**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K**

 
| **ý****  ** | **Annual Report Pursuant to Section 13 or  15(d) of  the Securities Exchange Act of 1934** | ** ** |
|----------------------------|------------------------------------------------------------------------------------------------------|------------|

 

**For the fiscal year endedAugust 31, 2005**

 

**or**

 
| **o****  ** | **Transition Report Pursuant to Section 13 or  15(d) of  the Securities Exchange Act of 1934** | ** ** |
|-----------------------|----------------------------------------------------------------------------------------------------------|------------|

 

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**Commission FileNos. 33-83868; 333-11693 and 333-32251**

 

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**AMERICANCRYSTAL SUGAR COMPANY**

(Exact name of registrant as specified inits 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)    |

 

Securities registered pursuant to Section 12(b) of the Act:

**NONE**

 

Securities registered pursuant to Section 12(g) of the Act:

**NONE**

 

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Indicate by check mark whether the Registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the Registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes  ý  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. ý

 

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Indicate by check mark whether the registrant is anaccelerated filer (as defined in rule 12b-2 of the Act). Yes  o  No  ý

 

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

 

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As of November 15, 2005, 2,904 shares of theRegistrant’s Common Stock and 498,570 shares of the Registrant’s PreferredStock were outstanding.  There is noestablished public market for the Registrant’s Common Stock or PreferredStock.  Although there is a limited,private market for shares of the Registrant’s stock, the Registrant does notobtain information regarding the transfer price in transactions between itsmembers and therefore is unable to estimate the aggregate market value of theRegistrant’s shares held by non-affiliates.

 

**DOCUMENTS INCORPORATED BY REFERENCE**

# **NONE**

 

 

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# **PART I**

 

*This report contains forward-lookingstatements and information based upon assumptions by the American Crystal SugarCompany’s management, including assumptions about risks and uncertainties facedby the Company.  These forward-lookingstatements can be identified by the use of forward-looking terminology such as“expects”, “believes”, “will” or similar verbs or expressions.  If any of management’s assumptions proveincorrect or should unanticipated circumstances arise, the Company’s actualresults could materially differ from those anticipated by such forward-lookingstatements.  The differences could becaused by a number of factors or combination of factors, including, but not limitedto, those factors influencing the Company and its business which are describedin this report in the “Important Factors” section below.  Readers are urged to consider these factorswhen evaluating any forward-looking statement. 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 the largest sugarbeet growing area in the UnitedStates, forming a band approximately 35 miles wide on either side of the NorthDakota and Minnesota border and extending approximately 200 miles south fromthe border of the United States and Canada. The Company was organized in 1973 by sugarbeet growers to acquire thebusiness and assets of the American Crystal Sugar Company, then a publicly heldNew Jersey corporation in operation since 1899. The Company currently processes sugarbeets from a base level ofapproximately 500,000 acres in the Red River Valley (the Red River ValleyCrop), subject to tolerances for over-planting and under-planting establishedby the Board of Directors each year.  Byowning and operating five sugarbeet processing facilities in the Red RiverValley, the Company provides its shareholders with the ability to process theirsugarbeets into sugar and agri-products such as: molasses; sugarbeet pulp; andby-products of the molasses desugarization process, betaine and concentratedseparated by-product (CSB).

 

The Company, through its wholly-owned subsidiary,Sidney Sugars Incorporated (Sidney Sugars), owns two sugarbeet processingfacilities.  The Company processes thesugarbeets from approximately 40,000 acres grown by non-member growers at theSidney, Montana, facility.  TheTorrington, Wyoming, facility has been leased on a long-term basis to anothersugar producer.

 

 In September 2003,the Company, through its wholly-owned subsidiary Crab Creek Sugar Company (CrabCreek), acquired all of the assets of Pacific Northwest Sugar Company, LLC(PNSC), certain assets of Central Leasing of Washington, LLC (Central Leasing)that were associated with PNSC and the Moses Lake, Washington sugarbeet factorypreviously operated by PNSC and control of the sugar production assets owned byCentral Leasing associated with the Moses Lake, Washington sugarbeetfactory.  In addition, Crab Creek enteredinto various contracts with Central Leasing such that Crab Creek controls thelong-term production of sugar at the Moses Lake facility.  In connection with this acquisition, the USDAtransferred to the Company the sugar marketing allocations formerly allocatedto PNSC.  Neither Crab Creek nor theCompany intends to operate 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.

 

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The Company and Newcourt Capital USA own Crystech, LLC(Crystech), which owns the molasses desugarization facility adjacent to theCompany’s processing facility in Hillsboro, North Dakota.

