ended August 31, 2007, as compared to $105.3 million for theprevious year. This decrease of $9.8 million was primarily due to changes inthe amount due growers of $70.4 million and advances to related parties of$12.3 million, which were partially offset by the changes in receivables of $39.1 million, in accounts payable of $11.9 million, in inventories of $10.3million and in unit retains withheld of $9.1. The change in the amounts duegrowers was primarily due to a much larger increase in the final actual growerpayment in 2006 as compared to the previous year along with an increase in thecurrent year final actual grower payment due to the larger Red River Valleycrop. The change in receivables was due to the substantial increase in 2006 ascompared to the previous year. The change in inventories was due primarily toan increase in the quantity of product inventories this year resulting from thelarger Red River Valley crop. The change in unit retains withheld was also dueto the larger Red River Valley crop this year.

 

The net cash used in investing activities was $64.2million for the year ended August 31, 2007, as compared to $41.7 million forthe previous year. The increase of $22.5 million was primarily related toincreased purchases of property and equipment and the acquisition of CITCapital USA Inc.’s 50 percent ownership interest in Crystech partially offsetby lower equity distributions from CoBank, ACB.

 

The net cash used in financing activities was $31.4million for the year ended August 31, 2007 as compared to $63.6 million for theprevious year. This decrease of $32.2 million was primarily due to increasedborrowings of short-term debt of $45.1 million, decreased unit retain paymentsof $2.1, partially offset by increased payments on long term debt of $11.2million and decreased proceeds from the issuance of long-term debt of $3.8million.

 

The Company anticipates that the funds necessary forworking capital requirements and future capital expenditures will be derivedfrom operations, short-term borrowings, depreciation, unit retains andlong-term borrowings.

 

The following table provides information regarding theCompany’s contractual obligations as of August 31, 2007:

 
| **(In Thousands)**           | ** ** | **Total** | ** ** | **Less than  One Year** | ** ** | **One to  Three Years** | ** ** | **Four to Five  Years** | ** ** | **After Five  Years** | ** ** |
|-----------------------------------|------------|-----------|------------|-----------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|----------------------------|------------|
| Long-Term Debt                    |       | $         | 189,201    |                              | $          | 31,227                            |       | $                                 | 48,950     |                       | $          | 42,476 |   | $ | 66,548 |   |
| Interest on Fixed Rate L-T Debt   |       | 73,897    |       | 8,076                             |       | 17,390                            |       | 7,631                             |       | 40,800                     |       |
| Purchase Obligations              |       | 47,092    |       | 28,117                            |       | 18,655                            |       | 151                               |       | 169                        |       |
| Operating Lease Obligations       |       | 52,370    |       | 1,598                             |       | 15,947                            |       | 11,284                            |       | 23,541                     |       |
| Other Long-Term Obligations(1)    |       | 50,835    |       | 8,817                             |       | 7,872                             |       | 4,951                             |       | 29,195                     |       |
| Pension Plan Contributions(2)     |       | —    |       | —                            |       |                              |       |                              |       |                       |       |
|                              |       |      |       |                              |       |                              |       |                              |       |                       |       |
| **Total Contractual Obligations** |       | $         | 413,395    |                              | $          | 77,835                            |       | $                                 | 108,814    |                       | $          | 66,493 |   | $ | 160,253 |   |

 

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(1) AccruedEmployee benefits of $3.8 million with corresponding offsetting assets andrequiring no future payments have been excluded from the amounts presented. OtherLong-Term Liabilities of $1.7 million, which relate to deferred revenue andaccrued liabilities also requiring no future payments, have also been excludedfrom the table.

 

(2) The Companydoes not expect to make any contributions to the pension plans during the nextfiscal year. Contributions for future years are not known at this time andtherefore are not included in the above table. The Company expects to makecontributions in the next fiscal year of approximately $3.3 million related toSupplemental Executive Retirement Plans. This amount is reflected in OtherLong-Term Obligations in the above table.

 

**CriticalAccounting Policies and Estimates**

 

Preparation of theCompany’s consolidated financial statements requires estimates and judgments tobe made that affect the amounts of assets, liabilities, revenues and expensesreported.

 

18

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Such decisions include the selection of theappropriate accounting principles to be applied and the assumptions on which tobase accounting estimates.  Management continually evaluates theseestimates based on historical experience and other assumptions we believe to bereasonable under the circumstances.

 

The difficulty inapplying these policies arises from the assumptions, estimates and judgmentsthat have to be made currently about matters that are inherently uncertain,such as future economic conditions, operating results and valuations as well asmanagement intentions.  As the difficulty increases, the level ofprecision decreases, meaning that actual results can and probably will bedifferent from those currently estimated.

 

Estimates are consideredto be critical if they meet both of the following criteria: (1) the estimaterequires assumptions about material matters that are uncertain at the time theaccounting estimates are made, and (2) other materially different estimatescould have been reasonably made or material changes in the estimates arereasonably likely to occur from period to period. The Company’s criticalaccounting estimates include the following:

 

* InventoryValuation*

 

Sugar, pulp, molasses andother agri-product inventories are valued at estimated net realizable value. TheCompany derives its estimates from sales contracts, recent sales andevaluations of market conditions and trends. Changes in market conditions maycause management’s estimates to differ from actual results.

 

*Property and Equipment, Property and Equipment Heldfor Lease, and Depreciation*

 

Property and equipment,and property and equipment held for lease are depreciated for financialreporting purposes principally using straight-line methods with estimateduseful lives ranging from 4 to 40 years. Economic circumstances or otherfactors may cause management’s estimates of expected useful lives to differfrom actual.

 

The Company reviews itsproperty and equipment, and property and equipment held for lease forimpairment whenever events indicate that the carrying amount of the asset maynot be recoverable. An impairment loss is recorded when the sum of the futurecash flows is less than the carrying amount of the asset. An impairment loss ismeasured as the amount by which the carrying amount of the asset exceeds itsfair value. There were no impairment losses incurred during the fiscal yearcovered by this report. However, considerable management judgment is necessaryto estimate future cash flows and may differ from actual results.

 

*Pension Plan and OtherPost-Retirement Benefits*

 

Accumulated plan benefitsare those future periodic payments, including lump-sum distributions, that areattributable under the Company’s Pension Plan and Post-Retirement Plan to theservice employees have rendered. Accumulated plan benefits include benefitsexpected to be paid to retired or vested terminated employees or theirbeneficiaries; beneficiaries of employees who have died; and present employeesor their beneficiaries.

 

The actuarial presentvalue of accumulated plan benefits is determined by an actuary and is theamount that results from applying actuarial assumptions to adjust theaccumulated plan benefits to reflect the time value of money and theprobability of payment.

 

The significant actuarialassumptions used in the determination of the actuarial present value ofaccumulated pension plan benefits for fiscal 2007 were as follows: *Valuation Funding Method* - Entry age normal, frozen initialliability; *Life Expectancy* – RP-2000 MortalityTable; *Retirement Age –*graded 

 

19

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rates from 1 percent retiring at age 55 to 100 percentretired by age 70*; Investment Return -*8.00 percent compounded annually forfunding*;  Discount*Rate- 6.37 percent compounded annually;  *Salary Scale* - 3.5 percent compounded annually (Plan Aonly).

 

The significant actuarialassumptions used in the determination of the actuarial present value ofaccumulated post-retirement benefits for fiscal 2007 were as follows: *Healthcare Cost Trend* - a 10.0 percent annual rate ofincrease in the per capita cost of covered healthcare benefits for participantsunder age 65 was assumed for 2007. The rate is assumed to decline to 5.0percent over the next five years. For participants age 65 and older, an 11.0percent annual rate of increase in the per capita cost of covered healthcarebenefits was assumed for 2007. The rate is assumed to decline to 6.0 percentover the next five years*; Discount*Rate- 6.37 percent compounded annually.

 

Actual events may differfrom the assumptions used and may result in plan benefit payments differingsignificantly from these current estimates.

 

## **Results of Operations**

## ** **

The Company’s operationalresults and the resulting beet payment to members and growers are substantiallydependent on market factors, including domestic prices for refined sugar. Thesefactors are continuously influenced by a wide variety of market forces,including domestic sugarbeet and cane production, weather conditions and UnitedStates’ farm and trade policy, which the Company is unable to predict.

 

In addition, highly variable weather conditions duringthe growing, harvesting and processing seasons, as well as diseases andinsects, may materially affect the quality and quantity of sugarbeets availablefor purchase as well as the unit costs of raw materials and processing.

 

**Comparison of the Years Ended August 31, 2007 and2006**

 

Due to the large size of the2006 Red River Valley crop, the Company instituted an eight percentreduction in the number of acres harvested byits members, approximately 40,000 acres, in order to manage the quantity andquality of the sugarbeets available for processing during fiscal 2007. Also dueto the large size of the 2006 Red River Valley crop, the Company commenced theharvest and processing of the crop in August of 2006 as compared to a typicalstart-up in September. All the costs incurred prior to the beginning of theCompany’s 2007 fiscal year that related to receiving and processing the 2006sugarbeet crop were deferred in fiscal 2006 and recognized in fiscal 2007. Similarly,the net realizable values of products produced prior to the beginning of theCompany’s 2007 fiscal year that related to the 2006 sugarbeet crop weredeferred in fiscal 2006 and recognized in fiscal 2007.

 

The harvest of the sugarbeetcrop (Red River Valley crop and Sidney crop) grown during 2006 and processedduring fiscal 2007 produced a total of 12.8 million tons of sugarbeets, orapproximately 25.3 tons of sugarbeets per acre from approximately 507,000 acres.This represents an increase in total tons harvested of approximately 33.4percent compared to the 2005 crop. The sugar content of the 2006 crop was 18.2percent as compared to the 18.0 percent sugar content of the 2005 crop. TheCompany produced a total of approximately 37.2 million hundredweight ofsugar from the 2006 crop, an increase of approximately 25.1 percent compared tothe 2005 crop. The Company experienced higher sales volumes for most ofits products this fiscal year as compared to the previous fiscal year and theaverage selling prices for most of these products increased due to supply anddemand factors. Net Proceeds from Member and Non-Member Business for fiscal2007 were 35.1 percent higher than in fiscal 2006. This increase is primarilythe result of the increased size and quality of the crop harvested andprocessed in 2007.

 

20

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Revenue for the year endedAugust 31, 2007, was $1.2 billion, an increase of $216.5 million from 2006. Thetable below reflects the percentage changes in product revenues, prices andvolumes for the year ended August 31, 2007, as compared to the previous year.

 
| **Product** | ** ** | **Revenue** | ** ** | **Selling Price** | ** ** | **Volume** | ** ** |
|-------------|------------|-------------|------------|------------------------|------------|------------|------------|
| Sugar       |       | 21.8        | %          | 2.6                    | %          | 18.7       | %          |
| Pulp        |       | 20.1        | %          | -0.7                   | %          | 20.9       | %          |
| Molasses    |       | 167.5       | %          | 15.0                   | %          | 132.7      | %          |
| CSB         |       | 25.5        | %          | 22.7                   | %          | 2.3        | %          |
| Betaine     |       | -13.9       | %          | 11.4                   | %          | -22.7      | %          |

 

The substantial increase in the volume of molasses sold was a result ofthe increased amount of molasses available from the larger crop this yearexceeding the ability to process the molasses through the desugarizationfacilities. The decrease in the volume of betaine sold was primarily a resultof the timing of sales this year as compared to last year.

 

Rental revenue on theProGold operating lease was $24.9 million and $25.1 million for the years endedAugust 31, 2007 and 2006, respectively.

 

Cost of sales for the yearended August 31, 2007, exclusive of payments to members for sugarbeets,increased $19.6 million as compared to fiscal 2006. Operating costs increased$41.5 million primarily as a result of harvesting 33.4 percent more sugarbeetsand processing 29.4 percent more sugarbeets during fiscal 2007 as compared tothe previous year. Improved factory slice efficiencies, lower coal costs andreduced energy usage partially offset the impact of the volume increases. Thecosts associated with sugar purchased to meet customer needs decreased by $1.7million from 2006 due to an earlier campaign start-up this year and increasedsugar production. At the end of each reporting period, product inventories arerecorded at their net realizable value. The change in the net realizable valueof the product inventories from the beginning of the reporting period isrecorded on the balance sheet as either an increase or decrease to inventorieswith a corresponding dollar for dollar adjustment to cost of sales on thestatement of operations. The increase in the net realizable value of productinventories for the year ended August 31, 2007 was $40.4 million as compared toan increase of $21.0 million for the year ended August 31, 2006 resulting in a$19.4 million favorable 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 Years Ended August 31** | ** ** |
|--------------------------------------------------------------|------------|------------------------------------------------------------|------------|
| **(In Millions)**                                       | ** ** | **2007**                                                   | ** ** | **2006** | ** ** | **Change** | ** ** |
| Beginning Product Inventories at Net Realizable  Value       |       | $                                                          | 116.0      |   | $ | 95.0 |   | $ | 21.0 | (1) |
|                                                         |       |                                                       |       |   |   |   |   |
| Ending Product Inventories at Net Realizable Value           |       | (156.4                                                     | )          | (116.0 | ) | (40.4 | )(2) |
|                                                         |       |                                                       |       |   |   |   |   |
| Increase in the Net Realizable Value of Product  Inventories |       | $                                                          | (40.4      | ) | $ | (21.0 | ) | $ | (19.4 | ) |

 

----

(1) The change isprimarily due to a 21 percent increase in the per hundredweight net realizablevalue of sugar inventory as of August 31, 2006 as compared to August 31, 2005.

(2) The change isprimarily due to a 47 percent increase in the hundredweight of sugar inventoryas of August 31, 2007 as compared to August 31, 2006 partially offset by a 10percent decrease in the per hundredweight net realizable value of sugarinventory as of August 31, 2007 as compared to August 31, 2006.

 

21

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Selling, general andadministrative expenses increased $35.6 million from 2006. Selling expensesincreased $34.3 million primarily due to an increase in the volume of sugar,pulp and molasses sold resulting in increased shipping and handling expenses. Generaland Administrative expenses increased $1.3 million due to general costincreases.

 

Interest expense increased$1.2 million in 2007 as compared to the previous year. This reflects anincreased average borrowing level and a higher average interest rate forshort-term debt partially offset by a lower average balance and a lower averageinterest rate for long-term debt.

 

The decrease of $3.4 millionin Other, Net was primarily the result of the receipts of sales tax andproperty tax refunds of $3.0 million in 2006.

 

Non-member business activitiesresulted in a gain of $2.3 million in 2007, as compared to a gain of $2.2million in 2006. The slight increase was primarily due to increased earningsfrom the activities of ProGold partially offset by reduced income from SidneySugars.

 

Payments to members for sugarbeets, net of unitretains declared, increased by $147.0 million from $416.4 million in 2006 to$563.4 million in 2007. This was primarily due to the increased size andquality of the crop harvested and processed in 2007.

 

**Comparison of the Years Ended August 31, 2006 and2005**

 

The harvest of thesugarbeet crop grown during 2005 and processed during fiscal 2006 produced atotal of 9.6 million tons of sugarbeets, or 19.0 tons of sugarbeets peracre from 507,000 acres. This represents a decrease in total tons harvested of5.8 percent compared to the 2004 crop. The sugar content of the 2005 crop was18.0 percent as compared to the 17.8 percent sugar content of the 2004 crop. TheCompany produced a total of 29.7 million hundredweight of sugar from the2005 crop, a decrease of 2.6 percent compared to the 2004 crop. While theCompany experienced lower sales volumes for most of its products for the 2006fiscal year as compared to the previous fiscal year, the average selling pricesfor most products increased due to supply and demand factors. Net Proceeds fromMember and Non-Member Business for fiscal 2006 were 19.2 percent higher than infiscal 2005. This increase was primarily the result of the increase in averageselling prices being partially offset by lower production volumes, higherprocessing costs and selling expenses.

 

Revenue for the yearended August 31, 2006, was $1.0 billion, an increase of $40.2 million from 2005.The table below reflects the percentage changes in product revenue, prices andvolumes for the year ended August 31, 2006 as compared to the previous year.

 
| **Product** | ** ** | **Revenue** | ** ** | **Selling Price** | ** ** | **Volume** | ** ** |
|-------------|------------|-------------|------------|------------------------|------------|------------|------------|
| Sugar       |       | 4.5         | %          | 10.9                   | %          | -5.8       | %          |
| Pulp        |       | 6.6         | %          | 3.5                    | %          | 3.0        | %          |
| Molasses    |       | -18.2       | %          | 22.4                   | %          | -33.2      | %          |
| CSB         |       | 3.0         | %          | 19.6                   | %          | -13.9      | %          |
| Betaine     |       | 4.6         | %          | 19.8                   | %          | -12.7      | %          |

 

Rental revenue on theProGold operating lease was $25.1 million and $26.1 million for the years endedAugust 31, 2006 and 2005, respectively.

 

Cost of sales for the yearended August 31, 2006, exclusive of payments to members for sugarbeets, decreased$35.9 million as compared to fiscal 2005. At the end of each reporting period,product inventories are recorded at their net realizable value. The change inthe net realizable value of the product inventories from the beginning of thereporting period is recorded on the balance sheet as 

 

22

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either an increase or decrease to inventories with a correspondingdollar for dollar adjustment to cost of sales on the statement of operations. Theincrease in the net realizable value of product inventories for the year endedAugust 31, 2006 was $21.0 million as compared to a decrease of $12.0 millionfor the year ended August 31, 2005 resulting in a $33.0 million favorablechange in the cost of sales between the two years as shown in the table below.

 

**Changein the Net Realizable Value of Product Inventories**

 
| ** **                                                              | ** ** | **For the Years Ended August 31** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|
| **(In Millions)**                                                  | ** ** | **2006**                                                   | ** ** | **2005** | ** ** | **Change** | ** ** |
| Beginning Product Inventories at Net Realizable  Value                  |       | $                                                          | 95.0       |   | $ | 107.0 |   | $ | (12.0 | )(1) |
|                                                                    |       |                                                       |       |   |   |   |   |
| Ending Product Inventories at Net Realizable Value                      |       | (116.0                                                     | )          | (95.0 | ) | (21.0 | )(2) |
|                                                                    |       |                                                       |       |   |   |   |   |
| (Increase) Decrease in the Net Realizable Value of  Product Inventories |       | $                                                          | (21.0      | ) | $ | 12.0 |   | $ | (33.0 | ) |

 

----

(1) The change is primarily due to a 10 percent decrease in thehundredweight of sugar inventory as of August 31, 2005 as compared to August31, 2004.

(2) The change isprimarily due to a 21 percent increase in the per hundredweight net realizablevalue of sugar inventory as of August 31, 2006 as compared to August 31, 2005.

 

The costs associated withsugar purchased to meet customer needs decreased by $12.5 million resultingfrom an earlier campaign start-up. The cost recognized associated with thenon-member sugarbeets increased $4.7 million for the year ended August 31,2006, when compared to the previous year. This increase was primarily due tohigher sugar net selling prices and more sugarbeets harvested at Sidney Sugars.Operating costs increased $5.0 million due in part to higher prices related toenergy products and major supplies partially offset by harvesting 5.8 percentfewer sugarbeets and processing 4.8 percent fewer sugarbeets than in theprevious year.

 

Selling, general andadministrative expenses increased $7.5 million from 2005. Selling expensesincreased $6.3 million primarily due to higher freight, warehousing and packaging costs. General andAdministrative expenses increased $1.2 million due to general cost increases.

 

Lower average long-termdebt borrowing levels partially offset by higher average short-term interestrates resulted in interest expense, net remaining relatively level between thefiscal years ended August 31, 2006 and 2005.

 

Non-member businessactivities resulted in a gain of $2.2 million in 2006, as compared to a gain of$2.5 million in 2005. The gain in both years was due primarily to activitiesrelated to Sidney Sugars.

 

Payments to members for sugarbeets, net of unitretains declared, increased by $64.5 million from $351.9 million in 2005 to$416.4 million in 2006. This was primarily due to the increased net sellingprices for sugar and agri-products in 2006.

 

## **2007 Crop and Estimated Fiscal Year 2008 Information**

## ** **

This discussion contains the Company’s currentestimate of the results to be obtained from the Company’s processing of the2007 sugarbeet crop. This discussion includes forward-looking statementsregarding the quantity of sugar to be produced from the 2007 sugarbeet crop. Theseforward-looking statements are based largely upon the Company’s expectationsand estimates of future events; as a result, they are subject to a variety ofrisks and uncertainties. The actual results experienced by the Company coulddiffer materially from the forward-looking statements contained herein.

 

23

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The harvest of the Red River Valley and the Sidneysugarbeet crops grown during 2007 is estimated to produce a total of12.3 million tons of sugarbeets, or approximately 23.2 tons of sugarbeetsper acre from approximately 529,000 acres. This represents a decrease in totaltons harvested of approximately 4.5 percent compared to the 2006 crop. Thesugar content of the 2007 crop is estimated to be 18.0 percent as compared tothe 18.2 percent sugar content of the 2006 crop. The Company expects to producea total of approximately 34.9 million hundredweight of sugar from the 2007crop, a decrease of approximately 6.3 percent compared to the 2006 crop.

 

**Item 7A.**                             QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

** **

Market risk is the risk of loss to future earnings, tofair values or to future cash flows that may result from changes in the priceof a financial instrument. The value of a financial instrument may change as aresult of changes in the interest rates, exchange rates, commodity prices,equity prices and other market changes. Market risk is attributed to allmarket-risk sensitive financial instruments, including long term debt.

 

The Company does not believe that it is subject to anymaterial market risk exposure with respect to interest rates, exchange rates,commodity prices, equity prices and other market changes that would requiredisclosure under this item.

 

**Item 8.**                                      FINANCIALSTATEMENTS

** **

The consolidated financial statements of the Companyfor the fiscal years ended August 31, 2007, 2006 and 2005 have been audited byEide Bailly LLP, an independent registered public accounting firm. Suchconsolidated financial statements have been included herein in reliance uponthe report of Eide Bailly LLP. The consolidated financial statements of theCompany are included in Appendix A to this annual report.

 

**Item 9.**                                      CHANGES IN ANDDISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

** **

None

 

**Item 9A.**                             CONTROLS AND PROCEDURES

** **

The Company’s chiefexecutive officer and chief financial officer have reviewed and evaluated theeffectiveness of the Company’s disclosure controls and procedures (as definedin Rules 240.13a-15(e) and 15d-15(e) promulgated under the Securities ExchangeAct of 1934) as of August 31, 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 Security 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 no changes in the Company’s internal controlsover financial reporting that occurred during the Company’s most recent fiscalquarter that may have materially affected, or are reasonably likely tomaterially affect, the Company’s internal control over financial reporting.

 

24

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# ** **

# **PART III**

# ** **

**Item10.**           DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

** **

**Board of Directors**

 

The Board of Directors of the Company consists ofthree directors from each of the five Red River Valley factory districts. Directorsmust hold common stock of the Company or must be representatives of suchshareholders belonging to the district they represent and are elected by themembers of that district. In the case of a holder of common stock who is otherthan a natural person, a duly appointed or elected representative of suchshareholder may serve as a director. The directors were elected to servethree-year terms expiring in December of the years indicated in the tablebelow. One director is elected each year from each Red River Valley factorydistrict. A director cannot serve more than four consecutive three-year terms.

 

The table below lists certain information concerningcurrent directors of the Company. 

 
| **Name and  Address**                                                         | ** ** | **Age**    | ** ** | **Factory  District** | ** ** | **Director  Since** | ** ** | **Term  Expires  December** |
|-------------------------------------------------------------------------------|------------|------------|------------|-----------------------|------------|---------------------|------------|-----------------------------|
| ** **                                                                    | ** ** | ** ** | ** ** | ** **            | ** ** | ** **          | ** ** | ** **                  |
| David J. Kragnes  (Chairman)  10600 60th St. N.  Felton, MN 56536   |       | 55         |       | Moorhead              |       | 1995                |       | 2007                        |
| ** **                                                                    | ** ** | ** ** | ** ** | ** **            | ** ** | ** **          | ** ** | ** **                  |
| Michael A.  Astrup (Vice-Chairman)  PO Box 219  Dilworth, MN 56529  |       | 54         |       | Moorhead              |       | 1996                |       | 2008                        |
| ** **                                                                    | ** ** | ** ** | ** ** | ** **            | ** ** | ** **          | ** ** | ** **                  |
| William Baldwin  8244 144th Ave. NE  St Thomas, ND 58276            |       | 61         |       | Drayton               |       | 2004                |       | 2007                        |
| ** **                                                                    | ** ** | ** ** | ** ** | ** **            | ** ** | ** **          | ** ** | ** **                  |
| Richard Borgen  1544 Co. Highway 39  Perley, MN 56574               |       | 58         |       | Moorhead              |       | 1997                |       | 2009                        |
| ** **                                                                    | ** ** | ** ** | ** ** | ** **            | ** ** | ** **          | ** ** | ** **                  |
| John Brainard  204 6th St. W  Ada, MN 56510                         |       | 47         |       | Hillsboro             |       | 2005                |       | 2008                        |
| ** **                                                                    | ** ** | ** ** | ** ** | ** **            | ** ** | ** **          | ** ** | ** **                  |
| Brian R.  Erickson  824 James Ave. S.E.  East Grand Forks, MN 56721 |       | 59         |       | East Grand Forks      |       | 2005                |       | 2008                        |
| ** **                                                                    | ** ** | ** ** | ** ** | ** **            | ** ** | ** **          | ** ** | ** **                  |
| Robert M. Green  220 Park St.  Saint Thomas, ND 58276               |       | 52         |       | Drayton               |       | 2005                |       | 2008                        |
|                                                                          |       |       |       |                  |       |                |       |                        |
| John F. Gudajtes  15363 County Road 15  Minto, ND 58261             |       | 58         |       | East Grand Forks      |       | 2003                |       | 2009                        |

 

25

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| Curtis E. Haugen   45508 300th St. NW   Argyle, MN 56713     |       | 46         |       | East Grand Forks |       | 2001       |       | 2007       |
|------------------------------------------------------------------------|------------|------------|------------|------------------|------------|------------|------------|------------|
|                                                                   |       |       |       |             |       |       |       |       |
| Francis L. Kritzberger RR 1, Box 22  Hillsboro,  ND 58045    |       | 62         |       | Hillsboro        |       | 1996       |       | 2009       |
| ** **                                                             | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** |
| Jeff D. McInnes  RR 2 Box 140  Hillsboro, ND 58045           |       | 50         |       | Hillsboro        |       | 2001       |       | 2007       |
|                                                                   |       |       |       |             |       |       |       |       |
| Ronald E.  Reitmeier  30928 220th St. S.W.  Fisher, MN 56723 |       | 62         |       | Crookston        |       | 1996       |       | 2008       |
|                                                                   |       |       |       |             |       |       |       |       |
| Jim A. Ross  25669 328th Ave. S.W.  Fisher, MN 56723         |       | 57         |       | Crookston        |       | 1998       |       | 2007       |
| ** **                                                             | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** |
| Neil C. Widner  PO Box 47  Stephen, MN 56757                 |       | 56         |       | Drayton          |       | 2000       |       | 2009       |
|                                                                   |       |       |       |             |       |       |       |       |
| Steve Williams515 Thompson Ave. Fisher, MN 56723                       |       | 56         |       | Crookston        |       | 2006       |       | 2009       |

 

Below is the biographical information on eachDirector.

 

**David J. Kragnes.**Mr. Kragneshas been a director since 1995 and has served as Chairman since 2005. Mr. Kragneshas been a farmer since 1972, with his farming operation located near Felton,Minnesota. Mr. Kragnes serves as Chairman of the Board of Directors ofUnited Sugars Corporation. Mr. Kragness also serves on the Board of Directorsof Midwest Agri-Commodities Company, the Board of Governors of ProGold LimitedLiability Company and is a director for the American Sugarbeet GrowersAssociation.

 

**Michael A. Astrup.**Mr. Astruphas been a director since 1996 and has served as Vice-Chairman since 2005. Mr. Astruphas been a farmer since 1976, with his farming operations located nearDilworth, Minnesota. Mr. Astrup serves on the Board of Directors of UnitedSugars Corporation, the Board of Governors of ProGold Limited Liability Companyand is a director of the American Sugarbeet Growers Association.

 

**William Baldwin.**Mr. Baldwin hasbeen a director since 2004. Mr. Baldwinhas been farming in the Drayton Factory District since 1966 and is the Presidentof Baldwin Farms Incorporated. Mr. Baldwin is the past President of the RedRiver Valley Sugarbeet Growers Association, served on the American SugarbeetGrowers Executive Committee and is currently serving on the Farm ServiceAgency, State Committee.

 

**Richard Borgen.**Mr. Borgenhas been a director since 1997. Mr. Borgen has farmed east of Perley,Minnesota, since 1967 and has served as a director on the Perley Co-op ElevatorBoard for nine years and the Norman County West school board for 10 years.

 

26

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**John Brainard.**Mr. Brainardhas been a director since 2005. Mr.Brainard has been a sugarbeet grower since 1998. Mr. Brainard is a pastdirector of the Minnesota Farm Bureau and has served on the executive committeeof the Red River Valley Sugarbeet Growers Association. Mr. Brainard currentlyserves as a director of the American Sugarbeet Growers Association.

 

**Brian R. Erickson.**Mr. Ericksonhas been a director since 2005. Mr.Erickson has been a sugarbeet grower for over 20 years. Mr. Erickson has servedas a director and Chairman of the East Grand Forks Economic Development andHousing Authority. Mr. Erickson currently serves on the Board ofDirectors of Midwest Agri-Commodities Company.

 

**Robert M. Green.**Mr. Greenhas been a director since 2005. Mr.Green has been a sugarbeet grower since 1976. Mr. Green served 12 years as adirector of the Red River Valley Sugarbeet Growers Association and is currentlya director of the Wells Fargo Bank in Grafton, ND. Mr. Green serves as adirector for the American Sugarbeet Growers Association.

 

**John F. Gudajtes.**Mr. Gudajteshas been a director since 2003. Mr. Gudajtes has farmed in the Minto, NorthDakota area since 1967 and is the President of Gudajtes Farms. Mr. Gudajtes hasbeen the President of the Walsh County Historical Society for three years.

 

**Curtis E. Haugen.**Mr. Haugen hasbeen a director since 2001. Mr. Haugen has been a farmer since 1981****and farms near Argyle, Minnesota. Mr. Haugen is serving asa director and President of the Farmer’s Union Oil Company, Oslo, Minnesota.

 

**Francis L. Kritzberger.**Mr. Kritzbergerhas been a director since 1996. Mr. Kritzberger has previously served as adirector with the Company, from July 30, 1989 until July 30, 1993. Mr. Kritzbergerhas been a farmer since 1964. Mr. Kritzberger serves on the Board ofDirectors of the North Dakota Council of Cooperatives.

 

**Jeff D. McInnes.**Mr. McInneshas been a director since 2001. Mr. McInnes co-manages a 4,000 acrefarming operation near Hillsboro, North Dakota. Mr. McInnes is the founderand manager of the Basement Traders Marketing Club, a grain marketingassociation in Hillsboro. Mr. McInnes serves on the Board of Governors ofProGold Limited Liability Company.

 

**Ronald E. Reitmeier.**Mr. Reitmeierhas been a director since 1996, and has been a farmer since 1968. Mr. Reitmeieris the President of R&J Crop Production Inc. Mr. Reitmeier has served as amember of the Board of Directors of PKM Electric Co-op of Warren, Minnesota,for 19 years and as its Chairman of the Board since 2004. Mr. Reitmeierpreviously served on the Fisher, Minnesota, School Board for 18 years, asPresident of the Polk County Farmers Union and Chairman of the MinnesotaFarmers Union Executive Committee of County Chairpersons.

 

**Jim A. Ross.**Mr. Ross hasbeen a director since 1998. Mr. Ross has farmed near Fisher, Minnesota, since1971. Mr. Ross also serves on the Board of Governors of ProGold LimitedLiability Company.

 

**Neil C. Widner.**Mr. Widner hasbeen a director since 2000. Mr. Widner has farmed near Stephen, Minnesota,since 1973. Mr. Widner serves on the Board of Directors of United SugarsCorporation and as a Director for the American Sugarbeet Growers Association.

 

**Steve Williams.**Mr. Williams waselected as a director in 2006. Mr. Williams has farmed near Fisher, Minnesotasince 1987. Mr. Williams has served as a director of the Red River ValleySugarbeet Growers Association since 1998, and has served as its chairman since2003. Mr. Williams resigned as president of the Red River Valley SugarbeetGrowers Association effective as of the commencement of his term as a directorof the Company. Mr. Williams also serves on the board of directors and aspresident of the American Sugarbeet Growers Association; and as director of theSugar Association, the Halstad Cooperative Telephone Company, and the EldredFarmers Elevator.

 

27

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**Audit Committee and Audit Committee FinancialExpert**

 

The Audit Committeeassists the Board of Directors in fulfilling its oversight responsibilitiesrelating to the Company’s financial reporting and controls, the annualindependent audit of the Company’s consolidated financial statements and thelegal compliance and ethics programs as established by management and the Boardof Directors. The Audit Committee selects the independent public accountants,approves the fees and the scope and procedural plans of the audits of theCompany’s consolidated financial statements. The Audit Committee administers theCompany’s employee complaint program and handles, on behalf of the full Boardof Directors, any issues that arise under the Company’s Code of Ethics. OnAugust 31, 2007, the members of the Audit Committee were Neil C. Widner(Committee Chair), William Baldwin, Brian R. Erickson, Robert M. Green andCurtis E. Haugen.

 

As of August 31, 2007, the Board of Directors of theCompany has determined that there is no audit committee financial expertserving on the Audit Committee. The Company is a cooperative formed inaccordance with the Minnesota cooperative law of the State of Minnesota. Inaccordance with the Minnesota cooperative law, the Amended and RestatedArticles of Incorporation of the Company and the Amended and Restated Bylaws ofthe Company, the Board of Directors must be composed of members of the Company(the holders of common stock). Membership in the Company is limited toagricultural producers who are actively involved in the production ofsugarbeets. Based on the state law requirements for both membership and boardservice, the Company is unable to recruit outside of its membership to elect toits Board of Directors and its audit committee an individual that possesses theattributes of an “audit committee financial expert” as defined by the SEC. To date, the Company has been unable torecruit from its membership an individual to serve on the Board of Directorsthat possesses the attributes of an “audit committee financial expert.”

 

**Executive Officers**

 

The table below lists the principal officers of theCompany, none of whom owns any shares of Common Stock or Preferred Stock. Officersare elected annually by the Board of Directors.

 
| **Name**            |   | **Age** |   | **Position**                                                                                              |
|---------------------|--------|---------|--------|-----------------------------------------------------------------------------------------------------------|
| David A. Berg       |   | 53      |   | President and  Chief Executive Officer                                                                    |
| James J. Horvath    |   | 62      |   | President and  Chief Executive Officer (retired)                                                          |
| Thomas S. Astrup    |   | 39      |   | Vice  President-Finance and Chief Financial Officer                                                       |
| Joseph J. Talley    |   | 47      |   | Chief Operating  Officer                                                                                  |
| Brian F.  Ingulsrud |   | 44      |   | Vice  President-Administration                                                                            |
| Daniel C. Mott      |   | 48      |   | Secretary                                                                                                 |
| Samuel S. M. Wai    |   | 53      |   | Treasurer and  Assistant Secretary                                                                        |
| Mark L. Lembke      |   | 51      |   | Finance  Administration Manager, Assistant Secretary and Assistant Treasurer                         |
| David L.  Malmskog  |   | 50      |   | Director -  Economic Analysis and Business Development, Assistant Secretary and  Assistant Treasurer |
| Ronald K.  Peterson |   | 52      |   | Accounting &  Systems Manager, Assistant Secretary and Assistant Treasurer                       |
| Lisa M. Maloy.      |   | 43      |   | Treasury  Operations Manager and Assistant Secretary                                                      |

 

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**David A. Berg.**Mr. Berg wasnamed President in March 2007 and assumed the role as Chief Executive Officerin October 2007. Mr. Berg served as Vice President-Operations and ChiefOperations Officer from January 2004 to March 2007. Mr. Berg was VicePresident-Agriculture during the period December 2000 to January 2004 and VicePresident-Administration during the period from October 1998 to December 2000. Duringthe period from 1994 to 1998, Mr. Berg served as the Company’s VicePresident-Business Development, Vice President-Strategic Planning,Director-Market Information, Manager of Marketing and Analysis andManager-Economic Research. Mr. Berg currently serves on the Boards ofDirectors of United Sugars Corporation, Midwest Agri-Commodities Company andSidney Sugars Incorporated.

 

**James J. Horvath.**Mr. Horvathserved as President and Chief Executive Officer from May 1998 until hisretirement in October 2007. Mr. Horvath served as Chief Financial Officer from1996 to 1998. From 1994 to 1996, Mr. Horvath served as the Company’s VicePresident-Joint Ventures as well as Chief Manager and Chief Operating Officerof ProGold Limited Liability Company. Mr. Horvath also served as theCompany’s Vice President-Finance from 1985 to 1994.

 

**Thomas S. Astrup**. Mr. Astrup wasnamed the Company’s Vice President-Finance and Chief Financial Officer in May2007. Mr. Astrup was named the Chief Operating Officer and Chief FinancialOfficer of Sidney Sugars Incorporated in May 2007. Mr. Astrup served as theCompany’s Vice President-Agriculture from 2004 to 2007. Mr. Astrup was theCompany’s Vice President-Administration from 2000 to 2004 and the Company’sCorporate Controller, Assistant Treasurer and Assistant Secretary from 1999 to2000. From 1997 until 1999, Mr. Astrup held the position of Controller forMidwest Agri-Commodities Company. Mr. Astrup was the Corporate Accountant forProGold Limited Liability Company from 1994 to 1997. Mr. Astrup currentlyserves on the Board of Directors for Sidney Sugars Incorporated and on theProGold Limited Liability Company Board of Governors.

 

**Joseph J. Talley.**Mr. Talley wasnamed the Company’s Chief Operating Officer in May 2007. Mr. Talley was namedas the Chairman of the Board and Chief Executive Officer of Sidney SugarsIncorporated in May 2007. Mr. Talley served as Vice President-Finance andChief Financial Officer of the Company from 2003 to 2007. Mr. Talley was theCompany’s Vice President-Finance from 1998 to 2003. Mr. Talley also served asChief Operating Officer of Sidney Sugars Incorporated from 2002 to 2007. Mr. Talleyserved as the Company’s Treasurer and Finance Director, Assistant Treasurer andAssistant Secretary from 1996 until his appointment as Vice President-Financein 1998. Mr. Talley served as Finance Director of ProGold LimitedLiability Company from 1994 through 1996. He currently serves on the Board ofGovernors for ProGold Limited Liability Company.

 

**Brian F. Ingulsrud.**Mr.Ingulsrud was named Vice President-Administration in February 2004. From 2000to 2004, he served as the Corporate Controller, Assistant Secretary andAssistant Treasurer. Mr. Ingulsrud served as Director of Agriculture Strategyand Development from 1999 to 2000, Financial Planning Manager from 1997 until1998, and Factory Offices Manager from 1995 until 1997.

 

**Daniel C. Mott.**Mr. Mottbecame the Company’s Secretary in 1999. Previously, he had served as AssistantSecretary since 1995. Mr. Mott also serves as the Company’s General Counsel. Heis a Shareholder in the law firm of Fredrikson & Byron, P.A. Mr. Mott isnot an employee of the Company.

 

**Samuel S. M. Wai.**Mr. Waiwas named the Company’s Treasurer and Assistant Secretary in 1999. He served asthe Company’s Corporate Controller from 1996 until 1999 and was the Company’sTreasurer from 1985 to 1996. He held various financial positions with theCompany from 1979 to 1985. Mr. Wai also serves as Treasurer of theAmerican Crystal Sugar Political Action Committee and on the Board of Directorsof the Institute of Cooperative Financial Officers.

 

**Mark L. Lembke.**Mr. Lembkewas named Assistant Secretary and Assistant Treasurer in 1996. He currentlyserves as Finance Administration Manager. Mr. Lembke served as the Company’sCorporate 

 

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Accounting Manager from 1995 to 1999. From 1987through 1995, Mr. Lembke served as Factory Accounting Supervisor.

 

**Ronald K. Peterson.**Mr. Petersonhas served as Assistant Treasurer and Assistant Secretary since 1993. Hecurrently holds the position of Accounting and Systems Manager. From 1996 to1999 Mr. Peterson was the Financial Systems Manager and from 1991 to 1995served as the Company’s Corporate Accounting Manager. Mr. Peterson hasheld various financial positions with the Company since 1979.

 

**David L. Malmskog.**Mr. Malmskogcurrently serves as Director-Economic Analysis and Business Development and wasappointed Assistant Secretary and Assistant Treasurer in 1998. Mr. Malmskoghas held various financial positions with the Company since 1980.

 

**Lisa M. Maloy.**Ms. Maloycurrently serves as Treasury Operations Manager and was appointed AssistantSecretary in 2002. Prior to joining the Company in 1997, Ms. Maloy was a taxattorney with Ernst & Young LLP in Minneapolis, Minnesota.

 

**Code of Ethics**

 

The Company has adopted acode of ethics that applies to its principal executive officer, principalfinancial officer, principal accounting officer or controller and certain othersenior financial personnel. The Company will provide at no charge a copy of thecode of ethics to any person who requests a copy by sending a written requestto the Company’s headquarters, attention of the Chief Executive Officer of theCompany.

 

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**Item 11.****           EXECUTIVECOMPENSATION**

 

**Compensation Discussion and Analysis**

 

**Overview**

 

This compensation discussionand analysis addresses the compensation paid to the individuals who served asour Chief Executive Officer, President and Chief Financial Officer for fiscalyear 2007, as well as our Chief Operating Officer and Vice President ofAdministration who were all serving as executive officers as of August 31,2007, all of whom are identified on the Summary Compensation Table immediatelyfollowing this report (“Named Executive Officers”). Immediately following thiscompensation discussion and analysis is the Compensation Committee Report ofthe Board of Directors (the “Committee Report”). Members of the CompensationCommittee were in their role for fiscal year 2007.

 

**Purpose and Philosophy**

 

We believe that strongleadership is a key component of success. To be successful, we must be able toattract, retain and motivate leaders with the skills necessary to excel in anintegrated cooperative environment and understand key business and technicalmatters related to the diverse business influences that result from growers andowners, marketing partnerships and activities, technical manufacturingprocesses, and government policy. Our goal is to provide a competitivecompensation package to our Named Executive Officers combining total directcompensation, retirement income and other benefits.

 

Total direct compensation,which includes base salary, short-term cash incentive compensation andlong-term incentive compensation, is measured against comparable companies inthe market in which we compete.

 

We believe the market inwhich we compete for executive talent consists of companies of a similar size,generally $500 million to $2 billion in annual revenue, in the North CentralUnited States with an emphasis on companies with manufacturing operations. Wefurther believe that the market also includes privately owned businesses ingeneral and exclusively as it relates to long-term incentive compensationbecause of the structure and nature of our business. Therefore, we havecompared our compensation versus compensation data points for these types ofcompanies (our market).

 

We engaged Hay Group, Inc.in 2006 to provide compensation market information for our Named ExecutiveOfficers for fiscal year 2007. In 2007, our management, on behalf of theCompensation Committee and Board of Directors retained Towers Perrin, anoutside compensation consultant (“Compensation Consultant”), to preparemarket-based compensation data comparing compensation information for our NamedExecutive Officers with that of executive officers in our market. ****This analysis used marketdata from published national survey sources, including************Towers Perrin and Watson Wyatt. In addition, paydata from the proxy materials from a group of comparative companies wasreferenced. This group of companies, together with the survey sources, wasintended to represent the market in which we believe we compete for executivetalent and includes:****

 

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•   ActuantCorporation•   Ameron International Corp.•   Arctic Cat Inc.•   Barnes Group Inc.•   Brady Corporation•   Constar International Inc.•   Donaldson Company, Inc.•   Gardner Denver, Inc.•   Graco Inc.•   Herman Miller, Inc.•   IDEX Corporation•   Imperial Sugar Company•   JLG Industries, Inc.•   Magellan Midstream Partners, L.P.•   Milacron Inc.•   Mine Safety Appliances Co•   Minn-Dak Farmers Cooperative•   MSC Industrial Direct Co.•   OMNOVA Solutions Inc.•   Packaging Corporation of America•   Rayonier Inc.•   Schweitzer-Mauduit International, Inc.•   Stewart & Stevenson Services, Inc.•   Sybron Dental Specialties•   The Toro Company•   Thomas & Betts Corporation

 

This data was provided tothe Compensation Committee in early 2007, and was utilized to establish marketbased pay practices for each of the Named Executive Officer positions.

 

Our base pay midpoint forour Chief Executive Officer and President is projected to represent less thanthe median of the market and total direct compensation is projected to be nearthe lower quartile of the market. Currently, we target our other Named ExecutiveOfficers’ base pay midpoint near the median of the market and total directcompensation near the lower quartile of our market. The Compensation Committeedetermined that total direct compensation as established was appropriate andreflects the compensation principles outlined in this report.