 

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-products are marketedthrough a marketing agent, Midwest Agri-Commodities Company (Midwest).  Midwest is a cooperative owned by theCompany, Minn-Dak Farmers Cooperative, Southern Minnesota Beet SugarCooperative and Michigan Sugar Company.

 

**Operating Segments**

 

The Company has identified two reportable operatingsegments: Sugar and Leasing.  The sugarsegment is engaged primarily in the production and marketing of sugar fromsugarbeets.  It also sells agri-productsand sugarbeet seed.  The leasing segmentis engaged in the leasing of a corn wet milling plant used in the production ofhigh-fructose corn syrup sweetener.  Forfinancial information by segment see Note 14 of “Notes to the ConsolidatedFinancial Statements.”

 

**Principal Products Produced**

 

The Company is engaged primarily in the production andmarketing of sugar from sugarbeets. Total sugar sales accounted for 88.1 percent, 88.7 percent and 89.0percent of the Company’s consolidated total revenues for the years ended August 31,2005, 2004 and 2003, respectively. United Sugars Corporation, the Company’s sugar marketing agent, sellssugar primarily to industrial users such as confectioners, breakfast cerealmanufacturers and bakeries.  For thefiscal year ended August 31, 2005, 87.5 percent (by weight) of the sugarwas sold to industrial users.  Theremaining portion is marketed by United Sugars Corporation through sugarbrokers to wholesalers and retailers under the “Crystal Sugar” and “Pillsbury”brand names and various private labels for household consumption.  With regard to brand name sales, the Companylicenses the use of the “Crystal” trademark and sub-licenses the use of the“Pillsbury” trademark to United Sugars Corporation.

 

The largest proportion of United Sugars Corporation’ssugar sales 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.  Substantially all of the Company’sagri-products are marketed through Midwest Agri-Commodities Company, a commonmarketing agency.  Sugarbeet pulp ismarketed to livestock feed mixers and livestock feeders in the United Statesand foreign markets.  For the year ended August 31,2005, the majority of the Company’s pulp production was exported to Japan andEurope.  The market for sugarbeet pulp isaffected by the availability and quality of competitive feedstuffs and foreignexchange rates.  Sugarbeet molasses ismarketed primarily to yeast manufacturers, livestock feed mixers and livestockfeeders.  Total agri-product salesaccounted for 8.2 percent of the Company’s consolidated total revenues duringfiscal 2005, of which export agri-product sales accounted for 4.3 percent ofsuch revenues.  In the past, agri-productssales accounted for 7.8 percent and 8.2 percent of the Company’s consolidatedtotal revenues in fiscal 2004 and fiscal 2003, respectively, while agri-productexport sales accounted for 3.7 percent and 4.0 percent of the Company’s totalrevenues in fiscal 2004 and fiscal 2003, 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.

 

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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 Company’s plants,by its ability 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 have five-year contracts with theCompany covering the growing seasons of 2003 through 2007.  These five-year contracts automatically renewfor additional five-year terms unless terminated by one of the parties at theend of the current term.  In addition,each member has an annual contract with the Company specifying the number ofacres the member is obligated 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 ofDirectors has the discretion to adjust the acreage that is required to beplanted for each share of Preferred Stock held by the members.  The Board of Directors intends to maintainthe relationship 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 USDA.  The Board ofDirectors and management continue to review and determine the relationshipbetween the ownership of Preferred 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.  The following allowances, costs anddeductions, if applicable, are used to adjust the gross beet payment to arriveat the net beet payment: hauling program allowance and costs, pre-pile qualitypremium and costs, tare incentive premium/penalty program, late harvest programcosts and unit retains.  Members are paida hauling allowance based on the distance they must transport sugarbeets fordelivery to the Company and may also receive an allowance for early delivery ofsugarbeets prior to the commencement of the stockpiling of harvestedsugarbeets.  The costs of these programsare shared among members on the basis of the net tonnage of sugarbeets deliveredby each member.

 

Under current contracts, payments to members forsugarbeets must be made in at least three installments: (i) on or about November 15,the Company pays its members an amount equal to 65 percent of the Company’sestimate of the member’s net beet payment; (ii) on or about March 31,the Company pays an amount, which combined with the November payment,equals 90 percent of the member’s estimated net beet payment; (iii) andnot more than 15 days after completion and acceptance of the audit of theCompany’s annual consolidated financial statements, the Company pays theremainder of the member’s net beet payment. Except for unit retains, the Company must pay to its members for theirsugarbeets all proceeds from the sale of the members’ sugar and agri-productsin excess of related member business operating costs, as described above.