 

While market basedinformation is important in terms of setting pay practices, it is not the onlyfactor considered when making individual executive compensation decisions.Other factors considered when making individual executive compensationdecisions include individual roles and responsibilities, performance, reportingstructure and internal pay relationships.

 

**Process**

 

The Compensation Committeeof the Board of Directors is responsible for annually reviewing and recommendingto the Board of Directors the base salary and performance objectives for theincentive compensation (both short-term and long-term) of the Chief ExecutiveOfficer and President, as well as the performance objectives for long-termincentive compensation for all Named Executive Officers. Board action onrecommendations is taken by a vote of all of the directors, none of whom aremembers of management. Decisions on executive compensation made by theCompensation Committee, the Board or the President or Chief Executive Officerhave been guided by our compensation philosophy discussed above.

 

Our Chief Executive Officerand President set base salary and the annual performance objectives for theshort-term incentive compensation for the other Named Executive Officers. Theprospective base salary and annual performance objectives for the other NamedExecutive Officers are reviewed with the Board of Directors prior to beingfinalized by the Chief Executive Officer and President.

 

On March 21, 2007, our Boardof Directors elected David Berg as President and determined his base salary forthe remainder of fiscal year 2007. Prior to this election, James Horvath servedas our 

 

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Chief Executive Officer andPresident. Mr. Horvath’s base salary and objectives for incentive compensationwere set by the Board of Directors for fiscal year 2007 at the beginning of thefiscal year. Mr. Horvath will continue to serve as our Chief Executive Officeruntil he retires. Upon Mr. Horvath’s retirement, Mr. Berg will continue to bePresident and will also assume the position of Chief Executive Officer. Inconnection with his election, Mr. Berg was given responsibility for reviewingand determining the base salary for the other Named Executive Officers(excluding the Chief Executive Officer) for the remainder of 2007.

 

**Elements of Compensation**

 

The elements of compensationpaid to our Named Executive Officers for 2007 are as follows:

 

•      Basesalary

 

•      Short-termcash incentive compensation

 

•      Long-termincentive compensation

 

•      Retirementand other benefits

 

•      Perquisites

 

•      Severancefor our Chief Executive Officer and President

 

Each of the above are more completely described below.

 

**Base Salary**

 

The objective of the levelof base salary paid to our Named Executive Officers is to reflect individualroles and responsibilities, performance, reporting structure, and internal payrelationships with respect to market competitiveness. All established basesalaries for fiscal year 2007 for our Named Executive Officers were inaccordance with our compensation philosophy described earlier in this report.

 

The base salary for ourChief Executive Officer, Mr. Horvath, was approved by the Board ofDirectors on September 27, 2006. At the same time, the Chief Executive Officerdetermined the initial base salaries for the other Named Executive Officers forthe first part of fiscal year 2007.

 

The base salary of ourPresident, Mr. Berg, was set by the Board of Directors in March 2007 basedon the comparable market data provided by our Compensation Consultant. TheChief Executive Officer, Mr. Horvath’s, salary remained the same.

 

In connection with theelection of the President, the duties, responsibilities and titles of our NamedExecutive Officers changed. Joseph Talley, who served as Chief FinancialOfficer until May 7, 2007, became our Chief Operating Officer, a newly createdexecutive officer position that combined the responsibility of Vice Presidentof Operations and Vice President of Agriculture. Thomas Astrup, who served asour Vice President of Agriculture until May 7, 2007, became our Chief FinancialOfficer. Our President, Mr. Berg, determined the base salary for our otherNamed Executive Officers for the remainder of fiscal year 2007.

 

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**Short-Term Cash Incentive Compensation**

 

Our short-term cashincentive compensation is designed to reward the Named Executive Officers fortheir individual performance and our financial performance for the mostrecently completed fiscal year. Short-term cash incentive compensation is paidin cash following the close of the fiscal year.

 

Short-term cash incentivecompensation provides an annual cash incentive opportunity, expressed as apercent of base salary, for our Named Executive Officers who meet performanceobjectives. For fiscal year 2007, our Chief Executive Officer had anopportunity to receive an additional 45% of his base salary, and the otherNamed Executive Officers had an opportunity to receive an additional 35% oftheir base salary, by meeting “target” performance levels. Actual awards aredetermined based on the different performance levels achieved by the NamedExecutive Officers. The potential for short-term cash incentive compensationranges from 0% for unsatisfactory performance to a maximum of 90% foroutstanding performance for the Chief Executive Officer. The potential forshort-term cash incentive compensation ranges from 0% for unsatisfactoryperformance to a maximum of 70% for outstanding performance for our other NamedExecutive Officers.

 

The Chief Executive Officer’sperformance objectives were weighted with 50% of the potential award based onour overall financial performance and 50% of the potential award based on theChief Executive Officer’s individual performance objectives as established bythe Board of Directors. For the other Named Executive Officers, annualperformance objectives were determined by the Chief Executive Officer at thebeginning of fiscal year 2007, with 40% based on our overall financialperformance and 60% based on the achievement of individual performanceobjectives, including personal effectiveness. Our overall financial performanceobjectives are based on the final gross beet payment for the fiscal year and totalon-farm profits. Total on farm profits are equal to total gross beet paymentminus the product of Total Harvested Acres multiplied by On-Farm Costs per Acre.On-Farm Cost per Acre is based on the Red River Valley Report from theMinnesota and North Dakota Farm Business Management Education Program.

 

The individual performanceobjectives of our Named Executive Officers are derived primarily from ourstrategic initiatives, which are comprised of ten general strategies:

 

•      Trade andpolicy leadership

 

•      Cost andrevenue management

 

•      Agriculturalgold standards

 

•      Beetstorage excellence

 

•      Balancedand maximized slice and recovery

 

•      Maintenanceexcellence

 

•      Productquality

 

•      Safety

 

•      Training

 

•      Technologyand automation

 

Each Named Executive Officer, based on his area ofresponsibility, is tasked with objectives based on our strategies. As indicatedabove, Mr. Horvath’s performance objectives for fiscal year 2007 were set bythe Board of Directors. Prior to being elected President, Mr. Berg served as VicePresident 

 

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of Operations. In connection with that position, his performanceobjectives for 2007 were set by Mr. Horvath. The performance objectives forfiscal year 2007 for our other Named Executive Officers were set by Mr. Horvathat the beginning of fiscal year 2007 based on the positions then held by suchexecutive officers.

 

The Board of Directors ratedthe Chief Executive Officer at the end of the fiscal year with respect to hisachievement of his performance objectives, and his short-term cash incentivecompensation for fiscal year 2007 is based on this rating. The President ratedthe other Named Executive Officers with respect to their individual achievementof their performance objectives and each of them received a short-term cashincentive compensation award based on that rating.

 

**Long-Term Incentive Compensation**

 

Long-term incentivecompensation provides an incentive opportunity, expressed as a percent of basesalary, for our Named Executive Officers as a group who meet performanceobjectives. For fiscal year 2007, our Chief Executive Officer had anopportunity to receive an additional 40% of his base salary and the other NamedExecutive Officers had an opportunity to receive an additional 20% of theirbase salary assuming target performance levels. Actual awards are determinedbased on the performance level achieved by the Named Executive Officers as agroup. The potential for long-term incentive compensation ranges from 0% forunsatisfactory performance to a maximum of 80% for outstanding performance forthe Chief Executive Officer. The potential for long-term incentive compensationranges from 0% for unsatisfactory performance to a maximum of 40% foroutstanding performance for our other Named Executive Officers. Unlike ourshort-term cash incentive compensation, long-term incentive compensation awardsare based on the performance level of our Named Executive Officers as a group. Forty-fivepercent (45%) of the performance objectives were based on the fiscal year’sactual on-farm profits as compared to historical profit levels while the other55% was based on an assessment made by the Board of Directors regardingachievement of specific long-term performance objectives as established by theBoard of Directors.

 

Our 2005 Long-Term IncentivePlan (2005 Plan) sets forth long-term incentive compensation available to ourNamed Executive Officers. Our 2005 Plan is designed to provide financialincentive awards through deferred compensation to reward the Named ExecutiveOfficers for long-term strategic performance and to encourage long-termcommitment to our organization. Originally, our long-term incentivecompensation was set forth in our 1999 Long-Term Incentive Plan (1999 Plan)which has been replaced by our 2005 Plan. Even though the 2005 Plan replacedthe 1999 Plan, vested awards under the 1999 Plan are still governed by the 1999Plan. The 1999 Plan and the 2005 Plan are substantially similar.

 

Under the 2005 Plan, along-term incentive award may be granted to a Named Executive Officer in theform of contract rights, cash, or in a combination of both cash and contractrights (incentive awards). The value of any contract rights granted isdetermined by our Board of Directors. To date, all incentive awards grantedhave been in the form of contract rights. Incentive awards vest over athree-year period, with the first vesting occurring one year after the grant. Vestedincentive awards may be redeemed at the discretion of the Named ExecutiveOfficer and must be redeemed upon certain other events causing a termination ofemployment. Redemptions are in the form of cash payments that may be deferredby the Named Executive Officer. Named Executive Officers receive a profit peracre payment for vested contract rights based on the average profit per acrepaid to our shareholders. Profit per acre payments are made to the NamedExecutive Officers in the same manner as our shareholders receive their croppayments. Profit per acre payments can be taken in cash or deferred until alater date. 

 

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The Board of Directorsretains the discretion to determine the amount of any incentive awards to bemade available to the Named Executive Officers with respect to a given fiscalyear.

 

On September 26, 2007,329.71 contract rights were granted to Named Executive Officers with respect toperformance for the fiscal year ended August 31, 2007 at a value of $2,100 percontract right. Correspondingly, the redemption value of the contract rightspreviously granted to the Named Executive Officers under the 1999 and 2005Plans were increased from $1,900 to $2,100 per contract right. Effective as ofAugust 31, 2007, there were a total of 1,750.75 contract rights issued andoutstanding to the Named Executive Officers under the 1999 and 2005 Plans, ofwhich 1,177 were vested.

 

**Retirement and other benefits**

 

Retirement benefits are animportant tool in achieving overall compensation objectives because theyprovide a financial security component and promote retention. Our NamedExecutive Officers participate in our retirement plans like any other employee.In addition, we provide a Supplemental Executive Retirement Plan (SERP) for ourNamed Executive Officers, which is a non-qualified defined contribution anddefined benefit plan designed to replace benefits executives would havereceived if not for limits imposed by Code Section 401(a)(17) and 402(g). TheNamed Executive Officers may elect to defer a portion of base salary by regularpayroll deductions under the SERP, and may also defer 100% of all short-termincentive compensation and long-term incentive compensation awards or paymentsrelated to any such awards. All amounts contributed to the SERP are held in atrust with two investment options and are subject to the claims of ourcreditors. The pension component of the SERP is “unfunded” with all amounts tobe paid from our general assets, to the extent available, when due.

 

Our Named Executive Officersparticipate in our fully insured long-term disability program for all nonunionemployees to provide income protection in the event of permanent disability. Thelong-term disability plan is part of the core benefits we provide. Thelong-term disability plan provides a benefit equal to 60% of base pay with amaximum monthly benefit of $10,000. The Named Executive Officers pay tax on thevalue of the long-term disability premium, and as a result if they becomedisabled their benefit will not be taxable. Other nonunion employees are nottaxed on the value of their long-term disability premium; therefore if theybecome disabled their benefit will be taxable. For the Named Executive Officerswe began imputing the value of the premium to provide a tax-free benefit topartially offset the impact of receiving a disability benefit less than 60% ofbase pay because of the $10,000 monthly benefit limitation.

 

**Perquisites**

 

Our Compensation Committeeand the Board of Directors believe perquisites should be modest, reasonable interms of cost, and aligned with business needs and comparative to othersalaried employees. Named Executive Officers may receive some or all of thefollowing perquisites while employed: car allowance, cell phone, minimum of 4weeks annual vacation accrual, reimbursement for income tax preparation andexecutive physicals. Additionally, the Chief Executive Officer and Presidentare provided with a country club membership. The above-described perquisitescease upon retirement or separation of service with us.

 

**Severance**

 

If we terminate Mr. Horvathwithout cause he is entitled to receive a post-termination severance paymentequal to three years of his base salary in effect on the date of termination. Ifwe terminate Mr. Berg without cause he is entitled to receive apost-termination severance payment equal to two years 

 

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of his base salary in effecton the date of termination. There are no compensatory plans or arrangementsproviding for payments to any of the other Named Executive Officers inconjunction with any termination of employment with us, including withoutlimitation resignation, severance, retirement or constructive termination ofemployment by the Company. Furthermore, there are no such plans or arrangementsproviding for payments to any of the Named Executive Officers in conjunctionwith a change of control or change in such Named Executive Officer’sresponsibilities.

 

**Employment Agreements**

 

We entered into anemployment agreement with Mr. Horvath effective May 15, 1998. The agreementprovides that Mr. Horvath shall serve as an “at will” employee at thepleasure of the Board of Directors. The agreement also includes a three-yearnon-compete/non-solicitation agreement with Mr. Horvath, grants the Boardof Directors the authority to establish Mr. Horvath’s base salary each year,and provides that he may participate in other benefit plans offered toemployees.

 

On September 28, 2005, Mr.Horvath’s employment agreement was amended. Prior to this amendment, theemployment agreement contained certain provisions that were a disincentive toMr. Horvath continuing his employment with us beyond September 30, 2005 andother provisions that required amendment as a result of recent changes in thetax laws. The amendment: (1) eliminated the disincentive to Mr. Horvath tocontinue his employment with the Company; (2) changed certain vacation accrualsso that Mr. Horvath accrues additional vacation days; and (3) made certainother changes required to comply with the recent changes to the tax laws.

 

If Mr. Horvath’semployment terminates due to retirement, a termination without cause, ordisability, Mr. Horvath is entitled to receive:

 

•      Reimbursementfor the cost of medical and dental coverage for himself and his spouse from thedate of termination through their respective deaths;

 

•      Life insurancecoverage equal to his base salary on the date of termination until he attainsage 65, from age 65 to 70 equal to 50 percent of his base salary on the date oftermination, and after age 70 equal to 25 percent of his base salary on thedate of termination; and

 

•      Supplementalpension benefits equal to the difference between the cumulative amount of theretirement benefit he would have received computed as though he continued hisemployment to age 65 assuming compensation equal to or greater of: (1) theactual compensation paid twelve months immediately preceding termination(including annual short-term incentive compensation paid in only the mostrecently completed fiscal year) to be applied for the years remaining to age 65(with actual compensation to be used for the years prior to the date oftermination); or (2) the compensation paid for the period beginning October 1,2004, and ending September 30, 2005, to be applied for each of the five yearsfrom age 60 to age 65, and in each case assuming 30 years of service actuallyattained as of the date of termination of employment or the date on which heattains age 65, with no reduction in benefits on account of an election by Mr.Horvath for any death benefit to be paid to his spouse and the cumulativeamount of the retirement benefits actually paid to Mr. Horvath.

 

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If Mr. Horvath diesprior to terminating his employment with us, Mr. Horvath’s spouse isentitled to receive generally the same benefits that would have been providedto Mr. Horvath described above for the remainder of her life.

 

The present value, as ofAugust 31, 2007, of providing medical and dental coverage to Mr. Horvath perthe employment agreement was approximately $105,000. The present value of thesupplemental pension benefits provided per the employment agreement and thepresent value of the SERP were approximately $1,600,000 and $1,500,000,respectively, as of August 31, 2007. Mr. Horvath has elected to receivelump-sum payouts of the supplemental pension benefits provided under theemployment agreement and the benefits provided by the SERP. The lump-sumpayouts will occur in January of the year following Mr. Horvath’s retirement.

 

We entered into anemployment agreement with Mr. Berg effective March 21, 2007. The agreementprovides that Mr. Berg shall serve as an “at will” employee at the pleasure ofthe Board of Directors. The agreement also includes a two-yearnon-compete/non-solicitation agreement with Mr. Berg. Mr. Berg willreceive a gross base salary for serving as President with this base salary toincrease at the time Mr. Berg assumes the position of Chief Executive Officerand President. Thereafter, the agreement grants the Board of Directors theauthority to establish Mr. Berg’s base salary each year, and also provides thathe may participate in other benefit plans offered to all employees.

 

**Compensation Committee Report**

 

The Compensation Committeeof the Company’s Board of Directors has reviewed and discussed the CompensationDiscussion and Analysis required by Item 402(b) of Regulation S-K withmanagement and, based on such review and discussion, the Compensation Committeerecommended to the Board of Directors that the Compensation Discussion andAnalysis be included in this Form 10-K.

 

Members of the Compensation Committee:

Jeff McInnes

John Gudajtes

Brian Erickson

John Brainard

Steve Williams

 

**Summary Compensation Table**

 

The following table summarizes the compensation of theNamed Executive Officers for the fiscal year ended August 31, 2007. TheNamed Executive Officers are the Company’s Chief Executive Officer, ChiefFinancial Officer and the three other most highly compensated executiveofficers of the Company.

 

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** **

**2007 SUMMARY COMPENSATION TABLE**

 
| **Name and   Principal Position**                          | ** ** | **Year** | ** ** | **Salary (1)** | ** ** | **Non-Equity Short-  Term Incentive   Plan   Compensation (1)** | ** ** | **Non-Equity Long-  Term Incentive  Plan  Compensation  (1),(2)** | ** ** | **Non-Equity Long-  Term Incentive   Plan   Compensation   (1),(3)** | ** ** | **Change in Pension   Value and   Nonqualified   Deferred   Compensation   (NQDC) Earnings   (4)** | ** ** | **All Other   Compensation (5)** | ** ** | **Total** | ** ** |
|---------------------------------------------------------------------------|------------|----------|------------|---------------------|------------|------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------|------------|
| James J. Horvath - Chief    Executive Officer                             |       | 2007     |       | $                   | 509,308    |                                                                                     | $          | 388,616                                                                     |       | $                                                                                             | 523,210    |                                                                                                                                                 | $          | 263,156                                         |       | $         | 441,113    |   | $ | 48,738 |   | $ | 2,174,141 |   |
|                                                                      |       |     |       |                |       |                                                                                     |       |                                                                        |       |                                                                                          |       |                                                                                                                                                 |       |                                            |       |      |       |
| David A. Berg -  President                                                |       | 2007     |       | $                   | 278,308    |                                                                                     | $          | 147,744                                                                     |       | $                                                                                             | 141,049    |                                                                                                                                                 | $          | 69,123                                          |       | $         | 60,817     |   | $ | 24,705 |   | $ | 721,746 |   |
|                                                                      |       |     |       |                |       |                                                                                     |       |                                                                        |       |                                                                                          |       |                                                                                                                                                 |       |                                            |       |      |       |
| Thomas S. Astrup - Vice   President-Finance and Chief   Financial Officer |       | 2007     |       | $                   | 227,769    |                                                                                     | $          | 123,058                                                                     |       | $                                                                                             | 113,271    |                                                                                                                                                 | $          | 50,872                                          |       | $         | 23,052     |   | $ | 13,693 |   | $ | 551,715 |   |
|                                                                      |       |     |       |                |       |                                                                                     |       |                                                                        |       |                                                                                          |       |                                                                                                                                                 |       |                                            |       |      |       |
| Joseph J. Talley - Chief    Operating Officer                             |       | 2007     |       | $                   | 267,308    |                                                                                     | $          | 123,917                                                                     |       | $                                                                                             | 117,372    |                                                                                                                                                 | $          | 24,599                                          |       | $         | 47,562     |   | $ | 24,762 |   | $ | 605,520 |   |
|                                                                      |       |     |       |                |       |                                                                                     |       |                                                                        |       |                                                                                          |       |                                                                                                                                                 |       |                                            |       |      |       |
| Brian F. Ingulsrud -  Vice   President-Administration                     |       | 2007     |       | $                   | 200,769    |                                                                                     | $          | 108,956                                                                     |       | $                                                                                             | 81,703     |                                                                                                                                                 | $          | 6,585                                           |       | $         | 28,455     |   | $ | 13,925 |   | $ | 440,393 |   |

 

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(1)   Amounts shown are not reduced to reflect the Named Executive Officers’elections, if any, to defer compensation into the Supplemental ExecutiveRetirement Plan (SERP).

(2)   Represents the stated value of contract rights that were earned infiscal year 2007, which was the year performance targets were achieved. Amountsalso reflect the increase in value of the contract rights granted to theexecutives in prior years. At August 31, 2007, the Board of Directors increasedthe value of previously granted contract rights from $1,900 to $2,100. Contractrights vest equally over a three year period. For further information regardingthe Long-Term Incentive Plan, see “Compensation Discussion and Analysis” withinthis Form 10-K.

(3)   Represents the Profit-Per-Acre payments that were earned in fiscal year2007, which was the year performance targets were achieved.

(4)   Components of Change in Pension Value and NQDC Earnings. See table belowfor details:

 

**Change in Pension Value and Nonqualified DeferredCompensation Earnings**

 
| **Name and Principal Position**                           | ** ** | **Pension (A)** | ** ** | **SERP-(Pension)   (A)** | ** ** | **Special   Employment   Agreement (A)** | ** ** | **Preferential   Interest on Non-  Qualified   Deferred   Compensation (B)** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------------------|------------|----------------------|------------|-------------------------------|------------|---------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------|------------|-----------|------------|
| James J. Horvath - Chief  Executive   Officer                            |       | $                    | 69,779     |                          | $          | 185,521                                                 |       | $                                                                                                          | 148,461    |      | $          | 37,352 |   | $ | 441,113 |   |
|                                                                     |       |                 |       |                          |       |                                                    |       |                                                                                                       |       |      |       |
| David A. Berg -  President                                               |       | $                    | 39,956     |                          | $          | 17,496                                                  |       | N/A                                                                                                        |       | $         | 3,365      |   | $ | 60,817 |   |
|                                                                     |       |                 |       |                          |       |                                                    |       |                                                                                                       |       |      |       |
| Thomas S. Astrup - Vice  President-  Finance and Chief Financial Officer |       | $                    | 15,623     |                          | $          | 6,584                                                   |       | N/A                                                                                                        |       | $         | 845        |   | $ | 23,052 |   |
|                                                                     |       |                 |       |                          |       |                                                    |       |                                                                                                       |       |      |       |
| Joseph J. Talley - Chief  Operating   Officer                            |       | $                    | 22,129     |                          | $          | 15,976                                                  |       | N/A                                                                                                        |       | $         | 9,457      |   | $ | 47,562 |   |
|                                                                     |       |                 |       |                          |       |                                                    |       |                                                                                                       |       |      |       |
| Brian F. Ingulsrud -  Vice President-  Administration                    |       | $                    | 26,852     |                          | $          | 1,585                                                   |       | N/A                                                                                                        |       | $         | 18         |   | $ | 28,455 |   |
|                                                                          |            |                      |            |                               |            |                                                         |            |                                                                                                            |            |           |            |  |  |  |  |  |

 

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(A)  Represents the change in the present value of theaccumulated benefits provided by the plan or agreement. 