 

## **All of the sugarbeets processed atthe Sidney, Montana, factory are purchased from non-member growers undercontract with Sidney Sugars covering the growing seasons of 2005 through2007.  Each non-member grower has anannual supplement with Sidney Sugars specifying the number of acres thenon-member grower is obligated to grow during each year.**

## ** **

## **The price per ton of sugarbeetspaid to the growers who deliver to Sidney Sugars (the Scale Payment) isdetermined 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.**

## ** **

## **Under current grower contractsbetween Sidney Sugars and its growers, payments to these**

 

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growers for sugarbeets must be made in three installments followingdelivery of the crop: (i) in November, Sidney Sugars pays the growers anamount equal to 65 percent of the estimated Scale Payment for that year’s crop;(ii) in April, Sidney Sugars pays an amount, which combined with the November payment,equals 90 percent of the estimated Scale Payment for that year’s crop; (iii) andin October, Sidney Sugars pays the remainder of the actual Scale Payment.

## ** **

**Seasonality**

 

The period during which the Company’s plants are inoperation to process sugarbeets into sugar and agri-products is referred to asthe “campaign.”  During the campaign, theCompany’s factories operate twenty-four hours per day, seven days perweek.  In the Red River Valley, thecampaign typically begins in September and continues until the availablesupply of sugarbeets has been depleted, which generally occurs in May ofthe following year.  Based on currentprocessing capacity, an average campaign lasts approximately 250 days, assumingnormal crop yields.  In Sidney, Montana,the campaign also begins in September and lasts approximately 170 days.

 

The sales of sugar and agri-products occur ratablythroughout the year with modest increases in sugar sales occurring prior toholiday seasons.

 

**Sales Backlog**

 

The backlog of any unfilled sales orders at August 31,2005 and 2004, was not material to the Company.

 

**Market and Competition**

 

Current United States government statistics estimatetotal United States sugar consumption at approximately 189 millionhundredweight for the year beginning October 1, 2004 and ending September 30,2005.  For the same period ending September 2004,total consumption was approximately 184 million hundredweight.  Comparing the two years shows an increase indemand of approximately two 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-nutritive sweeteners such as aspartamehave also been developed to substitute for sugar.  Corn sweeteners and non-nutritive sweetenersconstitute a large portion of the overall sweetener market.  The Company believes that the United Statesmarket for sugar will reflect minimal increases or be relatively flat in thenear future.

 

The United States sugar industry has been subject toindustry consolidation.  Today there arefewer than 10 sugar sellers,****withapproximately 70 percent of United States sugar market share concentrated inthe top three sellers.  The Company’ssugar production and sales represent approximately 16 percent of the totaldomestic market for refined sugar in 2004/2005. The Company had the right to market, or to have marketed on its behalf,approximately 33 million hundredweight of sugar from the 2004 crop.  Sugar sales by United Sugars Corporation, theCompany’s marketing agent, represent approximately 27 percent of the UnitedStates sugar market.

 

United Sugars Corporation’s main competitors in thedomestic market are Imperial Sugar Corporation, Amalgamated Sugar Company, TheAmerican Sugar Refining Company and Western Sugar Cooperative.  Because sugar is a fungible commodity,competition in the United States industry is primarily based upon price,customer service and reliability as a supplier. United Sugars Corporation is currently the second largest marketer ofsugar in the United States.

 

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**Government Programs and Regulations**

## ** **

### **Farm Security and Rural InvestmentAct of 2002**

###  

The Farm Security and Rural Investment Act of 2002(the Farm Bill) was enacted on May 13, 2002.  The Farm Bill contains several provisionsrelated to the domestic sugar industry, with the ultimate goal of suchprovisions to achieve balance and stability in the U.S. sugar market whileminimizing the cost to the Federal government. The Farm Bill applies to the 2002 through 2007 crop years.  Generally, the Farm Bill restricts imports offoreign sugar, maintains the previous non-recourse loan program, andestablishes a system of marketing allocations for sugarbeet and sugar caneproducers in an attempt to 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. When the price of sugar drops below the forfeiture price, the processorscan forfeit the sugar securing the loans to the 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, sugar producing countries are allowedto export a fixed quantity of sugar into the United States duty-free or subjectto 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 of sugar have been imported underthis 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 beetsugar.  Both loan rates were effectivefor the 2004 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 sugarprocessors.  The USDA determines theoverall allotment quantity (OAQ) for the U.S. domestic sugar market for eachcrop year by estimating sugar consumption, adding stocks expected to be carriedinto the succeeding year, and then subtracting 1,532,000 short tons, raw valueof sugar (the maximum level of imports allowed before marketing allotments areexpected to be suspended), and subtracting carry-in stocks of sugar, includingCCC inventory.  Once the USDA hasdetermined the OAQ for a crop year, it then determines each allotment for beetand cane sugar by multiplying the OAQ by 54.35 percent for beet and 45.65percent for cane.  An individualprocessor’s allocation of the allotment for a crop year is determined byformula set forth in the Farm Bill. Sugarbeet processor allocations are based on each sugar processor’ssugar production history, while sugar cane processor allocations are based onpast marketings, ability to market and past processings.  The USDA annually establishes individualprocessor’s allocations.  The Company’smarketing allocations for the 2004, 2003 and 2002 crops were approximately 33million hundredweight, 32 million hundredweight and 31 million hundredweight,respectively, while the marketing allocation for the 2005 crop is currently setat approximately 32 million hundredweight.

 

Under the Farm Bill, a processor may market sugar inexcess of its allocation if such sales (i) enable another processor tomeet its allocation, (ii) facilitate the export of sugar or (iii) aremade for nonhuman consumption.  The USDAcan assess a penalty equal to three times the U.S. market value of any quantityof sugar marketed in excess of a processor’s allocation.  The Farm Bill and its related regulations donot allow marketing allocations to be traded among processors.  The Farm Bill does, however, provide for thetransfer of allocations associated with a particular processing facility in theevent ownership of the facility is transferred.

 

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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, themarketing allotments, and the corresponding allocation to the Company, willdetermine the amount of sugar the Company can sell into the domesticmarket.  The Company’s allocation mayreduce the amount of sugar the Company can market for a given year, thusreducing the number of acres of sugarbeets required for processing.

 

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

###  

Under the terms of the original North American FreeTrade Agreement (NAFTA) text, Mexico would have been allowed to ship any excessproduction of sugar into the United States if Mexico were to achieve netsurplus producer status two years in a row. Concerned that Mexico’s productive capabilities and possible conversionto the use of high fructose corn sweeteners could quickly change Mexico from anet sugar importer to a net sugar exporter, the U.S. sugar industry insistedthat NAFTA be modified to delay Mexico’s access to the U.S. market.  To embody these modifications, a side letteragreement on sugar was negotiated by the United States and Mexico prior topassage of NAFTA.  The side letteragreement gives Mexico incrementally larger but capped volumes of duty-freeaccess to the U.S. market, and an ability to export additional quantities ofsugar to the United States if Mexico pays a gradually descending second tiertariff.  The side letter agreementestablishes a common market between the United States and Mexico in sugar by2008.

 

The government of Mexico has indicated that it doesnot agree that the side letter agreement to NAFTA is binding, and has filed aNAFTA Article XX challenge to the United States’ implementation of theside letter agreement.  At this time, itis not known when, or if, a ruling will be received on the Article XXchallenge.  If the side letter agreementto the NAFTA is ruled to be invalid, the Company could be materially andadversely affected.

 

The Company is concerned that low world sugar pricesand a trade conflict between the United States and Mexico over sweeteners couldpermit de facto acceleration of the second tier tariffs under the side letteragreement.  Under the NAFTA tariffschedule, second tier sugar tariffs were set at approximately 12 cents for 2000and decline by approximately 1.5 cents per year until reaching zero in2008.  Low world raw sugar prices and thecurrent second tier tariff make it economically viable for Mexican sugar toenter the United States this year, if the Mexican interests so choose.

 

Under the current terms of the NAFTA and the sideletter agreement, the Company is concerned that imports from Mexico couldoversupply the U.S. market, forcing sugar prices significantly lower.  The Company, along with the domestic sugarindustry, is seeking negotiated changes to the NAFTA and may also pursue legalremedies to address the matter.  If thesugar industry is unsuccessful in these or any other endeavors it pursues toprevent the influx of Mexican sugar into the U.S. market, there could beadverse financial consequences to the Company and its members.

 

### **Dominican Republic - Central AmericanFree Trade Agreement**

###  

The Dominican Republic - Central American Free TradeAgreement (DR-CAFTA) was signed into law on August 2, 2005 and will beimplemented on January 1, 2006.  Asa result, the Company expects an increase in the amount of sugar that will beimported into the United States.  Theimpact of this trade agreement on the Company can not be fully assessed at thistime.  It is possible, however, that the trade agreement could have amaterial adverse effect on the Company through a reduction in acreage that canbe planted by the Company’s shareholders and by the growers for Sidney Sugars,and/or a reduction in sugar selling prices, and a corresponding reduction inthe beet payment to the shareholders and the Company earnings.  Themagnitude of the impact can not be determined at this time.