(B)  Interest is considered to be preferential if the ratepaid to the executive exceeds 120% of the applicable long-term federal rateunder the Interal Revenue Code. Amounts reported reflect only the interest thatexceeds 120% of the applicable long-term federal rate.

 

(5)   Includes the cost of additional life insurance coverage, imputed valueof long-term disability insurance, car allowance, reimbursement of health clubdues, costs of tax return preparation, Company 401(k) matching contributions,Company matching SERP contributions, flexible spending taxable cash andflexible spending dollars into 401(k).

 

39

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**Grants of Plan-Based Awards**

 

The following table discloses the grants of plan-basedawards to each of the Company’s Named Executive Officers for the current yearrelated to the 2005 Long-Term Incentive Plan (LTIP). The amounts of theseawards that were expensed are shown in the Summary Compensation Table. Thetable below also discloses the estimated future payouts related to contractrights under the 2005 LTIP, Short-Term Incentive Plan (STIP) and theProfit-Per-Acre (PPA) payment under the 2005 LTIP.

 

**Grants of Plan-Based Awards Table**

 
| **Name and Principal**                                            | ** ** | ** **          | ** ** | ** **           | ** ** | **Units**   | ** ** | **Estimated Future Payouts Under  Non-Equity Incentive Plan Awards - LTIP -  Contract Rights (1)** | ** ** | **Estimated Future Payouts Under Non-  Equity Incentive Plan - STIP (2)** | ** ** | **Estimated Future Payouts Under Non-  Equity Incentive Plan Awards - PPA (3)** | ** ** |
|-----------------------------------------------------------------------------|------------|---------------------|------------|----------------------|------------|-------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------|------------|
| **Position**                                                                | ** ** | **Grant Date** | ** ** | **Action Date** | ** ** | **Granted** | ** ** | **Threshold**                                                                                                                                             | ** ** | **Target**                                                                                                             | ** ** | **Maximum**                                                                                                                       | ** ** | **Threshold** | ** ** | **Target** | ** ** | **Maximum** | ** ** | **Threshold** | ** ** | **Target** | ** ** | **Maximum** | ** ** |
| James J. Horvath -   Chief Executive   Officer (4)                          |       | 8/31/2007           |       | 9/26/2007            |       | 167.90      |       |                                                                                                                                                      |       | $                                                                                                                      | 352,590    |                                                                                                                              |       |   | $ | 0 |   | $ | 229,950 |   | $ | 459,900 |   |   |   | $ | 79,753 |   |   |   |
|                                                                        |       |                |       |                 |       |        |       |                                                                                                                                                      |       |                                                                                                                   |       |                                                                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| David A. Berg -   President                                                 |       | 8/31/2007           |       | 9/26/2007            |       | 46.23       |       |                                                                                                                                                      |       | $                                                                                                                      | 97,089     |                                                                                                                              |       |   | $ | 0 |   | $ | 145,800 |   | $ | 291,600 |   |   |   | $ | 21,959 |   |   |   |
|                                                                        |       |                |       |                 |       |        |       |                                                                                                                                                      |       |                                                                                                                   |       |                                                                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Thomas S. Astrup -   Vice President-  Finance and Chief   Financial Officer |       | 8/31/2007           |       | 9/26/2007            |       | 37.75       |       |                                                                                                                                                      |       | $                                                                                                                      | 79,281     |                                                                                                                              |       |   | $ | 0 |   | $ | 83,650 |   | $ | 167,300 |   |   |   | $ | 17,931 |   |   |   |
|                                                                        |       |                |       |                 |       |        |       |                                                                                                                                                      |       |                                                                                                                   |       |                                                                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Joseph J. Talley -   Chief Operating   Officer                              |       | 8/31/2007           |       | 9/26/2007            |       | 44.40       |       |                                                                                                                                                      |       | $                                                                                                                      | 93,242     |                                                                                                                              |       |   | $ | 0 |   | $ | 105,980 |   | $ | 211,960 |   |   |   | $ | 21,090 |   |   |   |
|                                                                        |       |                |       |                 |       |        |       |                                                                                                                                                      |       |                                                                                                                   |       |                                                                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Brian F. Ingulsrud -   Vice President-  Administration                      |       | 8/31/2007           |       | 9/26/2007            |       | 33.43       |       |                                                                                                                                                      |       | $                                                                                                                      | 70,196     |                                                                                                                              |       |   | $ | 0 |   | $ | 76,440 |   | $ | 152,880 |   |   |   | $ | 15,879 |   |   |   |

 

----

| (1) | The “Target” amounts represent contract rights at the 8/31/2007 stated  value of $2,100 per contract right. These rights vest to the executive over  three years. Theoretically the minimum received for these contract rights  could be $0 and there is no maximum.                                                                                     |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | The amounts indicated represent future potential payments under the  Short-Term Incentive Plan (STIP) based on the executives’ salary as of August  31, 2007.                                                                                                                                                                                                 |
| (3) | The “Target” amount represents future Profit Per Acre (PPA) annual  payments that will be paid to executives upon vesting and assuming a similar  beet payment and on-farm costs to that experienced in fiscal year 2007. PPA  payments are only paid on vested contract rights. Theoretically the minimum  payment could be $0 and there is no maximum. |
| (4) | Mr. Horvath retired from the Company in October 2007 and as a result,  he will not be eligible to receive future contract right grants, payments  under the Short-Term Incentive Plan or Profit-Per Acre payments associated  with the contract rights granted on August 31, 2007.                                                                                 |

 

 

40

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**Pension Benefits**

 

The table below reflects information for the NamedExecutive Officers pertaining to the Company’s Pension Plan, SupplementalExecutive Retirement Plan and Special Employment Agreements.

 
| **Name and Principal Position**                           | ** ** | **Plan Name**                           | ** ** | **Number of   Years Credited  Service** | ** ** | **Present Value of   Accumulated Benefit (1)** | ** ** | **Payments During Last  Fiscal Year** | ** ** |
|--------------------------------------------------------------------------|------------|----------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| James J. Horvath - Chief  Executive   Officer                            |       | Retirement Plan A For  Employees of ACSC (2) |       | 22                                                     |       | $                                                                       | 549,590    |                                                 | —     |   |
|                                                                     |       |                                         |       |                                                   |       |                                                                    |       |                                                 |       |
|                                                                     |       | Supplemental Executive  Retirement Plan (3)  |       | 22                                                     |       | $                                                                       | 1,513,981  |                                                 | —     |   |
|                                                                     |       |                                         |       |                                                   |       |                                                                    |       |                                                 |       |
|                                                                     |       | Mr. Horvath Employment  Agreement (4)        |       | 30                                                     |       | $                                                                       | 1,555,102  |                                                 | —     |   |
|                                                                     |       |                                         |       |                                                   |       |                                                                    |       |                                                 |       |
| David A. Berg -  President                                               |       | Retirement Plan A For  Employees of ACSC (2) |       | 20                                                     |       | $                                                                       | 275,370    |                                                 | —     |   |
|                                                                     |       |                                         |       |                                                   |       |                                                                    |       |                                                 |       |
|                                                                     |       | Supplemental Executive  Retirement Plan (3)  |       | 20                                                     |       | $                                                                       | 163,370    |                                                 | —     |   |
|                                                                     |       |                                         |       |                                                   |       |                                                                    |       |                                                 |       |
| Thomas S. Astrup - Vice  President-  Finance and Chief Financial Officer |       | Retirement Plan A For  Employees of ACSC (2) |       | 13                                                     |       | $                                                                       | 66,642     |                                                 | —     |   |
|                                                                     |       |                                         |       |                                                   |       |                                                                    |       |                                                 |       |
|                                                                     |       | Supplemental Executive  Retirement Plan (3)  |       | 13                                                     |       | $                                                                       | 17,437     |                                                 | —     |   |
|                                                                     |       |                                         |       |                                                   |       |                                                                    |       |                                                 |       |
| Joseph J. Talley - Chief  Operating   Officer                            |       | Retirement Plan A For  Employees of ACSC (2) |       | 13                                                     |       | $                                                                       | 122,936    |                                                 | —     |   |
|                                                                     |       |                                         |       |                                                   |       |                                                                    |       |                                                 |       |
|                                                                     |       | Supplemental Executive  Retirement Plan (3)  |       | 13                                                     |       | $                                                                       | 82,135     |                                                 | —     |   |
|                                                                     |       |                                         |       |                                                   |       |                                                                    |       |                                                 |       |
| Brian F. Ingulsrud -  Vice President-  Administration                    |       | Retirement Plan A For  Employees of ACSC (2) |       | 16                                                     |       | $                                                                       | 111,104    |                                                 | —     |   |
|                                                                     |       |                                         |       |                                                   |       |                                                                    |       |                                                 |       |
|                                                                     |       | Supplemental Executive  Retirement Plan (3)  |       | 16                                                     |       | $                                                                       | 2,188      |                                                 | —     |   |

 

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(1)   Footnote (10), “Employee Benefit Plans”, of the Company’s Notes to theConsolidated Financial Statements discloses the significant assumptions used incalculating this benefit.

(2)   Refer to the Compensation, Discussion and Analysis (CD&A) sectionwithin this Form 10-K for a description of this benefit plan.

(3)   Refer to the Compensation, Discussion and Analysis (CD&A) sectionwithin this Form 10-K for a description of this benefit plan.

(4)   Refer to the Compensation, Discussion and Analysis (CD&A) sectionwithin this Form 10-K for a description of this benefit plan.

 

41

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**Non-QualifiedDeferred Compensation**

 

The table below reflects information for the NamedExecutive Officers pertaining to non-qualified deferred compensation. Allnon-qualified deferred compensation listed below is subject to claims of theCompany’s creditors.

 
| **Name and   Principal Position**                          | ** ** | **Executive   Contributions in   Last Fiscal Year (1)** | ** ** | **Registrant   Contributions in   Last Fiscal Year (2)** | ** ** | **Aggregate Earnings   in Last Fiscal Year   (3)** | ** ** | **Aggregate   Withdrawals/   Distributions (4)** | ** ** | **Aggregate Balance   at Last Fiscal Year   End** | ** ** |
|---------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| James J. Horvath - Chief    Executive Officer                             |       | $                                                                                     | 257,301    |                                                                                   | $          | 23,882                                                                           |       | $                                                               | 149,600    |                                                                            | —     |   | $ | 2,078,519 |   |
|                                                                      |       |                                                                                  |       |                                                                                   |       |                                                                             |       |                                                            |       |                                                                            |       |
| David A. Berg -  President                                                |       | $                                                                                     | 11,882     |                                                                                   | $          | 5,831                                                                            |       | $                                                               | 56,859     |                                                                            | —     |   | $ | 539,276 |   |
|                                                                      |       |                                                                                  |       |                                                                                   |       |                                                                             |       |                                                            |       |                                                                            |       |
| Thomas S. Astrup - Vice   President-Finance and   Chief Financial Officer |       | —                                                                                |       | $                                                                                      | 3,568      |                                                                             | $          | 3,679                                                           |       | —                                                                          |       | $ | 47,129 |   |
|                                                                      |       |                                                                                  |       |                                                                                   |       |                                                                             |       |                                                            |       |                                                                            |       |
| Joseph J. Talley - Chief    Operating Officer                             |       | $                                                                                     | 30,372     |                                                                                   | $          | 5,626                                                                            |       | $                                                               | 38,573     |                                                                            | —     |   | $ | 525,807 |   |
|                                                                      |       |                                                                                  |       |                                                                                   |       |                                                                             |       |                                                            |       |                                                                            |       |
| Brian F. Ingulsrud -  Vice   President-Administration                     |       | —                                                                                |       | $                                                                                      | 2,078      |                                                                             | $          | 405                                                             |       | —                                                                          |       | $ | 4,182 |   |

 

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(1)   Executives may defer from 2% to 20% of eligible earnings above the limitfor a qualified plan and up to 100% of incentive compensation (which includesshort-term incentive comp, profit per acre payments and proceeds from the saleof contract rights). These amounts are included in the Summary CompensationTable.

(2)   Represents Company 401k matching above the IRS limit for a qualifiedplan. These amounts are included in the “All Other Compensation” column of theSummary Compensation Table.

(3)   Preferential interest included here as well as in the NQDC column of theSummary Compensation Table are as follows: Mr. Horvath - $37,352, Mr. Berg -$3,365, Mr. Astrup - $845, Mr. Talley - $9,457, and Mr. Ingulsrud - $18. Executiveshave the option of investing funds in an S&P 500 index fund or in a moneymarket fund guaranteeing interest at prime as of January 2 of each calendaryear. The 2007 and 2006 calendar year rates were 8.25% and 7.25%, respectively.

(4)   Distributions occur upon termination of employment and can be in a lumpsum or in equal installments over a period not to exceed ten years.

 

**PotentialPayments upon Termination or Change-In-Control**

 

The Company and Mr. Horvath entered into anagreement regarding Mr. Horvath’s employment by the Company. The agreementprovides that Mr. Horvath shall serve as an “at will” employee at thepleasure of the Board of Directors. The agreement also contains the provisionof a three-year non-compete/non-solicitation agreement with Mr. Horvath,grants the Board of Directors the authority to establish Mr. Horvath’s basecompensation each year, and also provides that he may participate in otherbenefit plans offered by the Company.

 

If Mr. Horvath’semployment terminates due to retirement, a termination without cause, ordisability, Mr. Horvath is entitled to receive:

 

•      Reimbursementfor the cost of medical and dental coverage for himself and his spouse from thedate of termination through their respective deaths;

 

•      Life insurancecoverage equal to his base salary on the date of termination until he attainsage 65, from age 65 to 70 equal to 50 percent of his base salary on the date of

 

42

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termination, and after age70 equal to 25 percent of his base salary on the date of termination; and

 

•      Supplementalpension benefits equal to the difference between the cumulative amount of theretirement benefit he would have received computed as though he continued hisemployment to age 65 assuming compensation equal to or greater of: (1) theactual compensation paid twelve months immediately preceding termination(including annual short-term incentive compensation paid in only the mostrecently completed fiscal year) to be applied for the years remaining to age 65(with actual compensation to be used for the years prior to the date oftermination); or (2) the compensation paid for the period beginning October 1,2004, and ending September 30, 2005, to be applied for each of the five years fromage 60 to age 65, and in each case assuming 30 years of service actuallyattained as of the date of termination of employment or the date on which heattains age 65, with no reduction in benefits on account of an election by Mr.Horvath for any death benefit to be paid to his spouse and the cumulativeamount of the retirement benefits actually paid to Mr. Horvath.

 

If Mr. Horvath diesprior to terminating his employment with us, Mr. Horvath’s spouse isentitled to receive generally the same benefits that would have been providedto Mr. Horvath described above for the remainder of her life.

 

The present value, as of August 31, 2007, of providingmedical and dental coverage to Mr. Horvath per the employment agreement wasapproximately $105,000. The present value of the supplemental pension benefitsprovided per the employment agreement and the present value of the SERP wereapproximately $1,600,000 and $1,500,000, respectively, as of August 31, 2007. Mr.Horvath has elected to receive lump-sum payouts of the supplemental pensionbenefits provided under the employment agreement and the benefits provided bythe SERP. The lump-sum payouts will occur in January of the year following Mr.Horvath’s retirement.

 

As of the filing of this report, Mr. Horvath’s retirementhas become effective and the above described change-of-control payments are nolonger applicable.

 

On March 21, 2007, the Company and Mr. Bergentered into an agreement regarding Mr. Berg’s employment by the Company. Theagreement provides that Mr. Berg shall serve as an “at will” employee atthe pleasure of the Board of Directors. The agreement also contains theprovision of a two-year non-compete/non-solicitation agreement withMr. Berg, grants the Board of Directors the authority to establish Mr. Berg’sbase compensation each year, and also provides that he may participate in other incentive compensationand benefit programs available to the Company’s executive officers.

 

If Mr. Berg is terminatedwithout cause he will be eligible for severance pay equal to two times his thencurrent base salary. The present value of Mr. Berg’s SupplementalExecutive Retirement Plan was approximately $163,000 as of August 31, 2007.

 

**Compensation of Directors**

 

The Board of Directors meets monthly. For fiscal year2007, the Company provided its directors with compensation consisting of(i) a payment of $550 per month, (ii) a per diem payment of $250 foreach day spent on Company activities, including board meetings and otherCompany functions, and (iii) reimbursement of expenses associated withdirector responsibilities. The Chairman of the Board of Directors receives apayment of $1,050 per month, rather than $550 per month; the Chairman also

 

43

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receives a per diem inthe amount of $250 for each day spent on Company activities. The monthlycompensation paid to directors and the Chairman increases by $25 per month eachfiscal year.

 

Under the terms of the Board of Directors DeferredCompensation Plan, members of the Board of Directors can elect to defer receiptof their monthly and per diem compensation. This is an annual irrevocableelection made prior to January 1 of each calendar year the fees are to be paid.The amounts are deferred until either withdrawal from the Board of Directors bya member or until retirement from the member’s regular employment or business,but not beyond age 65. Two payment options are available at the election of theparticipant. Payments can be received in a single lump sum or in equalinstallments over a period of up to ten years. The Board of Directors, at itsdiscretion, can elect to distribute the remaining balance at any time. Interestis earned on the amounts deferred based on the five year Treasury bond rate. Currently,there is one member who has elected to participate in this plan. The amountdeferred, as of August 31, 2007, was approximately $54,000.

 

The table below reflects director compensation for theyear ended August 31, 2007.

 
| **Name**                                                   | ** ** | **Fees Earned (1)** | ** ** | **Non-Equity   Incentive Plan   Compensation** | ** ** | **Change in Pension   Value and NQDC   Earnings** | ** ** | **All Other   Compensation** | ** ** | **Total** | ** ** |
|------------------------------------------------------------|------------|-------------------------------|------------|---------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|----------------------------------------|------------|-----------|------------|
| David J. Kragnes,  Director,   Chairman of the Board       |       | $                             | 32,300     |                                                          | N/A        |                                                                            | N/A        |                                   | N/A        |      | $          | 32,300 |   |
|                                                       |       |                          |       |                                                          |       |                                                                            |       |                                   |       |      |       |
| Michael A. Astrup,  Director,   Vice-Chairman of the Board |       | $                             | 23,300     |                                                          | N/A        |                                                                            | N/A        |                                   | N/A        |      | $          | 23,300 |   |
|                                                       |       |                          |       |                                                          |       |                                                                            |       |                                   |       |      |       |
| William Baldwin,  Director                                 |       | $                             | 20,800     |                                                          | N/A        |                                                                            | N/A        |                                   | N/A        |      | $          | 20,800 |   |
|                                                       |       |                          |       |                                                          |       |                                                                            |       |                                   |       |      |       |
| Rick Borgen, Director                                      |       | $                             | 19,550     |                                                          | N/A        |                                                                            | N/A        |                                   | N/A        |      | $          | 19,550 |   |
|                                                       |       |                          |       |                                                          |       |                                                                            |       |                                   |       |      |       |
| John Brainard, Director                                    |       | $                             | 25,425     |                                                          | N/A        |                                                                            | N/A        |                                   | N/A        |      | $          | 25,425 |   |
|                                                       |       |                          |       |                                                          |       |                                                                            |       |                                   |       |      |       |
| Brian Erickson,  Director                                  |       | $                             | 24,800     |                                                          | N/A        |                                                                            | N/A        |                                   | N/A        |      | $          | 24,800 |   |
|                                                       |       |                          |       |                                                          |       |                                                                            |       |                                   |       |      |       |
| Robert Green, Director                                     |       | $                             | 22,550     |                                                          | N/A        |                                                                            | N/A        |                                   | N/A        |      | $          | 22,550 |   |
|                                                       |       |                          |       |                                                          |       |                                                                            |       |                                   |       |      |       |
| John Gudajtes, Director                                    |       | $                             | 22,800     |                                                          | N/A        |                                                                            | N/A        |                                   | N/A        |      | $          | 22,800 |   |
|                                                       |       |                          |       |                                                          |       |                                                                            |       |                                   |       |      |       |
| Curtis Haugen, Director                                    |       | $                             | 19,800     |                                                          | N/A        |                                                                            | N/A        |                                   | N/A        |      | $          | 19,800 |   |
|                                                       |       |                          |       |                                                          |       |                                                                            |       |                                   |       |      |       |
| Lonn Kiel, Director (2)                                    |       | $                             | 6,000      |                                                          | N/A        |                                                                            | N/A        |                                   | N/A        |      | $          | 6,000 |   |
|                                                       |       |                          |       |                                                          |       |                                                                            |       |                                   |       |      |       |
| Francis Kritzberger,  Director                             |       | $                             | 19,800     |                                                          | N/A        |                                                                            | N/A        |                                   | N/A        |      | $          | 19,800 |   |
|                                                       |       |                          |       |                                                          |       |                                                                            |       |                                   |       |      |       |
| Jeff McInnes, Director                                     |       | $                             | 24,050     |                                                          | N/A        |                                                                            | N/A        |                                   | N/A        |      | $          | 24,050 |   |
|                                                       |       |                          |       |                                                          |       |                                                                            |       |                                   |       |      |       |
| Ronald Reitmeier,  Director                                |       | $                             | 14,925     |                                                          | N/A        |                                                                            | N/A        |                                   | N/A        |      | $          | 14,925 |   |
|                                                       |       |                          |       |                                                          |       |                                                                            |       |                                   |       |      |       |
| Jim Ross, Director                                         |       | $                             | 19,800     |                                                          | N/A        |                                                                            | N/A        |                                   | N/A        |      | $          | 19,800 |   |
|                                                       |       |                          |       |                                                          |       |                                                                            |       |                                   |       |      |       |
| Neil Widner, Director                                      |       | $                             | 26,050     |                                                          | N/A        |                                                                            | N/A        |                                   | N/A        |      | $          | 26,050 |   |
|                                                       |       |                          |       |                                                          |       |                                                                            |       |                                   |       |      |       |
| Steve Williams,  Director (3)                              |       | $                             | 25,100     |                                                          | N/A        |                                                                            | N/A        |                                   | N/A        |      | $          | 25,100 |   |

 

----

| (1) | Consists of fees  of $550 per month to Directors and $1,050 to the Chairman of the Board. The  Chairman and Directors also receive a per diem fee of $250 for each day spent  on Company activities. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Term expired in  December of 2006.                                                                                                                                                                   |
| (3) | Term began in  December of 2006.                                                                                                                                                                     |

 

 

44

----

 

**Item12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSAND MANAGEMENT**

 

Under state law and the Company’s Bylaws, each memberof the cooperative is entitled to one vote, regardless of the number of sharesthe member holds. The Common Stock of the Company is voting stock and eachmember of the Company holds one share of Common Stock. The Preferred Stock ofthe Company is non-voting stock. The Company’s stock can only be held byindividuals who are sugarbeet growers. None of the officers or executives ofthe Company hold stock of the Company. As members of the cooperative, eachdirector owns one share of Common Stock and is entitled to one vote. As agroup, the directors generally own approximately 2 to 3 percent of theoutstanding Preferred Stock.