 

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### **Regional and Bilateral Free TradeAgreements**

###  

The United States government is pursuing an aggressiveagenda on international trade.  It isseeking to negotiate new free trade agreements with a number of countries andregions that are major producers of sugar. The Company believes these agreements, if they reach fruition, couldnegatively impact the Company’s profitability. The primary agreements under consideration, to the Company’s knowledge,are the Free Trade Area of the Americas; the Andean Free Trade Agreement; theThailand Free Trade Agreement; the U.S.-Panama Free Trade Agreement; and theSouth African Customs Union Free Trade Agreement.  Many of the countries included in theseagreements are major sugar producers and exporters.  If increases in guaranteed access orreductions in sugar tariffs are included in these agreements, excess sugar fromthese regions could enter the U.S. market and put pressure on domestic sugarprices.  The U.S. sugar industry and theCompany, as an influential member of such industry, recognize the potentialnegative impact that would result if these agreements are entered into by theUnited States and are taking steps to attempt to manage the situation.  The Company and the sugar industry intend tocontinue to focus significant attention on trade issues in the future.

 

The impact of the various trade agreements on theCompany can not be assessed at this time due to the uncertainty concerning theterms of the agreements and whether they will ultimately be implemented. It is possible, however, that the passage of various trade agreements couldhave a material adverse effect on the Company through a reduction in acreagethat can be planted by the Company’s shareholders and by the growers for SidneySugars, and/or a reduction in sugar selling prices, and a correspondingreduction in the beet payment to the shareholders and the Companyearnings.  The magnitude of the impact can not be determined at this time.

 

**Employees**

 

As of August 31, 2005, the Company had****1,318 full-time employees, of which 1,071were hourly and 247 were salaried.  TheCompany had 19 part-time employees.  Inaddition, the Company employs approximately 853 hourly seasonal workers,approximately 407 during the sugarbeet harvest and approximately 446 during theremainder of the sugarbeet processing campaign. ** **During the sugarbeetharvest, the Company also contracts with third party agencies for approximatelyanother 1,300 additional workers.

 

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 expiring July 31,2011 for the Red River Valley factory employees and April 30, 2008 for theSidney, Montana, factory employees. Office, clerical and management employees are not unionized, except forcertain office employees at the Moorhead and Crookston, Minnesota, andHillsboro, North Dakota, factories who are covered by the collective bargainingagreement with the BCTGM.  The Companyconsiders its employee relations to be very good.

 

### **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 on-going program designed to meet theseenvironmental laws and regulations.  TheCompany believes that it is in substantial compliance with applicableenvironmental laws and regulations.  TheCompany cannot predict whether future changes in environmental laws orregulations might increase the cost of operating its facilities and conductingits business.  Any such changes couldhave adverse financial consequences for the Company.

###  

In 2005, the Company paid a penalty of $6,500 to theMinnesota Pollution Control Agency related to a storm water spill that occurredat the East Grand Forks, Minnesota factory.

 

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The Company makes capital expenditures ofapproximately $2.0 million each year for environmental related projects andanticipates continuing to make the same level of capital expenditures relatedto environmental projects for the foreseeable future.

 

## **Available Information**

 

The Company’s corporate headquarters are located at 101 NorthThird Street, Moorhead, Minnesota 56560, telephone number (218) 236-4400.  The Company’s fiscal year ends August 31.  The Company’s website iswww.crystalsugar.com.  The Company filesannual, quarterly and periodic reports with the United States Securities andExchange Commission (SEC).  These reportscan be accessed by selecting “Links” on the Company’s website or electronic orpaper copies can be obtained free of charge upon request.  In addition, the Company’s reports may beread or copied at the SEC Public Reference Room at 450 Fifth Street, N.W.,Washington, D.C. 20549.  The public mayobtain information on the operation of the Public Reference Room bycalling the SEC at 1-800-SEC-0330.  TheSEC maintains an Internet site at http://www.sec.gov that contains reports andother information filed electronically about the Company.

 

**Important Factors**

 

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, internationaltrade agreements and costs and expenses. Beyond the factors that may impact the Company’s business generally, theCompany is involved in several ventures as discussed above that may alsomaterially affect the financial results of the Company’s operations.

 

### **Market Supply**

###  

The domestic sugar market is reactive to anyoversupply of refined sugar.  Excesssupply may result in a decline in domestic sugar prices.  Lower sugar prices adversely affectprofitability of selling refined sugar in the United States, resulting in adirect negative impact on the Company.

 

**Regional and Bilateral TradeAgreements**

 

In the event the United States government enters intobilateral trade agreements with sugar producing countries, the amount of sugarin the domestic sugar market could be impacted. A change in the supply of sugar could put pressure on the price ofsugar, which would impact the Company’s profitability.

 

### **Government Programs and Regulations;Legislation**

###  

The nature and scope of future legislation andregulation affecting the sugar market cannot be predicted and there can be noassurance that price supports and market protections will continue in theirpresent forms.  If the price supportprograms were eliminated in their entirety, or if certain protections thefederal government provides from foreign competitors were materially reduced,the Company could be materially and adversely affected.  In such a situation, if the Company were notable to adopt strategies that would allow it to compete effectively in agreatly changed domestic market for sugar, the adverse effects could negativelyimpact the desirability of growing sugarbeets for delivery to the Company, theCompany’s financial results, and the Company’s continued viability.

 

**Unregulated Foreign Competition**

 

Under the current terms of the NAFTA and othergovernment regulations, imports of sugar from Mexico may enter the U.S.market.  These imports could oversupplythe U.S. market and negatively affect the price of sugar.  The Company, along with the domestic sugarindustry, is seeking

 

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improvements to NAFTA and is also pursuing legal remedies to addressthe matter.  If the sugar industry isunsuccessful in these and any other endeavors it pursues to prevent the influxof Mexican sugar into the U.S. market, there could be adverse financialconsequences to the Company and its members.

 

### **The Farm Bill**

###  

The impact of the Farm Bill on the operations of theCompany cannot be completely predicted. The long term ramifications of the marketing allotment and allocationprogram depend on the Company’s ability to maintain its marketing allocation onan annual basis and to obtain access, if necessary, to additional allocationsat a reasonable price.

 

**Competition**

 

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, in addition to sugar, includes corn-basedsweeteners, such as regular and high fructose corn syrups, and non-nutritive,high-intensity sweeteners such as aspartame. Differences in functional properties and prices have tended to definethe use of these various sweeteners. Although the various sweeteners are not interchangeable in allapplications, the substitution of other sweeteners for sugar has occurred incertain products, such as soft drinks. The Company is not able to predict the availability, development orpotential use of these and other alternative sweeteners and their possibleimpact on the Company and its members. The Company’s management believes that it possesses the ability tocompete successfully with other producers of sugar in the United States.  In spite of this competitive advantage,substitute products and sugar imports could have a material and adverse effecton the Company’s operations in the future.

 

**Energy Prices**

 

The prices paid by the Company for energy relatedproducts, such as natural gas, coal and coke, have recently increasedsignificantly due to supply and demand imbalances.  The Company uses substantial amounts of theseproducts in its manufacturing process. The Company believes that the prices for energy related productsincluding natural gas, coal and coke will remain high and will very likelyincrease.  The Company expects that theprices for these products will increase approximately 40 percent in fiscal 2006over that of fiscal 2005.  The Companyalso expects that higher fuel prices will increase the costs of many goods andservices it acquires.  These higherprices may materially increase the cost of production, thus impacting thefinancial results of the Company.

 

**Weather and Other Factors**

 

The sugarbeet, as with most other crops, is affectedby weather conditions during the growing season.  Additionally, weather conditions during theprocessing season affect the Company’s ability to store sugarbeets held forprocessing.  Growing and storageconditions different from the Company’s expectations may change the quantityand quality of sugarbeets available for processing and therefore may affect thequantity of sugar produced by the Company. A significant reduction in the quantity or quality of sugarbeetsharvested resulting from adverse weather conditions, disease (such asrhizomania) or other factors could result in increased per unit processingcosts and decreased production, with adverse financial consequences to theCompany and its members.

 

**Item 2.****                                        PROPERTY ANDPROCESSING FACILITIES**

 

The Company operates five sugarbeet processingfactories in the Red River Valley and one in Sidney, Montana.  The Company owns all of its factories and theland on which they are located.  Thefactories range in size from 150,000 to 400,000 square feet.

 

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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 |       | 9,300                                  |       |
| Moorhead, MN         |       | 5,900                                  |       |
| Drayton, ND          |       | 6,700                                  |       |
| Hillsboro, ND        |       | 8,200                                  |       |
| Sidney, MT           |       | 6,300                                  |       |

 

Each of the processing factories includes the physicalfacilities and equipment necessary to process sugarbeets into sugar.  Each factory has space for sugarbeet storage,including ventilated storage sites.  TheRed River Valley factories also have cold storage sites.  Each of these facilities is currentlyoperating at or near its capacity.  TheCompany owns a molasses desugarization (MDS) plant at its East Grand Forksfacility and owns 50 percent of Crystech which owns the MDS plant adjacent tothe Hillsboro factory.  The MDS plantsprocess molasses to extract additional sugar. The Company 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-term basis to another sugar company.

 

ProGold Limited Liability Company owns a cornwet-milling plant in Wahpeton, North Dakota, that is currently being leased toCargill, Incorporated.  The cornwet-milling plant is capable of processing corn to produce corn sweeteners(including high fructose corn syrups) and various agri-products.  This property is used in the Company’sleasing segment.