 

**Item13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

 

Each of the Company’s directors is also a sugarbeetfarmer and a shareholder member or representative of a shareholder member ofthe Company. By virtue of their status as such members of the Company, eachdirector or the member he represents sells sugarbeets to the Company andreceives payments for those sugarbeets. Such payments for sugarbeets oftenexceed $60,000. Such payments, however, are received by the directors or theentities they represent on exactly the same basis as payments received by othermembers of the Company for the delivery of their sugarbeets. Except for thesugarbeet sales described in the preceding sentences, none of the directors orexecutive officers of the Company have engaged in any other transactions withthe Company involving amounts in excess of $60,000.

 

**Item14.     PRINCIPAL ACCOUNTANT FEES AND SERVICES**

** **

The following table presents fees for professionalaudit services rendered by Eide Bailly LLP for the audits of the Company’s andconsolidated companies’ annual financial statements for the years ended August31, 2007 and 2006 and fees for other services rendered by Eide Bailly LLPduring those periods.

 
| **(In Thousands)** | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------|------------|----------|------------|----------|------------|
| Audit Fees         |       | $        |  128  |     | $          |  125 |   |
| Audit-Related Fees      |       | 41       |       | 23       |       |
| Tax Fees                |       | 52       |       | 31       |       |
| All Other Fees          |       | —   |       | —   |       |
| Total                   |       | $        | 221        |     | $          | 179 |   |

 

**Audit Fees.**TheAudit Fees set forth above include the aggregate fees billed by Eide Bailly LLPto the Company for audit services related to the audit of the Company’s andconsolidated companies’ annual financial statements and review of thestatements included in the Company’s quarterly reports on Form 10-Q for fiscal2007 and fiscal 2006.

 

**Audit-Related Fees.**TheAudit-Related Fees set forth above include the aggregate fees billed by Eide Bailly LLP to the Company and consolidatedcompanies for assurance and related services provided by Eide Bailly LLPrelated to the performance of the audit or review of the Company’s financialstatements for fiscal 2007 and fiscal 2006. These services included BenefitPlan audits.

 

**Tax Fees.**The TaxFees set forth above include the aggregate fees billed by Eide Bailly LLP to the Company and consolidated companies for professional services rendered byEide Bailly for tax compliance, tax advice and tax planning for fiscal 2007 andfiscal 2006. These services include taxreturn preparation, tax planning and tax research.

 

45

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**All Other Fees.**TheAll Other Fees set forth above include the aggregate fees billed by Eide BaillyLLP to the Company and consolidatedcompanies for professional services provided by Eide Bailly LLP to theCompany and consolidated companies.There were no other fees paid to Eide Bailly LLP for fiscal 2007 or fiscal 2006.

 

The Company’s Audit Committeepre-approves all professional services provided by Eide Bailly LLP to theCompany. The Audit Committee approvedall****of the services and thefees billed for such services to the Company that are included above. The AuditCommittee makes its decisions on the approval of services with dueconsideration given to maintaining the independence of the principal accountant.None of the hours expended on the auditof the 2007 financial statements were attributed to work performed by personswho were not employed full time on a permanent basis by Eide Bailly LLP.

 

46

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# **PART III**

 

**Item15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**

 

(a)           Documents filed as partof this report

 

1.            Consolidated FinancialStatements

 

Report of Independent Registered Public AccountingFirm

Consolidated Statements of Operations for the YearsEnded August 31, 2007, 2006 and 2005

Consolidated Balance Sheets as of August 31, 2007and 2006

Consolidated Statements of Changes in Members’Investments and Comprehensive Income for the Years Ended August 31, 2007,2006 and 2005

Consolidated Statements of Cash Flows for the YearsEnded August 31, 2007, 2006 and 2005

Notes to the Consolidated Financial Statements

 

2.            Financial StatementSchedules

None

 

3.            The exhibits to thisAnnual Report on Form 10-K are listed in the Exhibit Index on pages E-1 to E-4of this report

 

(b)           Exhibits

 

The response to this portion of Item 15 is included asa separate section of this Annual Report on Form 10-K.

 

47

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**SIGNATURES**

** **

Pursuant to the requirements of Section 13 or 15 ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized, onNovember 29, 2007.

 
|   | AMERICAN CRYSTAL  SUGAR COMPANY |
|--------|---------------------------------|
|   | By:                             | /s/ DAVID A.  BERG | * * |
|   |                            | *President  and Chief Executive Officer* |
|   |                            |   |
|   | Dated:  November 29, 2007  |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed by the following persons onbehalf of the registrant in the capacities and on the dates indicated.

 
| **Signature**               | ** ** | **Title**                                   | ** ** | **Date**                | ** ** |
|-----------------------------|------------|---------------------------------------------|------------|-------------------------|------------|
| ** **                  | ** ** | ** **                                  | ** ** | ** **              | ** ** |
| /s/ DAVID A.  BERG          |       | President and  Chief Executive Officer      |       | November 29,  2007 |       |
|                        |       | (Principal  Executive Officer)              |       |                    |       |
|                        |       |                                        |       |                    |       |
| /s/ THOMAS S.  ASTRUP       |       | Vice President-Finance  and Chief Financial |       | November 29,  2007 |       |
|                        |       | Officer  (Principal Financial Officer)      |       |                    |       |
|                        |       |                                        |       |                    |       |
| /s/ DAVID J.  KRAGNES       |       | Director  (Chairman)                        |       | November 29,  2007 |       |
|                        |       |                                        |       |                    |       |
| /s/ MICHAEL A.  ASTRUP      |       | Director  (Vice-Chairman)                   |       | November 29,  2007 |       |
|                        |       |                                        |       |                    |       |
| /s/ WILLIAM  BALDWIN        |       | Director                                    |       | November 29,  2007 |       |
|                        |       |                                        |       |                    |       |
| /s/ RICHARD  BORGEN         |       | Director                                    |       | November 29,  2007 |       |
|                        |       |                                        |       |                    |       |
| /s/ JOHN  BRAINARD          |       | Director                                    |       | November 29,  2007 |       |
|                        |       |                                        |       |                    |       |
| /s/ BRIAN R.  ERICKSON      |       | Director                                    |       | November 29,  2007 |       |
|                        |       |                                        |       |                    |       |
| /s/ ROBERT M.  GREEN        |       | Director                                    |       | November 29,  2007 |       |
|                        |       |                                        |       |                    |       |
| /s/ JOHN F.  GUDAJTES       |       | Director                                    |       | November 29,  2007 |       |
|                        |       |                                        |       |                    |       |
| /s/ CURTIS E.  HAUGEN       |       | Director                                    |       | November 29,  2007 |       |
|                        |       |                                        |       |                    |       |
| /s/ FRANCIS L.  KRITZBERGER |       | Director                                    |       | November 29,  2007 |       |
|                        |       |                                        |       |                    |       |
| /s/ JEFF D.  MCINNES        |       | Director                                    |       | November 29,  2007 |       |
|                        |       |                                        |       |                    |       |
| /s/ RONALD E.  REITMEIER    |       | Director                                    |       | November 29,  2007 |       |
|                        |       |                                        |       |                    |       |
| /s/ JIM A. ROSS             |       | Director                                    |       | November 29,  2007 |       |
|                        |       |                                        |       |                    |       |
| /s/ NEIL C.  WIDNER         |       | Director                                    |       | November 29,  2007 |       |
|                        |       |                                        |       |                    |       |
| /s/ STEVE  WILLIAMS         |       | Director                                    |       | November 29,  2007 |       |

 

48

----

 

**APPENDIX A**

** **

**INDEX TO THE CONSOLIDATEDFINANCIAL STATEMENTS**

 
| **AMERICAN CRYSTAL SUGAR COMPANY**                                                                                                                 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| CONSOLIDATED FINANCIAL STATEMENTS:                                                                                                                 |   |
| Report of Independent  Registered Public Accounting Firm                                                                                           |   |
| Consolidated  Statements of Operations for the Years Ended August 31, 2007, 2006 and  2005                                                    |   |
| Consolidated Balance  Sheets as of August 31, 2007 and 2006                                                                                   |   |
| Consolidated  Statements of Changes in Members’ Investments and Comprehensive Income for  the Years Ended August 31, 2007, 2006 and 2005 |   |
| Consolidated  Statements of Cash Flows for the Years Ended August 31, 2007, 2006 and  2005                                                    |   |
| Notes to the  Consolidated Financial Statements                                                                                                    |   |

 

A-1

----

 

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

** **

To the Audit Committee of **AmericanCrystal Sugar Company**

Moorhead, Minnesota

 

We have audited theaccompanying consolidated balance sheets of **AmericanCrystal Sugar Company****and Subsidiaries**asof August 31, 2007 and 2006, and the related consolidated statements ofoperations, changes in members’ investments and comprehensive income, and cashflows for the years ended August 31, 2007, 2006, and 2005. Theseconsolidated financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these consolidatedfinancial statements based on our audits.

 

We conducted our audits inaccordance with standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes consideration of internal controlsover financial reporting as a basis for designing audit procedures that areappropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly, we do not express such an opinion. An audit alsoincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

Inour opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of **American Crystal Sugar Company and Subsidiaries** as ofAugust 31, 2007 and 2006, and the results of their operations and theircash flows for the years ended August 31, 2007, 2006, and 2005, inconformity with accounting principles generally accepted in the United Statesof America.

 

Asdiscussed in Note 10 to the accompanying financial statements, the Company hasadopted Statement of Financial Accounting Standards No. 158 (FASB 158) “Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans – anamendment of FASB Statements No. 87, 88, 106, and 132(R)” as of August 31,2007.

 

 

/s/ EIDE BAILLY LLP

 

Sioux Falls, SouthDakota

October 10, 2007

 

A-2

----

 

**American Crystal Sugar Company**

**Consolidated Statements of Operations**

**Forthe Years Ended August 31**

**(InThousands)**

 
| ** **                                                        | ** ** | **2007**    | ** **    | **2006**   | ** ** | **2005**  | ** ** |
|-------------------------------------------------------------------|------------|-------------|---------------|------------|------------|-----------|------------|
| **Net Revenue**                                                   | ** ** | **$**       | **1,222,170** | ** ** | $          | 1,005,716 |       | $ | 965,474 |   |
|                                                              |       |        | ** **    |       |       |      |       |
| **Cost of Sales**                                                 | ** ** | **348,382** | ** **    | 328,767    |       | 364,687   |       |
|                                                              |       |        | ** **    |       |       |      |       |
| **Gross Proceeds**                                                | ** ** | **873,788** | ** **    | 676,949    |       | 600,787   |       |
|                                                              |       |        | ** **    |       |       |      |       |
| **Selling, General and Administrative Expenses**                  | ** ** | **246,835** | ** **    | 211,188    |       | 203,663   |       |
|                                                              |       |        | ** **    |       |       |      |       |
| **Operating Proceeds**                                            | ** ** | **626,953** | ** **    | 465,761    |       | 397,124   |       |
|                                                              |       |        | ** **    |       |       |      |       |
| **Other Income (Expense):**                                       |       |        | ** **    |       |       |      |       |
| Interest Income                                                   | ** ** | **781**     | ** **    | 397        |       | 529       |       |
| Interest Expense, Net                                             | ** ** | **(20,281** | **)**         | (19,096    | )          | (19,170   | )          |
| Other, Net                                                        | ** ** | **878**     | ** **    | 4,283      |       | 201       |       |
|                                                              |       |        | ** **    |       |       |      |       |
| **Total Other Expense**                                           | ** ** | **(18,622** | **)**         | (14,416    | )          | (18,440   | )          |
|                                                              |       |        | ** **    |       |       |      |       |
| **Proceeds Before Minority Interest and Income Tax  Expense**     |       | **608,331** | ** **    | 451,345    |       | 378,684   |       |
|                                                              |       |        | ** **    |       |       |      |       |
| **Minority Interest**                                             | ** ** | **(5,636**  | **)**         | (4,567     | )          | (4,169    | )          |
|                                                              |       |        | ** **    |       |       |      |       |
| **Income Tax Expense**                                            | ** ** | **(1,303**  | **)**         | (1,687     | )          | (1,255    | )          |
|                                                              |       |        | ** **    |       |       |      |       |
| **Net Proceeds Resulting from Member and****Non-Member Business** |       | **$**       | 601,392       | ** ** | $          | 445,091   |       | $ | 373,260 |   |
|                                                              |       |        | ** **    |       |       |      |       |
| **Distributions of Net Proceeds:**                                |       |        | ** **    |       |       |      |       |
| Credited to Members’ Investments:                            |       |        | ** **    |       |       |      |       |
| Non-Member Business Income                                        | ** ** | **$**       | **2,286**     | ** ** | $          | 2,246     |       | $ | 2,475 |   |
| Unit Retains Declared to Members                                  | ** ** | **35,705**  | ** **    | 26,417     |       | 18,840    |       |
| Net Credit to Members’ Investments                           | ** ** | **37,991**  | ** **    | 28,663     |       | 21,315    |       |
| Payments to Members for Sugarbeets,                               |       |        | ** **    |       |       |      |       |
| Net of Unit Retains Declared                                      | ** ** | **563,401** | ** **    | 416,428    |       | 351,945   |       |
| **Total**                                                         | ** ** | **$**       | **601,392**   | ** ** | $          | 445,091   |       | $ | 373,260 |   |

 

The AccompanyingNotes are an Integral Part of These Consolidated Financial Statements.

 

A-3

----

** **

**American Crystal Sugar Company**

**Consolidated Balance Sheets**

**August31**

**(InThousands)**

** **

**Assets**

 
| ** **                                    | ** ** | **2007**     | ** **  | **2006** | ** ** |
|-----------------------------------------------|------------|--------------|-------------|----------|------------|
| **Current Assets:**                           |       |         |        |     |       |
| Cash and Cash Equivalents                     | ** ** | **$**        | **222**     |     | $          | 345 |   |
| Receivables:                                  |       |         |        |     |       |
| Trade                                         | ** ** | **77,010**   |        | 78,242   |       |
| Members                                       | ** ** | **2,746**    |        | 3,383    |       |
| Other                                         | ** ** | **5,532**    |        | 4,036    |       |
| Advances to Related Parties                   | ** ** | **7,796**    |        | 4,737    |       |
| Inventories                                   | ** ** | **216,563**  |        | 174,761  |       |
| Prepaid Expenses                              | ** ** | **1,204**    |        | 4,390    |       |
|                                          |       |         |        |     |       |
| **Total Current Assets**                      | ** ** | **311,073**  |        | 269,894  |       |
|                                          |       |         |        |     |       |
| **Property and Equipment:**                   |       |         |        |     |       |
| Land and Land Improvements                    | ** ** | **57,738**   |        | 55,808   |       |
| Buildings                                     | ** ** | **109,123**  |        | 102,986  |       |
| Equipment                                     | ** ** | **846,467**  |        | 799,175  |       |
| Construction in Progress                      | ** ** | **23,513**   |        | 11,754   |       |
| Less Accumulated Depreciation                 | ** ** | **(672,896** | **)**       | (637,583 | )          |
|                                          |       |         |        |     |       |
| **Net Property and Equipment**                | ** ** | **363,945**  |        | 332,140  |       |
|                                          |       |         |        |     |       |
| **Net Property and Equipment Held for Lease** | ** ** | **129,795**  |        | 140,041  |       |
|                                          |       |         |        |     |       |
| **Other Assets:**                             |       |         |        |     |       |
| Investments in CoBank, ACB                    | ** ** | **11,627**   |        | 13,138   |       |
| Investments in Marketing Cooperatives         | ** ** | **5,659**    |        | 5,638    |       |
| Investments in Crystech, LLC                  | ** ** | **—**   |        | 15,399   |       |
| Pension Asset                                 | ** ** | **37,400**   |        | 45,425   |       |
| Other Assets                                  | ** ** | **15,816**   |        | 18,322   |       |
|                                          |       |         |        |     |       |
| **Total Other Assets**                        | ** ** | **70,502**   |        | 97,922   |       |
|                                          |       |         |        |     |       |
| **Total Assets**                              | ** ** | **$**        | **875,315** |     | $          | 839,997 |   |

 

The AccompanyingNotes are an Integral Part of These Consolidated Financial Statements.

 

A-4

----

** **

**American Crystal Sugar Company**

**ConsolidatedBalance Sheets**

**August31**

**(InThousands)**

** **

**Liabilitiesand Members' Investments**

 
| ** **                                                  | ** ** | **2007**    | ** **  | **2006** | ** ** |
|-------------------------------------------------------------|------------|-------------|-------------|----------|------------|
| **Current Liabilities:**                                    |       |        |        |     |       |
| Short-Term Debt                                             | ** ** | **$**       | **24,980**  |     | $          | 5,300 |   |
| Current Maturities of Long-Term Debt                        | ** ** | **31,227**  |        | 20,962   |       |
| Accounts Payable                                            | ** ** | **38,998**  |        | 27,120   |       |
| Advances Due to Related Parties                             | ** ** | **2,874**   |        | 7,033    |       |
| Other Current Liabilities                                   | ** ** | **32,805**  |        | 27,617   |       |
| Amounts Due Growers                                         | ** ** | **143,260** |        | 123,648  |       |
|                                                        |       |        |        |     |       |
| **Total Current Liabilities**                               | ** ** | **274,144** |        | 211,680  |       |
|                                                        |       |        |        |     |       |
| **Long-Term Debt, Net of Current Maturities**               | ** ** | **157,974** |        | 200,037  |       |
|                                                        |       |        |        |     |       |
| **Accrued Employee Benefits**                               | ** ** | **39,337**  |        | 40,987   |       |
|                                                        |       |        |        |     |       |
| **Other Liabilities**                                       | ** ** | **8,240**   |        | 7,938    |       |
|                                                        |       |        |        |     |       |
| **Total Liabilities**                                       | ** ** | **479,695** |        | 460,642  |       |
|                                                        |       |        |        |     |       |
| **Commitments and Contingencies**                           |       |        |        |     |       |
|                                                        |       |        |        |     |       |
| **Minority Interest in ProGold Limited Liability  Company** | ** ** | **61,735**  |        | 56,099   |       |
|                                                        |       |        |        |     |       |
| **Members’ Investments:**                              |       |        |        |     |       |
| Preferred Stock                                             | ** ** | **38,275**  |        | 38,275   |       |
| Common Stock                                                | ** ** | **29**      |        | 29       |       |
| Additional Paid-In Capital                                  | ** ** | **152,261** |        | 152,261  |       |
| Unit Retains                                                | ** ** | **170,363** |        | 153,961  |       |
| Equity Retention                                            | ** ** | **2,687**   |        | 2,694    |       |
| Accumulated Other Comprehensive Income (Loss)               | ** ** | **(8,552**  | **)**       | (500     | )          |
| Retained Earnings (Accumulated Deficit)                     | ** ** | **(21,178** | **)**       | (23,464  | )          |
|                                                        |       |        |        |     |       |
| **Total Members’ Investments**                         | ** ** | **333,885** |        | 323,256  |       |
|                                                        |       |        |        |     |       |
| **Total Liabilities and Members’ Investments**         | ** ** | **$**       | **875,315** |     | $          | 839,997 |   |

 

The AccompanyingNotes are an Integral Part of These Consolidated Financial Statements.