 

The Company’s corporate office is located in a 30,000square foot, two-story office building in Moorhead, Minnesota.  The Company also has a 100,000 square footTechnical Services Center situated on approximately 200 acres in Moorhead, Minnesota.  The Company owns both facilities.  The Company also owns numerous sites assugarbeet receiving and storage stations located within proximity of theirfactories.  Substantially all non-currentassets are mortgaged or pledged as collateral for its indebtedness to variousfinancial institutions.

 

**Item 3.****                                        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 iscurrently involved in certain legal proceedings which have arisen in theordinary course of the Company’s business. The Company is also aware of certain other potential claims which couldresult in the commencement of legal proceedings.  The Company carries insurance which providesprotection against certain types of claims. With respect to current litigation and potential claims of which theCompany is aware, the Company’s management believes that (i) the Companyhas insurance protection to cover all or a portion of any judgments which maybe rendered against the Company with respect to certain claims or actions and (ii) anyjudgments which may be entered against the Company and which may exceed suchinsurance coverage or which may arise in actions involving potentialliabilities not covered by insurance policies are not likely to have a materialadverse effect upon the Company, or its assets or operations.

 

As of the date of this report, four administrativeproceedings have been brought against the United States Department ofAgriculture (USDA) seeking reversal of prior decisions regarding the

 

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determination andtransfer of sugar marketing allocations made by the USDA.  These proceedings are in various stages ofthe applicable administrative process. While the Company is not a party to any of these administrative proceedings,it is, solely or in coordination with other sugar processors, an intervenor inthese administrative proceedings.  Theinitial decisions by the USDA in the four proceedings were decided such thatthe Company would not experience a reduction in its marketing allocations.  The initial decisions by the USDA wereappealed to an administrative law judge under guidelines promulgated by theUSDA.  Three of these appeals weredecided such that the Company would not experience a reduction in its marketingallocations.  The decision in the fourthproceeding, however, if it stands, will result in the Company experiencing areduction in marketing allocations equal to the loss of approximately 25,000acres in future crop years assuming no other related factors were tochange.  All of the decisions of theadministrative law judge have been appealed by various parties, including theCompany, to the chief judicial officer of the USDA.  One of the decisions that was favorable tothe Company was affirmed by the chief judicial officer and the other three appealsare still pending.  Any decision made bythe chief judicial officer of the USDA can be further appealed in federalcourt.  The Company intends to vigorouslypursue favorable outcomes in these matters. The outcome of any contestedmatter, however, is never certain and the eventual decision may result in achange in the current sugar marketing allocations.  In the event these proceedings are decided ina manner that reduces the Company’s sugar allocations, the amount of sugar theCompany can produce and market may be adversely impacted.

 

**Item 4.****                                        SUBMISSION OFMATTERS TO A VOTE OF SECURITY HOLDERS**

 

No matters were submitted to a vote of the Company’sshareholders during the quarter ended August 31, 2005.

 

# **PART II**

# ** **

**Item 5.****                                        MARKET FORREGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**

 

As of August 31, 2005, the Company had 2,904shares of the Common Stock and 498,570 shares of the Preferred Stock issued andoutstanding.  There is no establishedpublic market for the Company’s Common Stock or Preferred Stock, as such sharesmay be held only by farmer-producers who are eligible for membership in theCompany.  The Company’s shares are notlisted for trading on any exchange or quotation system.  Although transfers of the Company’s sharesmay occur only with the consent of the Board of the Directors, the Company doesnot obtain information regarding the transfer price in connection with suchtransfers.  As a result, the Company isnot able to provide information regarding the prices at which the Company’sshares have been transferred.

 

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 Stockexists.  It is not anticipated that ageneral public market for the Company’s shares of Common Stock or PreferredStock will develop due to the limitations on transfer and the variousmembership requirements which must be satisfied in order to acquire suchshares.

 

A member desiring to sell his or her Common Stock orPreferred Stock must first offer them to the Company for purchase at parvalue.  If the Company declines topurchase such shares, either class may be sold to a new member (i.e., anotherfarm operator not already a member) and Preferred Stock may be sold to one ormore existing members or farm operators approved for membership, in each casesubject to approval by the Board of Directors. To date, the Company’s Board of Directors has not exercised the Company’sright of first refusal to purchase preferred shares offered for sale by itsmembers.  Because the Company does notrequire parties seeking approval for transfers to provide

 

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information regarding the transfer price, the Company does not possessverifiable information regarding the transfer price involved in recenttransfers of the Company’s Preferred Stock.