 

A-5

----

** **

**American Crystal Sugar Company**

**Consolidated Statements of Changes inMembers' Investments and Comprehensive Income**

**Forthe Years Ended August 31**

**(InThousands)**

 
| ** **                                                | ** ** | ** **    | ** ** | ** ** | ** ** | ** **     | ** ** | ** **  | ** **  | ** **    | ** ** | **Accumulated**        | ** ** | **Retained**     | ** ** | ** **  | ** ** | ** **             | ** ** |
|-----------------------------------------------------------|------------|---------------|------------|------------|------------|----------------|------------|-------------|-------------|---------------|------------|------------------------|------------|------------------|------------|-------------|------------|------------------------|------------|
| ** **                                                | ** ** | ** **    | ** ** | ** ** | ** ** | **Additional** | ** ** | ** **  | ** **  | ** **    | ** ** | **Other**              | ** ** | **Earnings**     | ** ** | ** **  | ** ** | **Annual**             | ** ** |
| ** **                                                | ** ** | **Preferred** | ** ** | **Common** | ** ** | **Paid-In**    | ** ** | **Unit**    | ** **  | **Equity**    | ** ** | **Comprehensive**      | ** ** | **(Accumulated** | ** ** | ** **  | ** ** | **Comprehensive**      | ** ** |
| ** **                                                | ** ** | **Stock**     | ** ** | **Stock**  | ** ** | **Capital**    | ** ** | **Retains** | ** **  | **Retention** | ** ** | **Income (Loss)** | ** ** | **Deficit)**     | ** ** | **Total**   | ** ** | **Income (Loss)** | ** ** |
| **Balance, August 31, 2004**                              |       | 38,275        |       | 29         |       | 152,261        |       | 138,714     |        | 2,708         |       | (376                   | )          | (28,185          | )          | 303,426     |       |                   |       |
| Non-Member Business Income                                |       | —        |       | —     |       | —         |       | —      |        | —        |       | —                 |       | 2,475            |       | 2,475       |       | $                      | 2,475      |   |
| Pension Minimum Liability Adjustment                      |       | —        |       | —     |       | —         |       | —      |        | —        |       | (456                   | )          | —           |       | (456        | )          | (456                   | )          |
| Unit Retains Withheld from Members                        |       | —        |       | —     |       | —         |       | 18,840      |        | —        |       | —                 |       | —           |       | 18,840      |       | —                 |       |
| Payments of Unit Retains and Equity Retention to  Members |       | —        |       | —     |       | —         |       | (8,582      | )           | (5            | )          | —                 |       | —           |       | (8,587      | )          | —                 |       |
| Stock Issued, Net                                         |       | —        |       | —     |       | —         |       | —      |        | —        |       | —                 |       | —           |       | —      |       | —                 |       |
| ** **                                                | ** ** | ** **    | ** ** | ** ** | ** ** | ** **     | ** ** | ** **  | ** **  | ** **    | ** ** | ** **             | ** ** | ** **       | ** ** | ** **  | ** ** | ** **             | ** ** |
| **Balance, August 31, 2005**                              |       | 38,275        |       | 29         |       | 152,261        |       | 148,972     |        | 2,703         |       | (832                   | )          | (25,710          | )          | 315,698     |       | $                      | 2,019      |   |
| Non-Member Business Income                                |       | —        |       | —     |       | —         |       | —      |        | —        |       | —                 |       | 2,246            |       | 2,246       |       | $                      | 2,246      |   |
| Pension Minimum Liability Adjustment                      |       | —        |       | —     |       | —         |       | —      |        | —        |       | 332                    |       | —           |       | 332         |       | 332                    |       |
| Unit Retains Withheld from Members                        |       | —        |       | —     |       | —         |       | 26,417      |        | —        |       | —                 |       | —           |       | 26,417      |       | —                 |       |
| Payments of Unit Retains and Equity Retention to  Members |       | —        |       | —     |       | —         |       | (21,428     | )           | (9            | )          | —                 |       | —           |       | (21,437     | )          | —                 |       |
| Stock Issued, Net                                         |       | —        |       | —     |       | —         |       | —      |        | —        |       | —                 |       | —           |       | —      |       | —                 |       |
|                                                      |       |          |       |       |       |           |       |        |        |          |       |                   |       |             |       |        |       |                   |       |
| **Balance, August 31, 2006**                              |       | 38,275        |       | 29         |       | 152,261        |       | 153,961     |        | 2,694         |       | (500                   | )          | (23,464          | )          | 323,256     |       | $                      | 2,578      |   |
| Non-Member Business Income                                | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **—**             | ** ** | **2,286**        | ** ** | **2,286**   | ** ** | **$**                  | **2,286**  | ** ** |
| Pension Minimum Liability Adjustment                      | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **500**                | ** ** | **—**       | ** ** | **500**     | ** ** | **500**                | ** ** |
| SFAS 158 Adjustment                                       | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **(8,583**             | **)**      | **—**       | ** ** | **(8,583**  | **)**      | **(8,583**             | **)**      |
| Forward Contract Foreign Currency Gain                    | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **31**                 | ** ** | **—**       | ** ** | **31**      | ** ** | **31**                 | ** ** |
| Unit Retains Withheld from Members                        | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **35,705**  | ** **  | **—**    | ** ** | **—**             | ** ** | **—**       | ** ** | **35,705**  | ** ** | **—**             | ** ** |
| Payments of Unit Retains and Equity Retention to Members  | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **(19,303** | **)**       | **(7**        | **)**      | **—**             | ** ** | **—**       | ** ** | **(19,310** | **)**      | **—**             | ** ** |
| Stock Issued, Net                                         | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **—**             | ** ** | **—**       | ** ** | **—**  | ** ** | **—**             | ** ** |
| ** **                                                | ** ** | ** **    | ** ** | ** ** | ** ** | ** **     | ** ** | ** **  | ** **  | ** **    | ** ** | ** **             | ** ** | ** **       | ** ** | ** **  | ** ** | ** **             | ** ** |
| **Balance, August 31, 2007**                              | ** ** | **$**         | **38,275** | ** ** | **$**      | **29**         | ** ** | **$**       | **152,261** | ** **    | **$**      | **170,363**            | ** ** | **$**            | **2,687**  | ** **  | **$**      | **(8,552**             | **)**      | **$** | **(21,178** | **)** | **$** | **333,885** | ** ** | **$** | **(5,766** | **)** |
|                                                           |            |               |            |            |            |                |            |             |             |               |            |                        |            |                  |            |             |            |                        |            |  |  |  |  |  |  |  |  |  |

 

The AccompanyingNotes are an Integral Part of These Consolidated Financial Statements.

 

A-6

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**American Crystal Sugar Company**

**Consolidated Statements of Cash Flows**

**Forthe Years Ended August 31**

**(InThousands)**

 
| ** **                                                            | ** ** | **2007**     | ** **  | **2006**   | ** ** | **2005** | ** ** |
|-----------------------------------------------------------------------|------------|--------------|-------------|------------|------------|----------|------------|
| **Cash Provided By (Used In) Operating Activities:**                  |       |         |        |       |       |     |       |
| Net Proceeds Resulting from Member and Non-Member  Business           | ** ** | **$**        | **601,392** | ** ** | $          | 445,091  |       | $ | 373,260 |   |
| Payments To/Due Members for Sugarbeets, Net of Unit  Retains Declared | ** ** | **(563,401** | **)**       | (416,428   | )          | (351,945 | )          |
| Add (Deduct) Non-Cash Items:                                          |       |         | ** **  |       |       |     |       |
| Depreciation and Amortization                                         | ** ** | **57,481**   | ** **  | 56,753     |       | 59,558   |       |
| Income from Equity Method Investees                                   | ** ** | **(443**     | **)**       | (537       | )          | (1,402   | )          |
| Loss on the Disposition of Property and Equipment                     | ** ** | **995**      | ** **  | 835        |       | 2,386    |       |
| Non-Cash Portion of Patronage Dividend from CoBank,  ACB              | ** ** | **(182**     | **)**       | (218       | )          | (447     | )          |
| Deferred Gain Recognition                                             | ** ** | **(197**     | **)**       | (197       | )          | (197     | )          |
| Minority Interest in ProGold Limited Liability Company                | ** ** | **5,636**    | ** **  | 4,567      |       | 4,169    |       |
| Changes in Assets and Liabilities:                                    |       |         | ** **  |       |       |     |       |
| Receivables                                                           | ** ** | **373**      | ** **  | (38,736    | )          | 40,970   |       |
| Inventories                                                           | ** ** | **(41,802**  | **)**       | (52,134    | )          | 6,665    |       |
| Prepaid Expenses                                                      | ** ** | **3,251**    | ** **  | 1,192      |       | (736     | )          |
| Non-Current Pension Asset                                             | ** ** | **(3,757**   | **)**       | (1,636     | )          | (13,855  | )          |
| Advances To/Due to Related Parties                                    | ** ** | **(2,916**   | **)**       | 9,373      |       | (1,433   | )          |
| Accounts Payable                                                      | ** ** | **11,878**   | ** **  | (45        | )          | 102      |       |
| Other Liabilities                                                     | ** ** | **7,541**    | ** **  | 7,183      |       | 4,530    |       |
| Amounts Due Growers                                                   | ** ** | **19,612**   | ** **  | 90,214     |       | (37,053  | )          |
| **Net Cash Provided By Operating Activities**                         | ** ** | **95,461**   | ** **  | 105,277    |       | 84,572   |       |
|                                                                  |       |         | ** **  |       |       |     |       |
| **Cash Provided By (Used In) Investing Activities:**                  |       |         | ** **  |       |       |     |       |
| Purchases of Property and Equipment                                   | ** ** | **(63,256**  | **)**       | (46,154    | )          | (43,758  | )          |
| Purchases of Property and Equipment Held for Lease                    | ** ** | **(859**     | **)**       | (382       | )          | (1,332   | )          |
| Proceeds from the Sale of Property and Equipment                      | ** ** | **88**       | ** **  | 248        |       | 109      |       |
| Investments in Crystech, LLC                                          | ** ** | **(1,539**   | **)**       | 1,044      |       | 1,044    |       |
| Equity Distribution from CoBank, ACB                                  | ** ** | **1,693**    | ** **  | 3,796      |       | 2,800    |       |
| Investments in Marketing Cooperatives                                 | ** ** | **(76**      | **)**       | 62         |       | (1,067   | )          |
| Changes in Other Assets                                               | ** ** | **(207**     | **)**       | (271       | )          | (885     | )          |
| **Net Cash (Used In) Investing Activities**                           | ** ** | **(64,156**  | **)**       | (41,657    | )          | (43,089  | )          |
|                                                                  |       |         | ** **  |       |       |     |       |
| **Cash Provided By (Used In) Financing Activities:**                  |       |         | ** **  |       |       |     |       |
| Net Proceeds from (Payments on) Short-Term Debt                       | ** ** | **19,680**   | ** **  | (25,385    | )          | 486      |       |
| Proceeds from Issuance of Long-Term Debt                              | ** ** | **20,897**   | ** **  | 24,674     |       | 5,203    |       |
| Long-Term Debt Repayment                                              | ** ** | **(52,695**  | **)**       | (41,464    | )          | (38,432  | )          |
| Payment of Unit Retains and Equity Retention                          | ** ** | **(19,310**  | **)**       | (21,437    | )          | (8,587   | )          |
| **Net Cash (Used In) Financing Activities**                           | ** ** | **(31,428**  | **)**       | (63,612    | )          | (41,330  | )          |
| **Increase (Decrease) In Cash and Cash Equivalents**                  | ** ** | **(123**     | **)**       | 8          |       | 153      |       |
| **Cash and Cash Equivalents, Beginning of Year**                      | ** ** | **345**      | ** **  | 337        |       | 184      |       |
|                                                                  |       |         | ** **  |       |       |     |       |
| **Cash and Cash Equivalents, End of Year**                            | ** ** | **$**        | **222**     | ** ** | $          | 345      |       | $ | 337 |   |

 

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

 

A-7

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**AmericanCrystal Sugar Company**

**Notes to the Consolidated Financial Statements**

 

**(1)****PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES:**

 

*Organization*

 

American Crystal Sugar Company (the Company) is aMinnesota agricultural cooperative corporation which processes and marketssugar as well as sugarbeet pulp, molasses, concentrated separated by-product(CSB), betaine (collectively, agri-products) and sugarbeet seed. Business donewith its shareholders (members) constitutes “patronage business” as defined bythe Internal Revenue Code, and the net proceeds therefrom are credited tomembers’ investments in the form of unit retains or distributed to members inthe form of payments for sugarbeets. Members are paid the net amounts realizedfrom the current year’s production less member operating costs determined inconformity with accounting principles generally accepted in the United Statesof America.

 

*Basis ofPresentation*

 

The Company’s consolidated financial statements arecomprised of American Crystal Sugar Company, its wholly-owned subsidiariesSidney Sugars Incorporated (Sidney Sugars) and Crab Creek Sugar Company (CrabCreek), and ProGold Limited Liability Company (ProGold), a limited liabilitycompany in which the Company holds a 51 percent ownership interest.

 

On May 1, 2007, the Company acquired CIT Capital USAInc.’s  50 percent ownership interest inCrystech, LLC (Crystech) resulting in the Company’s 100 percent ownership ofCrystech. Due to the Company’s resulting controlling ownership interest in Crystech,effective May 1, 2007, the Company began to include Crystech in itsconsolidated financial statements. Effective May 31, 2007, Crystech wasdissolved with all assets and liabilities transferred to the Company.

 

All material inter-company transactions have beeneliminated.

 

*Revenue Recognition*

 

Revenue from the sale of sugar, agri-products and seedis recorded when the product is delivered to the customer. Operating leaserevenue is recognized as earned ratably over the term of the lease.

 

*OperatingLease*

 

ProGold owns a corn wet milling facility which itleases under an operating lease. Payments are to be received monthly under thelease, which originally was scheduled to run through December 31, 2007. Anextension of the lease term through December 31, 2008 has been implementedunder the provisions of the lease. The lease contains provisions for extensionor modification of the lease terms at the end of the lease period. The leasealso contains provisions for increased payments to be received during the leaseperiod related to the facility’s profitability and capital additions.

 

*Cash and Cash Equivalents*

 

The Company considers all highly liquid investmentswith a maturity of three months or less when purchased to be cash equivalents. TheCompany places its temporary cash investments with high credit qualityfinancial institutions. At times, such investments may be in excess of theapplicable insurance limit.

 

A-8

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*Accounts Receivable and Credit Policies*

 

The Company grants credit, individually and throughits marketing cooperatives, to its customers, which are primarily companies inthe food processing industry located throughout the United States.

 

Trade receivables areuncollateralized customer obligations due under normal trade terms requiringpayment within 15 to 90 days from the invoice date. The receivables arenon-interest bearing. Trade receivables are stated at the amount billed to thecustomer. Payments of trade receivables are allocated to the specific invoicesidentified on the customer’s remittance advice or, if unspecified, are appliedto the earliest unpaid invoices.

 

Ongoing credit evaluationsof customers’ financial condition are performed and the Company maintains areserve for potential credit losses. The carrying amount of trade receivablesis reduced by a valuation allowance that reflects the Company’s best estimateof the amounts that will not be collected.

 

*Inventories*

 

Sugar, pulp, molasses and other agri-productsinventories are valued at estimated net realizable value. Maintenance parts andsupplies and sugarbeet seed inventories are valued at the lower of average costor market. Sugarbeets are valued at the projected gross per-ton beet paymentrelated to that year’s crop.

 

*Net Property and Equipment*

 

Property and equipment are recorded at cost. Indirectcosts and construction period interest are capitalized as a component of thecost of qualified assets. Property and equipment are depreciated for financialreporting purposes principally using straight-line methods with estimateduseful lives ranging from 4 to 33 years.

 

*NetProperty and Equipment Held for Lease*

 

Net property and equipment held for lease are statedat cost. Depreciation on assets placed in service is provided using thestraight-line method with estimated useful lives ranging from 5 to 40 years.

 

*Impairment of Long Lived Assets*

 

The Company reviews its long lived assets forimpairment whenever events indicate that the carrying amount of the asset maynot be recoverable. An impairment loss is recorded when the sum of the futurecash flows is less than the carrying amount of the asset. An impairment loss ismeasured as the amount by which the carrying amount of the asset exceeds itsfair value. There were no impairment losses incurred during the year.

 

*Related Parties*

 

The following organizations are considered relatedparties for financial reporting purposes: United Sugars Corporation (United)and Midwest Agri-Commodities Company (Midwest).

 

*Investments*

 

Investments in CoBank, ACB are stated at cost plusunredeemed patronage refunds received in the form of capital stock. Investmentsin marketing cooperatives are accounted for using the equity method. Investmentsin Crystech, prior to its dissolution (see note 7), were accounted for usingthe equity method.

 

A-9

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*Members’ Investments*

 

Preferred and Common Stock - The ownership of commonand preferred stock is restricted to a “farm operator” as defined by the bylawsof the Company. Each shareholder may own only one share of common stock and isentitled to one vote in the affairs of the Company. Each shareholder isrequired to grow a specified number of acres of sugarbeets in proportion to theshares of preferred stock owned. The preferred shares are non-voting. Alltransfers of stock must be approved by the Company’s Board of Directors and anyshareholder desiring to sell stock must first offer it to the Company forrepurchase at its par value. The Company has never exercised this repurchaseoption for preferred stock. The Company’s articles of incorporation do notallow dividends to be paid on either the common or preferred stock.

 

Unit Retains - The bylaws authorize the Company’sBoard of Directors to require additional direct capital investments by membersin the form of a variable unit retain per ton of up to a maximum of 10 percentof the weighted average gross per ton beet payment. All refunds and retirementsof unit retains must be approved by the Board of Directors.

 

Equity Retention – The Payment-In-Kind (PIK)Certificate Purchase Agreement authorizes the Company to require additionaldirect capital investments by members participating in the PIK program. Theamount of the equity contribution is calculated per hundredweight of PIKcertificates and is approximately equivalent (on a Company-wide average basis)to the unit retain declared by the Company on the corresponding year’ssugarbeet crop. All refunds and retirements of equity retains must be approvedby the Board of Directors.

 

Accumulated Other Comprehensive Income (Loss) -Accumulated Other Comprehensive Income (Loss) represents the cumulative netincrease (decrease) in equity related to the recording of the overfunded orunderfunded status of defined benefit postretirement plans and the gain or lossrelated to foreign currency forward contracts. Consistent with the Company’streatment of income taxes related to member-source income and expenses,accumulated other comprehensive income (loss) does not include any adjustmentfor income taxes. For years prior to August 31, 2007, Accumulated OtherComprehensive Income (Loss) represented the cumulative net increase (decrease)in equity related to the recording of the minimum pension liability adjustment.

 

Retained Earnings (Accumulated Deficit) - Retainedearnings represents the cumulative net income (loss) resulting from non-memberbusiness and, for years prior to 1996, the difference between member income asdetermined for financial reporting purposes and for federal income taxreporting purposes.

 

*Interest Expense, Net*

 

The Company earns patronage dividends from CoBank, ACBbased on the Company’s share of the net income earned by CoBank, ACB. Thesepatronage dividends are applied against interest expense.

 

*Income Taxes*

 

The Company is a non-exempt cooperative for federalincome tax purposes. As such, the Company is subject to corporate income taxeson its net income from non-member sources. The provision for income taxesrelates to the results of operations from non-member business, state incometaxes and certain other permanent differences between financial and income taxreporting. The Company also has various temporary differences between financialand income tax reporting, most notable of which is depreciation.

 

A-10

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Deferred tax assets, less any applicable valuationallowance, and deferred tax liabilities are included in the financialstatements at currently enacted income tax rates applicable to the period inwhich the deferred tax assets and liabilities are expected to be realized orsettled.

 

*Accounting Estimates*

 

The preparation of the financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates.

 

*Business Risk*

 

The financial results of the Company’s operations maybe directly and materially affected by many factors, including prevailingprices of sugar and agri-products, the Company’s ability to market its sugarcompetitively, the weather, government programs and regulations, and costs andexpenses.

 

*Shipping and Handling Costs*

 

The costs incurred for the shipping and handling ofproducts sold are classified in the consolidated financial statements as aselling expense on the Consolidated Statements of Operations. Shipping andhandling costs were $166.0 million, $130.9 million and $127.5 million for theyears ended August 31, 2007, 2006 and 2005, respectively.

 

*Deferred Costs and Product Values*

 

All costs incurred prior to the end of the Company’s fiscalyear that relate to receiving and processing the subsequent year’s sugarbeetcrop are deferred. Similarly, the net realizable values of products producedprior to the end of the Company’s fiscal year that relate to the subsequentyear’s sugarbeet crop are deferred. The net result of these deferred costs andproduct values are recorded in the Company’s consolidated balance sheet in “OtherCurrent Liabilities.”  Deferred costs andproduct values were $4.1 million and $2.9 million as of August 31, 2007 and2006, respectively.

 

*Recently Issued Accounting Pronouncements*

 

The Financial AccountingStandards Board (FASB) has issued Statement No. 157, *Fair ValueMeasurements*. This Statement defines fair value, establishes aframework for measuring fair value in generally accepted accounting principles(GAAP), and expands disclosures about fair value measurements. This statementbecomes effective for the Company in the first quarter of fiscal 2009. TheCompany does not expect that the adoption of this statement will have amaterial effect on the Company’s financial statements.

 

The Financial AccountingStandards Board has also issued Statement No. 158, *Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans—anamendment of FASB Statements No. 87, 88, 106, and 132(R)*. ThisStatement requires the Company to recognize the overfunded or underfundedstatus of a defined benefit postretirement plan as an asset or liability in itsstatement of financial position and to recognize changes in that funded statusin the year in which the changes occur through comprehensive income. This requirement became effective and wasadopted by the Company as of August 31, 2007. This Statement will alsorequire the Company to measure the funded status of a plan as of the date ofits year-end statement of financial position. This requirement becomes effective for the Company as of August 31,2009.

 

The Financial AccountingStandards Board has also issued Interpretation No. 48, *Accounting for Uncertainty in Income Taxes—an interpretation of FASBStatement No. 109*. This Interpretation

 

A-11

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clarifies the accountingfor uncertainty in income taxes recognized in the financial statements inaccordance with FASB Statement No. 109, *Accountingfor Income Taxes.*This interpretation becomes effective for the Company in the firstquarter of fiscal 2008. The Company does not expect that the adoption of thisinterpretation will have a material effect on the Company’s financial statements.

 

**(2)RECEIVABLES:**

 

There was no singlecustomer attributable to the Company that accounted for 10 percent or more ofthe Company’s total receivables as of August 31, 2007 or that accounted for 10percent or more of the revenues of the Company for the years ended August 31,2007, 2006 or 2005. There were two customers attributable to the Company thataccounted for 13 percent and 16 percent, respectively, of the Company’s totalreceivables as of August 31, 2006.

 

**(3)****INVENTORIES:**

 

The major components ofinventories as of August 31, 2007 and 2006 are as follows:

 
| **(In Thousands)**                                                | ** ** | **2007**   | ** **  | **2006** | ** ** |
|------------------------------------------------------------------------|------------|------------|-------------|----------|------------|
| Refined Sugar, Pulp, Molasses, Other Agri-Products  and Sugarbeet Seed | ** ** | **$**      | **178,078** |     | $          | 134,211 |   |
| Unprocessed Sugarbeets                                                 | ** ** | **9,231**  |        | 8,721    |       |
| Maintenance Parts and Supplies                                         | ** ** | **29,254** |        | 31,829   |       |
| Total Inventories                                                      | ** ** | **$**      | **216,563** |     | $          | 174,761 |   |

 

**(4) NET PROPERTY AND EQUIPMENT:**

 

Indirect costs capitalized were $1.2 million, $1.1million and $1.0 million in 2007, 2006 and 2005, respectively. Constructionperiod interest capitalized was $ 1.1 million, $ .8 million and $ .6 million in2007, 2006 and 2005, respectively. Depreciation expense was $43.6 million,$42.9 million and $41.9 million in 2007, 2006 and 2005, respectively. TheCompany had outstanding commitments totaling $13.8 million as of August 31,2007, for equipment and construction contracts related to various capitalprojects.

 

**(5) NET PROPERTY AND EQUIPMENT HELD FOR LEASE:**

 

ProGold owns a cornwet-milling facility that it leases under an operating lease which runs throughDecember 31, 2008. Under the terms of the operating lease, the lesseemanages all aspects of the operations of the ProGold corn wet-milling facility.

 

Net Property and EquipmentHeld for Lease are stated at cost, net of accumulated depreciation.Depreciation expense was $11.1 million for each of the years ended August 31,2007, 2006 and 2005. The components of Net Property and Equipment Held forLease as of August 31, 2007 and 2006 are shown below:

 
| **(In Thousands)**                   | ** ** | **2007**     | ** **  | **2006** | ** ** |
|-------------------------------------------|------------|--------------|-------------|----------|------------|
| Land and Land Improvements                | ** ** | **$**        | **7,937**   |     | $          | 7,937 |   |
| Buildings                                 | ** ** | **41,193**   |        | 41,193   |       |
| Equipment                                 | ** ** | **201,243**  |        | 200,485  |       |
| Construction in Progress                  | ** ** | **245**      |        | 160      |       |
| Less Accumulated Depreciation             | ** ** | **(120,823** | **)**       | (109,734 | )          |
|                                      |       |         |        |     |       |
| Net Property and Equipment Held for Lease | ** ** | **$**        | **129,795** |     | $          | 140,041 |   |

 

A-12

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Future minimum payments tobe received under the lease are as follows:

 
| **Fiscal year ending August 31, (In Thousands)** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------|------------|------------|------------|
| 2008                                                                           |       | $          | 24,827     |   |
| 2009                                                                           |       | 8,367      |       |
|                                                                           |       |       |       |
| Total                                                                          |       | $          | 33,194     |   |

 

**(6)****INVESTMENTS IN MARKETING COOPERATIVES:**

 

The Company has a 66 percent ownership interest and a33 1/3 percent voting interest in United. The investment is accounted for usingthe equity method. All sugar products produced are sold by United as an agentfor the Company. The amount of sales and related costs to be recognized by eachowner of United is allocated based on its pro rata share of sugar productionfor the year. The owners provide United with cash advances on an ongoing basisfor operating and marketing expenses incurred by United. The Company hadoutstanding advances to United of $7.6 million and $4.3 million as of August31, 2007 and 2006, respectively. The Company provides administrative servicesfor United and is reimbursed for costs incurred. The Company was reimbursed $1.2million, $1.2 million and $1.1 million for services provided during 2007, 2006and 2005, respectively.

 

The Company has a 52 percent ownership interest and a25 percent voting interest in Midwest. The investment is accounted for usingthe equity method. Substantially all sugarbeet pulp, molasses and otheragri-products produced are sold by Midwest as an agent for the Company. Theamount of sales and related costs to be recognized by each owner of Midwest isallocated based on its pro rata share of production for each product for theyear. The owners provide Midwest with cash advances on an ongoing basis foroperating and marketing expenses incurred by Midwest. The Company hadoutstanding advances from Midwest of $2.9 million and $2.7 million as of August31, 2007 and 2006, respectively. The Company provides administrative servicesfor Midwest and is reimbursed for costs incurred. The Company was reimbursed$129,000, $121,000 and $95,000 for services provided during 2007, 2006 and2005, respectively. The owners of Midwest are guarantors of the short-term lineof credit Midwest has with CoBank, ACB. As of August 31, 2007, Midwest hadoutstanding short-term debt with CoBank, ACB of $5.6 million, of which $2.6million was guaranteed by the Company.

 

The Company has performed acomplete analysis of the conditions set forth in FIN 46(R) and has determinedthat its investments in United and Midwest do not meet the criteria of VariableInterest Entities and therefore such entities are not consolidated in the Company’sConsolidated Financial Statements.

 

**(7)****CRYSTECH, LLC:**

 

On May 1, 2007, the Companyacquired CIT Capital USA Inc.’s 50 percent ownership interest in Crystech for$1.5 million. This acquisition resulted in the Company’s 100 percent ownershipof Crystech. Due to the Company’s resulting controlling ownership interest inCrystech, effective May 1, 2007, the Company began to include Crystech in itsconsolidated financial statements. Effective May 31, 2007, Crystech wasdissolved with all assets and liabilities transferred to the Company. As aresult of the dissolution, the Company eliminated its investment of $17.6million in Crystech, recorded the value of the buildings and equipment acquiredof $2.7 million and $10.6 million, respectively, and settled an inter-companypayable of $4.3 million.

 

Crystech was a special purpose entity that operated amolasses desugarization facility at the Company’s Hillsboro, North Dakota,sugar factory together with certain sugar processing equipment located at theHillsboro, North Dakota, and Moorhead, Minnesota, sugar factories. Prior to May31,

 

A-13

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2007, the Companycontrolled 50 percent of Crystech and accounted for its investment using theequity method.

 

The Company performed acomplete analysis of the conditions set forth in FIN 46(R) and determined thatits investment in Crystech, LLC did not meet the criteria of a VariableInterest Entity and therefore, prior to May 1, 2007, Crystech, LLC was notconsolidated in the Company’s Consolidated Financial Statements.

 

The Company had a tolling services agreement withCrystech whereby the Company paid for tolling services for processing sugarbeetmolasses delivered to Crystech with title and risk of loss throughout theprocess maintained by the Company.

 

On a cumulative basis, the Company received an annualallocation of Crystech’s net income equal to 7.5 percent of the initial valueof the Preferred Equity contribution by the Company. As of August 31, 2006, theCompany had outstanding payables to Crystech of approximately $4.3 millionrelated to the tolling services agreement. Following is summary financialinformation for Crystech:

 
| **As of August 31, (In Thousands)** | ** ** | **2006** | ** ** |
|--------------------------------------------------------------|------------|----------|------------|
| Current Assets                                               |       | $        | 4,348      |   |
| Long-Term Assets                                             |       | 18,665   |       |
| Total Assets                                                 |       | $        | 23,013     |   |
|                                                         |       |     |       |
| Current Liabilities                                          |       | $        | 6,143      |   |
| Long-Term Liabilities                                        |       | —   |       |
| Total Liabilities                                            |       | 6,143    |       |
| Members’ Equity                                         |       | 16,870   |       |
| Total Liabilities and Members’ Equity                   |       | $        | 23,013     |   |

 
| ** **              | ** ** | **For the Eight  Months  Ended April** | ** ** | **For the Years Ended August 31** | ** ** |
|-------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------------|------------|
| **(In Thousands)** | ** ** | **30, 2007**                                     | ** ** | **2006**                                                   | ** ** | **2005** | ** ** |
| Revenue                 | ** ** | **$**                                                 | **9,841**  |                                                       | $          | 20,582 |   | $ | 21,186 |   |
| Operating Expenses      | ** ** | **8,624**                                             |       | 18,006                                                     |       | 17,727 |   |
| Other Expenses          | ** ** | **455**                                               |       | 1,432                                                      |       | 2,315 |   |
| Net Income              | ** ** | **$**                                                 | **762**    |                                                       | $          | 1,144 |   | $ | 1,144 |   |

 

A-14

----

 

**(8) LONG-TERM AND SHORT-TERM DEBT:**

 

The long-term debtoutstanding as of August 31, 2007 and 2006 is summarized below: 

 
| **(In Thousands)**                                                                                                                                                                                                                            | ** ** | **2007**    | ** **  | **2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|-------------|----------|------------|
| Term Loans from CoBank, ACB, due in varying amounts  through 2011, interest at fixed rates of 5.35% to 8.57%, with senior lien on  substantially all non-current assets                                                                            | ** ** | **$**       | **82,543**  |     | $          | 116,276 |   |
| Term Loans from Insurance Companies, due in varying  amounts from 2010 through 2028, interest at fixed rates of 4.78% to 7.42%,  with senior lien on substantially all non-current assets                                                          | ** ** | **57,143**  |        | 60,000   |       |
| Pollution Control and Industrial Development Revenue  Bonds, due in varying amounts through 2021, interest at fixed rates of 5.0%  to 5.40% and varying rates of 3.78% to 3.89% as of August 31, 2007, substantially  secured by letters of credit | ** ** | **47,915**  |        | 42,323   |       |
| Term Loan from the Bank of North Dakota, due in  equal amounts through 2009, interest at a fixed rate of 3.30%, unsecured                                                                                                                          | ** ** | **1,600**   |        | 2,400    |       |
| Total Long-Term Debt                                                                                                                                                                                                                               | ** ** | **189,201** |        | 220,999  |       |
| Less Current Maturities                                                                                                                                                                                                                            | ** ** | **(31,227** | **)**       | (20,962  | )          |
| Long-Term Debt, Net of Current Maturities                                                                                                                                                                                                          | ** ** | **$**       | **157,974** |     | $          | 200,037 |   |

 

Minimum annual principalpayments for the next five years are as follows:

 
| **(In Thousands)** | ** ** | ** ** | ** ** |
|-------------------------|------------|------------|------------|
| 2008                    |       | $          | 31,227     |   |
| 2009                    |       | $          | 21,242     |   |
| 2010                    |       | $          | 14,470     |   |
| 2011                    |       | $          | 13,056     |   |
| 2012                    |       | $          | 36,446     |   |

 

The Company has a long-term debt line of credit withCoBank, ACB of $202.2 million, of which $82.5 million in loans and $69.3million in long-term letters of credit were outstanding as of August 31, 2007. Theunused long-term line of credit as of August 31, 2007 was $50.4 million.

 

The short-term debt outstanding as of August 31, 2007and 2006 is summarized below:

 
| **(In Thousands)**                                                            | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Commercial Paper, at fixed interest rates of 6.2%  and 6.3%, due 9/4/07 and 9/5/07 | ** ** | **$**    | **24,980** |     |       | $ | 5,300 |   |
|                                                                                    |            |          |            |          |            |  |  |  |

 

During the year ended August 31, 2007, the Companyborrowed from CoBank, ACB, the Commodity Credit Corporation (CCC) and issuedcommercial paper to meet its short-term borrowing requirements. As of August31, 2007, the Company had available short-term lines of credit totaling $361.0million, of which $25.0 million in commercial paper and $2.2 million inshort-term letters of credit were outstanding. The unused short-term line ofcredit as of August 31, 2007 was $333.8 million.

 

A-15

----

 

Maximum borrowings, average borrowing levels andaverage interest rates for short-term debt for the years ended August 31, 2007and 2006, follow:

 
| **(In Thousands, Except Interest Rates)** | ** ** | **2007** | ** **  | **2006** | ** ** |
|---------------------------------------------------------------|------------|----------|-------------|----------|------------|
| Maximum Borrowings                                            | ** ** | **$**    | **298,456** |     | $          | 216,055 |   |
| Average Borrowing Levels                                      | ** ** | **$**    | **167,532** |     | $          | 118,553 |   |
| Average Interest Rates                                        | ** ** | **5.71** | **%**       | 5.16     | %          |

 

The terms of the loan agreements contain prepaymentpenalties along with certain covenants related to, among other matters, the:level of working capital; ratio of term liabilities to members’ investments;current ratio; level of term debt to net funds generated; and investment inCoBank, ACB stock in amounts prescribed by the bank. Substantially allnon-current assets are pledged to the senior lenders to provide security tosupport the Company’s seasonal and long-term financing. As of August 31, 2007,the Company was in compliance with the terms of the loan agreements.

 

Interest paid, net of amounts capitalized, was $20.7million, $19.6 million and $20.0 million for the years ended August 31, 2007,2006 and 2005, respectively.

 

**(9)****OPERATING LEASES**:

 

The Company is party tooperating leases for such items as rail cars, computer hardware and vehicles. Cargill,Incorporated has assumed responsibility for the payments on a rail car leasefor the duration of the operating lease with ProGold, described in Note 1. Afterthe lease with Cargill, Incorporated expires, responsibility for the rail carlease payments reverts back to ProGold. The Company was also a party to anoperating lease for product storage tanks, which expired in April 2007. Theproduct storage tanks were purchased upon expiration of the lease. Operatinglease expense was $2.6 million, $ 2.1 million and $ 1.9 million for years endedAugust 31, 2007, 2006 and 2005, respectively. Future minimum payments underthese obligations are as follows:

 
| **Fiscal year ending August 31, (In Thousands)** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------|------------|------------|------------|
| 2008                                                                           |       | $          | 1,599      |   |
| 2009                                                                           |       | 4,457      |       |
| 2010                                                                           |       | 5,826      |       |
| 2011                                                                           |       | 5,663      |       |
| 2012                                                                           |       | 5,642      |       |
| Thereafter                                                                     |       | 29,183     |       |
| Total                                                                          |       | $          | 52,370     |   |

 

A-16

----

 

**(10)****EMPLOYEE BENEFIT PLANS:**

 

*Company-Sponsored Defined Benefit Pension and OtherPost-Retirement Benefit Plans*

 

Substantially all employees who meet eligibilityrequirements of age, date of hire and length of service are covered by aCompany-sponsored retirement plan. As of August 31, 2007, the pension planswere funded as required by the funding standards set forth by the EmployeeRetirement Income Security Act (ERISA). The Company also has non-qualifiedsupplemental executive retirement plans for certain employees.

 

Employees of the Company who are not members of acollective bargaining unit and who are newly hired, or rehired, and employeeswho transfer from a union position to a nonunion position on or after September1, 2007 will no longer be eligible for participation in the defined benefitpension plan. These employees will participate in a defined contribution planas described later in this note.

 

The following schedule reflectsthe percentage of pension plan assets by asset class as of the latestmeasurement date, May 31, 2007:

 

**Percentage of Pension Plan Assets by Asset Class as of May 31, 2007**

 
| **Asset Class** | ** ** | **Target Range** | ** ** | **Actual Allocation** | ** ** |
|----------------------|------------|-----------------------|------------|----------------------------|------------|
| Large U.S. Stocks    |       | 20.0%-40.0%           |       | 29.8                       | %          |
| Small U.S. Stocks    |       | 17.5%-27.5%           |       | 22.2                       | %          |
| Non-U.S. Stocks      |       | 17.5%-27.5%           |       | 24.6                       | %          |
| U.S. Bonds           |       | 15.0%-35.0%           |       | 23.2                       | %          |
| Cash                 |       | 0.0%-5.0%             |       | 0.2                        | %          |

 

The Investment Committee has theresponsibility of managing the operations and administration of AmericanCrystal Sugar Company’s retirement plans and trust. The Investment Committeehas an investment policy for the pension plan assets that establishes targetasset allocations as shown above. The Investment Committee is committed todiversification to reduce the risk of large losses. To that end, the InvestmentCommittee has adopted policies requiring that each asset class will bediversified and equity exposure will be limited to 85% of the total portfoliovalue. The stated goal is for each component of the plan to earn a rate ofreturn greater than its corresponding benchmark. Progress of the plan againstits return objectives will be measured over a full market cycle.

 

To develop the expectedlong-term rate of return on assets assumption, the Company considered thehistorical returns and the future expectations for returns for each assetclass, as well as, the target asset allocation of the pension portfolio. Thisresulted in the selection of the 8.0% long-term rate of return on assetsassumption.

 

The development of the discountrate was based on a bond matching model whereby a hypothetical portfolio ofbonds with an “AA” or better rating by a nationally recognized debt ratingagency was constructed to match the expected benefit payments under the Company’spension plans through the year 2036. The reinvestment rate for benefit cashflow occurring after 2036 was discounted back to the year 2036 at a rateconsistent with the yields on long-term zero-coupon bonds. The resultingpresent value was treated as additional benefit cash flow for the year 2036 andconsistently applied as any other benefit cash flow during the bond matchingprocess.

 

The Company has a medical plan and a Medicaresupplement plan which are available to union retirees and certain non-union retirees.The costs of these plans are shared by the Company and plan participants. The Company’s post-retirement plan forcertain non-union employees currently coordinates with Medicare’s medicalcoverage and provides tiered prescription drug coverage. The Company hasdetermined that this plan is actuarially equivalent to Medicare Part D andtherefore

 

A-17

----

 

qualifiesfor the Federal subsidy provision in the Medicare Prescription Drug,Improvement, and Modernization Act of 2003. This provision allows the Companyto receive a subsidy of 28 percent of the dollars spent providing prescriptiondrug coverage beginning in calendar year 2006. In accordance with FASB StaffPosition (FSP) FAS-106-2, the Company recognized a reduction in the accumulatedpost-retirement benefit obligation in fiscal 2005 of approximately $4.6 milliondue to the effect of the subsidy.

 

The following schedule reflectsthe expected pension and post-retirement benefit payments during each of thenext five years and the aggregate for the following five years:

 
| ** **              | ** ** | **Expected Benefit Payments** | ** ** |
|-------------------------|------------|-----------------------------------------|------------|
| **(In Thousands)** | ** ** | **Pension**                             | ** ** | **Post-Retirement** | ** ** |
| 2008                    |       |                                    | $          | 8,009 |   | $ | 703 |   |
| 2009                    |       |                                    | 5,140      |   | 870 |   |
| 2010                    |       |                                    | 5,533      |   | 1,127 |   |
| 2011                    |       |                                    | 6,010      |   | 1,409 |   |
| 2012                    |       |                                    | 6,474      |   | 1,717 |   |
| 2013-2017               |       |                                    | 41,729     |   | 12,123 |   |
| Total                   |       |                                    | $          | 72,895 |   | $ | 17,949 |   |

 

The Company does not expectto make any contributions to the pension plans during the next fiscal year. TheCompany expects to make contributions in the next fiscal year of approximately$3.3 million related to Supplemental Executive Retirement Plans. The Company also expects to contributeapproximately $700,000 to the post-retirement plans during the next fiscalyear.

 

A-18

----

 

The following schedules providethe components of the Net Periodic Pension and Post-Retirement Costs for theyears ended August 31, 2007, 2006 and 2005:

 

***Components of Net PeriodicPension Cost***

 
| **(In Thousands)**                | ** ** | **2007**    | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------------------|------------|-------------|------------|----------|------------|----------|------------|
| Service Cost                           | ** ** | **$**       | **3,533**  |     | $          | 4,222    |       | $ | 3,383 |   |
| Interest Cost                          | ** ** | **7,907**   |       | 7,185    |       | 7,075    |       |
| Expected Return on Plan Assets         | ** ** | **(10,908** | **)**      | (9,856   | )          | (8,062   | )          |
| Multiple Employer Adjustment           | ** ** | **(131**    | **)**      | (69      | )          | (348     | )          |
| Amortization of Net Transition  Assets | ** ** | **—**  |       | —   |       | (21      | )          |
| Amortization of Prior Service  Costs   | ** ** | **2,912**   |       | 1,126    |       | 1,428    |       |
| Amortization of Net Loss               | ** ** | **433**     |       | 2,992    |       | 2,197    |       |
| Net Periodic Pension Cost              | ** ** | **$**       | **3,746**  |     | $          | 5,600    |       | $ | 5,652 |   |

 

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

 
| **(In Thousands)**            | ** ** | **2007**  | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------|------------|-----------|------------|----------|------------|----------|------------|
| Service Cost                       | ** ** | **$**     | **1,102**  |     | $          | 1,411    |       | $ | 1,099 |   |
| Interest Cost                      | ** ** | **1,923** |       | 2,088    |       | 2,172    |       |
| Amortization of Net (Gain)  Loss   | ** ** | **(19**   | **)**      | 387      |       | 287      |       |
| Net Periodic Post-Retirement  Cost | ** ** | **$**     | **3,006**  |     | $          | 3,886    |       | $ | 3,558 |   |

 

In fiscal 2007, the Company changed the estimatedamortization period for prior service costs. It was determined that the periodin which the Company expects to realize economic benefits from plan amendmentsgranting retroactive benefits was shorter than the remaining service period ofactive employees. Therefore, the amortization period was changed from theremaining service period of active employees to the lesser of seven years orthe length of the union contract that included the benefit change.

 

For measurement purposes, a 10.0 percent annual rateof increase in the per capita cost of covered healthcare benefits forparticipants under age 65 was assumed for 2007. The rate is assumed to declineto 5.0 percent over the next five years. For participants age 65 and older, an11.0 percent annual rate of increase in the per capita cost of coveredhealthcare benefits was assumed for 2007. The rate is assumed to decline to 6.0percent over the next five years.

 

Assumed healthcare trends can have a significanteffect on the amounts reported for healthcare plans. A one percent change inthe assumed healthcare trend rates would have the following effects:

 
| **(In Thousands)**                                                                             | ** ** | **1% Increase** | ** ** | **1% Decrease** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|
| Effect on total service and interest cost components  of net periodic post-retirement benefit costs |       | $                    | 457        |                 | $          | (380 | ) |
| Effect on the accumulated post-retirement benefit  obligation                                       |       | $                    | 3,844      |                 | $          | (3,321 | ) |

 

A-19

----

 

The following schedules set forth a reconciliation ofthe changes in the plans’ benefit obligation and fair value of assets for theyears ending August 31, 2007 and 2006 and a statement of the funded status andamounts recognized in the Balance Sheets and Accumulated Other ComprehensiveIncome as of August 31, 2007 and 2006:

 
| ** **                                                          | ** ** | **Pension** | ** **  | **Post-Retirement** | ** ** |
|---------------------------------------------------------------------|------------|-------------|-------------|---------------------|------------|
| **(In Thousands)**                                             | ** ** | **2007**    | ** **  | **2006**            | ** ** | **2007** | ** ** | **2006** | ** ** |
| ***Change in Benefit  Obligation***                                 | ** ** | ** **  | ** **  | ** **          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Obligation at the Beginning of  the Year                            | ** ** | **$**       | **122,413** |                | $          | 130,647 | ** ** | **$** | **29,430** |   | $ | 37,660 |   |
| Service Cost                                                        | ** ** | **3,533**   |        | 4,222               | ** ** | **1,102** |   | 1,411 |   |
| Interest Cost                                                       | ** ** | **7,907**   |        | 7,185               | ** ** | **1,923** |   | 2,088 |   |
| Plan Participant Contributions                                      | ** ** | **—**  |        | —              | ** ** | **488** |   | 508 |   |
| Medicare Part D Subsidy                                             | ** ** | **—**  |        | —              | ** ** | **48** |   | 34 |   |
| Actuarial (Gain) Loss                                               | ** ** | **3,528**   |        | (15,454             | )          | **(1,985** | **)** | (10,821 | ) |
| Benefits Paid                                                       | ** ** | **(4,530**  | **)**       | (4,187              | )          | **(1,363** | **)** | (1,450 | ) |
| Obligation at the End of the  Year                                  | ** ** | **$**       | **132,851** | ** **          | $          | 122,413 | ** ** | **$** | **29,643** | ** ** | $ | 29,430 |   |
|                                                                | ** ** | ** **  | ** **  |                | ** ** | ** ** | ** ** |   |   |
| ***Change in Plan Assets***                                         |       |        | ** **  |                |       |   | ** ** |   |   |
| Fair Value at the Beginning of  the Year                            | ** ** | **$**       | **138,597** | ** **          | $          | 121,553 | ** ** | **$** | **—** | ** ** | $ | — |   |
| Actual Return on Plan Assets                                        | ** ** | **25,192**  | ** **  | 15,939              | ** ** | **—** | ** ** | — |   |
| Plan Participant Contributions                                      | ** ** | **—**  | ** **  | —              | ** ** | **488** | ** ** | 508 |   |
| Medicare Part D Subsidy                                             | ** ** | **—**  | ** **  | —              | ** ** | **48** | ** ** | 34 |   |
| Employer Contributions                                              | ** ** | **5,354**   | ** **  | 5,292               | ** ** | **827** | ** ** | 908 |   |
| Benefits Paid                                                       | ** ** | **(4,530**  | **)**       | (4,187              | )          | **(1,363** | **)** | (1,450 | ) |
| Fair Value at the End of the  Year                                  | ** ** | **$**       | **164,613** |                | $          | 138,597 | ** ** | **$** | **—** |   | $ | — |   |
|                                                                |       |        |        |                |       |   |   |   |   |
| ***Funded Status***                                                 |       |        |        |                |       |   |   |   |   |
| Funded Status as of August 31,                                      | ** ** | **$**       | **31,762**  |                | $          | 16,184 | ** ** | **$** | **(29,643** | **)** | $ | (29,430 | ) |
| Unrecognized Actuarial (Gain)  Loss                                 | ** ** |        | *           | 18,289              | ** ** | ** ** | * | (1,818 | ) |
| Unrecognized Prior Service  Cost                                    | ** ** |        | *           | 8,178               | ** ** | **—** |   | — |   |
| Net Amount Recognized                                               | ** ** | **$**       | **31,762**  |                | $          | 42,651 | ** ** | **$** | **(29,643** | **)** | $ | (31,248 | ) |
|                                                                | ** ** | ** **  |        |                | ** ** | ** ** |   |   |   |
| ***Amounts Recognized in  the Balance Sheets***                     |       |        |        |                |       |   |   |   |   |
| Noncurrent Assets                                                   | ** ** | **$**       | **37,400**  |                | $          |   | * | **$** | **—** |   | $ | — |   |
| Current Liabilities                                                 | ** ** | **(3,791**  | **)**       | ** **          | *****      | **706** |   |   | * |
| Noncurrent Liabilities                                              | ** ** | **(1,847**  | **)**       | ** **          | *****      | **28,937** |   |   | * |
| Prepaid Pension Cost                                                | ** ** |        | *           | 48,773              |       | — |   | — |   |
| Accrued Benefit Liability                                           | ** ** |        | *           | (6,622              | )          |   | * | (31,248 | ) |
| Accumulated Other  Comprehensive Loss                               | ** ** |        | *           | 500                 | ** ** |   | * | — |   |
| Net Amount Recognized                                               | ** ** | **$**       | **31,762**  | ** **          | $          | 42,651 | ** ** | **$** | **(29,643** | **)** | $ | (31,248 | ) |
|                                                                | ** ** | ** **  | ** **  |                | ** ** | ** ** |   |   |   |
| ***Amounts Recognized in  Accumulated Other Comprehensive Income*** |       |        | ** **  |                |       |   |   |   |   |
| Prior Service Cost                                                  | ** ** | **$**       | **(5,266**  | **)**               | $          |   | * | **$** | **—** |   | $ |   | * |
| Accumulated Gain (Loss)                                             | ** ** | **(7,100**  | **)**       |                | *****      | **3,783** |   |   | * |
| Net Amount Recognized                                               | ** ** | **$**       | **(12,366** | **)**               | $          |   | * | **$** | **3,783** |   | $ |   | * |

 

----

* Not applicabledue to change in accounting standard.

 

A-20

----

 

The estimated amounts that will be amortized fromAccumulated Other Comprehensive Income at August 31, 2007 into net periodicbenefit cost in fiscal 2008 are as follows:

 
| ** **              | ** ** | **Pension** | ** ** | **Post-  Retirement** | ** ** |
|-------------------------|------------|-------------|------------|-----------------------|------------|
| Prior Service (Cost)    |       | $           | (1,317     | )                     | $          | — |   |
| Accumulated Gain (Loss) |       | (59         | )          | 225                   |       |
| Total                   |       | $           | (1,376     | )                     | $          | 225 |   |

 

The assumptions used in the measurement of the Company’s benefitobligations are shown below:

 

***Weighted Average Assumptions as of August 31,***

 
| ** **                                           | ** ** | **Pension** | ** ** | **Post-Retirement** | ** ** |
|------------------------------------------------------|------------|-------------|------------|---------------------|------------|
| ** **                                           | ** ** | **2007**    | ** ** | **2006**            | ** ** | **2007** | ** ** | **2006** | ** ** |
| Discount Rate                                        | ** ** | **6.37**    | **%**      | 6.62                | %          | **6.37** | **%** | 6.62 | % |
| Expected Return on Plan Assets                       | ** ** | **8.00**    | **%**      | 8.25                | %          | **N/A** | ** ** | N/A |   |
| Rate of Compensation Increase  (Non-Union Plan Only) | ** ** | **3.5**     | **%**      | 3.5                 | %          | **N/A** |   | N/A |   |

 

*1999 Long-Term Incentive Plan*

 

During 2005, the granting of additional contractrights under the 1999 Long-Term Incentive Plan (1999 Plan) was discontinuedwith the adoption of the 2005 Long-Term Incentive Plan (2005 Plan). All vestedcontract rights as of December 31, 2004, remained in the 1999 Plan while allunvested contract rights were transferred to the 2005 Plan. The value of thecontract rights remaining in the 1999 Plan is determined by the Board ofDirectors. As of August 31, 2007, there were 455.07 vested contract rightsremaining in the 1999 Plan. At August 31, 2007, the Board of Directorsincreased the value of these contract rights from $1,900 to $2,100 per contractright.

 

*2005 Long-Term Incentive Plan*

 

The 2005 Long-Term Incentive Plan provides deferredcompensation to certain key executives of the Company. The plan createsfinancial incentives that are based upon contract rights which are available tothe executive under the terms of the plan, the value of which is determined bythe Board of Directors. No vested contract rights were exercised during 2007. In2007, 329.71 contract rights were granted at a stated value of $2,100 percontract right. At August 31, 2007, the Board of Directors increased the valueof the 965.97 contract rights previously granted from $1,900 to $2,100 percontract right. As of August 31, 2007, there were 1,295.68 contract rightsissued and outstanding at a stated value of $2,100 per contract right, of which721.26 were vested.

 

*DefinedContribution Plans*

 

The Company has qualified 401(k) plans for alleligible employees. The plans provide for immediate vesting of benefits. Participantsmay contribute a percentage of their gross earnings each pay period as providedin the participation agreement. The Company matches the non-union and eligibleunion year-round participants’ contributions up to 4 percent and 2 percent,respectively, of their gross earnings. The Company’s contributions to theseplans totaled $2.0 million, $1.8 million and $1.7 million for the years endedAugust 31, 2007, 2006 and 2005, respectively.

 

Employees of the Company who are not members of acollective bargaining unit and who are newly hired, or rehired, and employeeswho transfer from a union position to a nonunion position on or

 

A-21

----

 

after September 1, 2007will no longer be eligible for participation in the defined benefit pensionplan but will receive a 4% non-elective Company Contribution to a definedcontribution plan. The Company Contribution will have a six year vestingschedule.

 

**(11)****MEMBERS’INVESTMENTS:**

 

The following scheduledetails the Preferred Stock and Common Stock as of August 31, 2007, 2006 and2005:

 
| ** **       | ** ** | **Par**   | ** ** | **Shares**     | ** ** | **Shares Issued**     | ** ** |
|------------------|------------|-----------|------------|----------------|------------|----------------------------|------------|
| ** **       | ** ** | **Value** | ** ** | **Authorized** | ** ** | **& Outstanding** | ** ** |
| Preferred Stock: |       |      |       |           |       |                       |       |
| August 31, 2007  |       | $         | 76.77      |           | 600,000    |                       | 498,570    |   |
| August 31, 2006  |       | $         | 76.77      |           | 600,000    |                       | 498,570    |   |
| August 31, 2005  |       | $         | 76.77      |           | 600,000    |                       | 498,570    |   |
|             |       |      |       |           |       |                       |       |
| Common Stock:    |       |      |       |           |       |                       |       |
| August 31, 2007  |       | $         | 10.00      |           | 4,000      |                       | 2,878      |   |
| August 31, 2006  |       | $         | 10.00      |           | 4,000      |                       | 2,874      |   |
| August 31, 2005  |       | $         | 10.00      |           | 4,000      |                       | 2,904      |   |

 

**(12)****SEGMENTREPORTING:**

 

The Company has identifiedtwo reportable segments: Sugar and Leasing. The sugar segment is engagedprimarily in the production and marketing of sugar from sugarbeets. It alsosells agri-products and sugarbeet seed. The leasing segment is engaged in theleasing of a corn wet milling plant used in the production of high-fructosecorn syrup. The segments are managed separately. There are no inter-segmentsales. The leasing segment has a major customer that accounts for all of thatsegment’s revenue.

 

Summarized financialinformation concerning the Company’s reportable segments is shown below:

 
| ** **                          | ** ** | **For the Year Ended August 31, 2007** | ** ** |
|-------------------------------------|------------|----------------------------------------------------------------------|------------|
| **(In Thousands)**             | ** ** | **Sugar**                                                            | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from External Customers |       | $                                                                    | 1,197,227  |   | $ | 24,943 |   | $ | 1,222,170 |   |
| Gross Proceeds                      |       | $                                                                    | 860,591    |   | $ | 13,197 |   | $ | 873,788 |   |
|                                |       |                                                                 |       |   |   |   |   |
| Depreciation and Amortization       |       | $                                                                    | 46,384     |   | $ | 11,097 |   | $ | 57,481 |   |
| Interest Income                     |       | $                                                                    | 745        |   | $ | 36 |   | $ | 781 |   |
| Interest Expense                    |       | $                                                                    | 18,680     |   | $ | 1,601 |   | $ | 20,281 |   |
| Income from Equity Method Investees |       | $                                                                    | 367        |   | $ | — |   | $ | 367 |   |
| Other Income/(Expense), Net         |       | $                                                                    | 519        |   | $ | (8 | ) | $ | 511 |   |
| Net Proceeds                        |       | $                                                                    | 595,526    |   | $ | 5,866 |   | $ | 601,392 |   |
|                                |       |                                                                 |       |   |   |   |   |
| Capital Expenditures                |       | $                                                                    | 63,256     |   | $ | 859 |   | $ | 64,115 |   |

 

A-22

----

 
| ** **                          | ** ** | **For the Year Ended August 31, 2006** | ** ** |
|-------------------------------------|------------|----------------------------------------------------------------------|------------|
| **(In Thousands)**             | ** ** | **Sugar**                                                            | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from External Customers |       | $                                                                    | 980,615    |   | $ | 25,101 |   | $ | 1,005,716 |   |
| Gross Proceeds                      |       | $                                                                    | 663,909    |   | $ | 13,040 |   | $ | 676,949 |   |
|                                |       |                                                                 |       |   |   |   |   |
| Depreciation and Amortization       |       | $                                                                    | 45,637     |   | $ | 11,116 |   | $ | 56,753 |   |
| Interest Income                     |       | $                                                                    | 357        |   | $ | 40 |   | $ | 397 |   |
| Interest Expense                    |       | $                                                                    | 15,565     |   | $ | 3,531 |   | $ | 19,096 |   |
| Income from Equity Method Investees |       | $                                                                    | 537        |   | $ | — |   | $ | 537 |   |
| Other Income/(Expense), Net         |       | $                                                                    | 3,216      |   | $ | (115 | ) | $ | 3,101 |   |
| Net Proceeds                        |       | $                                                                    | 440,337    |   | $ | 4,754 |   | $ | 445,091 |   |
|                                |       |                                                                 |       |   |   |   |   |
| Capital Expenditures                |       | $                                                                    | 46,154     |   | $ | 382 |   | $ | 46,536 |   |

 
| ** **                          | ** ** | **For the Year Ended August 31, 2005** | ** ** |
|-------------------------------------|------------|----------------------------------------------------------------------|------------|
| **(In Thousands)**             | ** ** | **Sugar**                                                            | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from External Customers |       | $                                                                    | 939,424    |   | $ | 26,050 |   | $ | 965,474 |   |
| Gross Proceeds                      |       | $                                                                    | 586,754    |   | $ | 14,033 |   | $ | 600,787 |   |
|                                |       |                                                                 |       |   |   |   |   |
| Depreciation and Amortization       |       | $                                                                    | 48,486     |   | $ | 11,072 |   | $ | 59,558 |   |
| Interest Income                     |       | $                                                                    | 512        |   | $ | 17 |   | $ | 529 |   |
| Interest Expense                    |       | $                                                                    | 13,982     |   | $ | 5,188 |   | $ | 19,170 |   |
| Income from Equity Method Investees |       | $                                                                    | 1,402      |   | $ | — |   | $ | 1,402 |   |
| Other Income/(Expense), Net         |       | $                                                                    | (863       | ) | $ | (11 | ) | $ | (874 | ) |
| Net Proceeds                        |       | $                                                                    | 368,920    |   | $ | 4,340 |   | $ | 373,260 |   |
|                                |       |                                                                 |       |   |   |   |   |
| Capital Expenditures                |       | $                                                                    | 43,758     |   | $ | 1,332 |   | $ | 45,090 |   |

 
| ** **                  | ** ** | **As of August 31, 2007** | ** ** |
|-----------------------------|------------|-----------------------------------------------|------------|
| **(In Thousands)**     | ** ** | **Sugar**                                     | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Property and Equipment, Net |       | $                                             | 363,945    |   | $ | — |   | $ | 363,945 |   |
| Assets Held for Lease, Net  |       | $                                             | —     |   | $ | 129,795 |   | $ | 129,795 |   |
| Segment Assets              |       | $                                             | 737,576    |   | $ | 137,739 |   | $ | 875,315 |   |

 
| ** **                  | ** ** | **As of August 31, 2006** | ** ** |
|-----------------------------|------------|-----------------------------------------------|------------|
| **(In Thousands)**     | ** ** | **Sugar**                                     | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Property and Equipment, Net |       | $                                             | 332,140    |   | $ | — |   | $ | 332,140 |   |
| Assets Held for Lease, Net  |       | $                                             | —     |   | $ | 140,041 |   | $ | 140,041 |   |
| Segment Assets              |       | $                                             | 690,638    |   | $ | 149,359 |   | $ | 839,997 |   |

 

**(13)****FAIR VALUE OF FINANCIAL INSTRUMENTS:**

 

The fair value of financial instruments is generallydefined as the amount at which the instrument could be exchanged in a currenttransaction between willing parties, other than in a forced liquidation sale. Quotedmarket prices are generally not available for the Company’s financialinstruments. Fair values are based on judgments regarding anticipated cashflows, future expected loss experience, current economic conditions, riskcharacteristics of various financial instruments and other factors. These

 

A-23

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estimates involveuncertainties and matters of judgment, and therefore, cannot be determined withprecision. Changes in assumptions could significantly affect the estimates.

 

*Long-Term Debt, Inclusive of Current Maturities*- Based upon current borrowing rates with similar maturities, the fair value ofthe long-term debt is approximately $210.9 million in comparison to thecarrying value of $189.2 million.

 

*Investments in CoBank, ACB and Investments inMarketing Cooperatives* - The Company believes it is notpractical to estimate the fair value of these investments without incurringexcessive costs because there is no established market for these securities andequity interests, and it is inappropriate to estimate future cash flows whichare largely dependent on future earnings of these organizations.

 

**(14)****INCOME TAXES:**

 

Total income tax payments (refunds) were ($119,000);$290,000; and $336,000 for the years ended August 31, 2007, 2006 and 2005,respectively.

 

As of August 31, 2007, the Company had accumulatedapproximately $23.9 million of net operating loss carry-forwards for income taxreporting purposes. The net operating loss carry-forwards expire in the years2012 through 2023. The Company’s net deferred tax liability included in OtherLiabilities on the Company’s Balance Sheets as of August 31, 2007 and 2006 isreflected below:

 
| **(In Thousands)**                                                        | ** ** | **2007**   | ** ** | **2006** | ** ** |
|--------------------------------------------------------------------------------|------------|------------|------------|----------|------------|
| Deferred Tax Assets related to non-  patronage source temporary differences    | ** ** | **$**      | **13,600** |     | $          | 14,100 |   |
| Deferred Tax Liability related to non-  patronage source temporary differences | ** ** | **19,600** |       | 19,200   |       |
|                                                                           |       |       |       |     |       |
| Net Deferred Tax Liability                                                     | ** ** | **$**      | **6,000**  |     | $          | 5,100 |   |

 

 

Income tax expense forthe years ended August 31, 2007, 2006 and 2005 is as follows:

 
| **(In Thousands)**  | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------|------------|----------|------------|----------|------------|----------|------------|
| Current Income Taxes     | ** ** | **$**    | **403**    |     | $          | 687      |       | $ | 355 |   |
| Deferred Income Taxes    | ** ** | **900**  |       | 1,000    |       | 900      |       |
|                     |       |     |       |     |       |     |       |
| Total Income Tax Expense | ** ** | **$**    | **1,303**  |     | $          | 1,687    |       | $ | 1,255 |   |

 

 

A reconciliation of the Company’s effective tax ratesfor the years ended August 31, 2007, 2006 and 2005 is shown below:

 
| ** **                            | ** ** | **2007**   | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| Federal tax expense at statutory rate | ** ** | **35.0**   | **%**      | 35.0     | %          | 35.0     | %          |
| State tax expense at statutory rate   | ** ** | **6.0**    | **%**      | 6.0      | %          | 6.0      | %          |
| Payments to members                   | ** ** | **(40.8**  | **)%**     | (40.7    | )%         | (40.5    | )%         |
| Other, net                            | ** ** | **—** | ** ** | —   |       | (0.2     | )%         |
| Effective tax rate                    | ** ** | **0.2**    | **%**      | 0.3      | %          | 0.3      | %          |

 

A-24

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**(15)****ENVIRONMENTAL MATTERS:**

 

The Company is subject to extensive federal and stateenvironmental laws and regulations with respect to water and air quality, solidwaste disposal and odor and noise control. The Company conducts an ongoingcompliance program designed to meet these environmental laws and regulations. TheCompany believes that it is in substantial compliance with applicableenvironmental laws and regulations. From time to time, however, the Company maybe involved in investigations or determinations regarding non-material mattersthat may arise.

 

The Company’s Crookston,East Grand Forks and Moorhead, Minnesota factories have experienced hydrogensulfide emissions from its water treatment ponds that have exceeded permissiblelimits. On July 19, 2007, the Company received a notice of violation from theMinnesota Pollution Control Agency (MPCA) related to emissions that occurred infiscal 2005 and 2006. A penalty assessment is currently under consideration bythe MPCA. The Company’s Crookston, East Grand Forks and Moorhead, Minnesotafactories have also experienced hydrogen sulfide emissions from its watertreatment ponds in fiscal 2007 that have exceeded permissible limits. While itis likely that the Company may be assessed penalties and/or fines related tothese occurrences, as of the date of this report none have been assessed. Anypotential penalties and/or fines are not expected to be material to theCompany.

 

Capital expenditures will berequired to prevent future occurrences of the emissions. The Company’sfiscal 2007 budget included capital expenditures of approximately $5.0 millionfor environmentally related projects at the Company’s factory locations. Expendituresin fiscal 2007 on these projects were approximately $1.0 million. The Company’s fiscal 2008 budget includesadditional capital expenditures of approximately $1.0 million forenvironmentally related projects. The amount and timing of any additionalcapital expenditures that may be required is not currently known.

 

Two Administrative PenaltyOrders were issued by the MPCA during 2007 for violation of the air emissionpermit at the Company’s East Grand Forks, Minnesota factory. The Ordersrequired a total payment of $4,950. In July 2007, the Company also received aCompliance Monitoring Survey-Letter of Warning from the MPCA for the East GrandForks and Moorhead, Minnesota factories. Corrective actions have been takenrelated these occurrences. A penalty may be assessed but is not expected to besubstantial.

 

**(16)****LEGAL MATTERS:**

 

Four administrativeproceedings have been brought against the United States Department ofAgriculture (USDA) seeking reversal of prior decisions regarding thedetermination and transfer of sugar marketing allocations made by the USDA. Whilethe Company was not a party to any of these administrative proceedings, it was,solely or in coordination with other sugar processors, an intervenor in theseadministrative proceedings. Each of the proceedings has completed theadministrative process and the decisions by the chief judicial officer of theUSDA in each were such that the Company would not experience a reduction in itsmarketing allocations. An appeal of one of the decisions was subsequently filedby another company. The decision by the chief judicial officer of the USDA wasupheld in this appeal by a decision of the United States District Court. Thedecision of the United States District Court has been appealed to the NinthCircuit Court of Appeals. If this case is overturned, it could result in theCompany experiencing a reduction in marketing allocations equal to the loss ofapproximately 25,000 acres in future crop years assuming no other relatedfactors were to change.

 

A-25

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**EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-KFOR FISCAL YEAR ENDED AUGUST 31, 2007**

 
| **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                                       |

 

E-1

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| 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   |   | 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                   |
|   |   |                                                                                                                      |   |                                                                                                                                |
| ++10.8 |   | 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  |
|   |   |                                                                                                                      |   |                                                                                                                                |
| ++10.9 |   | 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  |
|   |   |                                                                                                                      |   |                                                                                                                                |
| 10.10  |   | 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              |
|   |   |                                                                                                                      |   |                                                                                                                                |
| 10.11  |   | 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              |
|   |   |                                                                                                                      |   |                                                                                                                                |
| 10.12  |   | 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              |
|   |   |                                                                                                                      |   |                                                                                                                                |
| 10.13  |   | 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              |

 

E-2

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| +10.14  |   | 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                  |
|---------|--------|-------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                    |   |                                                                                                                               |
| 10.15   |   | 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 |
|    |   |                                                                                                                    |   |                                                                                                                               |
| 10.16   |   | 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                  |
|    |   |                                                                                                                    |   |                                                                                                                               |
| ++10.17 |   | 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                              |
|    |   |                                                                                                                    |   |                                                                                                                               |
| ++10.18 |   | 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 |
|    |   |                                                                                                                    |   |                                                                                                                               |
| 10.19   |   | 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 |
|    |   |                                                                                                                    |   |                                                                                                                               |
| 10.20   |   | 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.            |
|    |   |                                                                                                                    |   |                                                                                                                               |
| ++10.21 |   | 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.            |
|    |   |                                                                                                                    |   |                                                                                                                               |
| 10.22   |   | 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                  |
|    |   |                                                                                                                    |   |                                                                                                                               |
| 10.23   |   | Fourth Amendment to Amended and Restated Loan Agreement between the  Registrant and CoBank, ACB dated July 25, 2007.    |   | Filed herewith  electronically.                                                                                                    |

 

E-3

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| 10.24  |   | Growers’  Contract (5-year Agreement) for the crop years 2008 through 2012 |   | Filed herewith  electronically.       |
|--------|--------|---------------------------------------------------------------------------------|--------|---------------------------------------|
|   |   |                                                                            |   |                                  |
| 21.1   |   | List of  Subsidiaries of the Registrant                                         |   | Filed herewith  electronically        |
|   |   |                                                                            |   |                                  |
| 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 Rule24b-2 of the Securities and Exchange Act of 1934, as amended, has been grantedwith respect to designated portions of this document.

 

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

 

E-4

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