 

**Item 6.****                                        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)** | ** ** |
| ** **                                           | ** ** | **2005**                              | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
|                                                 |       |                                  |       |   |   |   |   |   |   |   |   |
| Net Revenues                                         |       | $                                     | 965,474    |   | $ | 1,033,088 |   | $ | 829,246 |   | $ | 775,288 |   | $ | 866,362 |   |
| Net Proceeds (1)                                     |       | $                                     | 373,260    |   | $ | 473,122 |   | $ | 361,902 |   | $ | 398,588 |   | $ | 389,039 |   |
| Total Assets                                         |       | $                                     | 774,024    |   | $ | 822,155 |   | $ | 809,751 |   | $ | 622,693 |   | $ | 641,445 |   |
| Long-Term Debt, Net of Current Maturities            |       | $                                     | 216,842    |   | $ | 250,086 |   | $ | 286,922 |   | $ | 182,371 |   | $ | 201,416 |   |
| Members’ Investments                            |       | $                                     | 315,698    |   | $ | 303,426 |   | $ | 270,346 |   | $ | 268,667 |   | $ | 255,660 |   |
| Property and Equipment Additions, net of retirements |       | $                                     | 42,595     |   | $ | 30,347 |   | $ | 46,578 |   | $ | 15,281 |   | $ | 21,851 |   |
| Working Capital                                      |       | $                                     | 47,514     |   | $ | 58,673 |   | $ | 49,572 |   | $ | 58,282 |   | $ | 45,341 |   |
| Ratio of Long-Term Debt to Equity (2)                |       | .69:1                                 |       | .82:1 |   | 1.06:1 |   | .68:1 |   | .79:1 |   |

 
| ** **                         | ** ** | **Fiscal Year Ended August 31,**                                                             | ** ** |
|------------------------------------|------------|---------------------------------------------------------------------------------------------------|------------|
| ** **                         | ** ** | **(In Thousands, except for Tons purchased per acre harvested  and Sugar content of sugarbeets)** | ** ** |
| **Crop  Data (3)**                 | ** ** | **2005**                                                                                          | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
|                               |       |                                                                                              |       |   |   |   |   |   |   |   |   |
| Acres harvested                    |       | 525                                                                                               |       | 537 |   | 546 |   | 453 |   | 442 |   |
| Tons purchased                     |       | 10,217                                                                                            |       | 10,982 |   | 9,485 |   | 8,058 |   | 9,626 |   |
| Tons purchased per acre  harvested |       | 19.5                                                                                              |       | 20.5 |   | 17.7 |   | 17.8 |   | 21.8 |   |
| Sugar Content of  Sugarbeets       |       | 17.8                                                                                              | %          | 18.5 | % | 17.1 | % | 18.0 | % | 17.8 | % |
| Sugar hundredweight                |       |                                                                                              |       |   |   |   |   |   |   |   |   |
| Produced                           |       | 30,524                                                                                            |       | 33,829 |   | 26,746 |   | 25,395 |   | 29,035 |   |
| PIK Sugar Receipts                 |       | —                                                                                            |       | — |   | — |   | 1,177 |   | 1,561 |   |
| Sold, including purchased sugar    |       | 31,509                                                                                            |       | 33,835 |   | 27,077 |   | 26,806 |   | 32,445 |   |
| Purchased sugar sold               |       | 523                                                                                               |       | 36 |   | 707 |   | 288 |   | 3 |   |
| Agri-Products tons                 |       |                                                                                              |       |   |   |   |   |   |   |   |   |
| Produced                           |       | 732                                                                                               |       | 876 |   | 760 |   | 612 |   | 749 |   |
| Sold                               |       | 761                                                                                               |       | 864 |   | 718 |   | 636 |   | 701 |   |

 

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(1)                                  NetProceeds are the Company’s gross revenues, less the costs and expenses ofproducing and marketing sugar, agri-products and sugarbeet seed, but beforepayments to members for sugarbeets. Payments to be made to members for the delivery of sugarbeets areliabilities of the Company.  (For a morecomplete description of the calculation of Net Proceeds, 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 (e.g., information for the fiscal year ended August 31, 2005relates to the crop of 2004).

 

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| **Item 7.** | **MANAGEMENT’S DISCUSSION AND  ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|-------------|-------------------------------------------------------------------------------------------------|

 

*The following discussion of thefinancial conditions 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 beetpayment made to member growers and non-member growers are paid in threepayments over the course of a year, and the payments are made net of anyanticipated or declared unit retain for the crop.  These procedures have the effect of providingthe Company with an additional source of short-term financing.  This member financing arrangement may resultin an additional source of liquidity and reduced need for outside financing incomparison to a similar business operated on a non-cooperative basis.

 

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.  Themajority of such financing has been provided by a consortium of lenders led byCoBank, ACB.

 

The Company has long-term debt availability withCoBank, ACB of****$229.1 million,of which $128.8 million in loans and $47.9 million in long-term letters ofcredit were outstanding as of August 31, 2005.  The unused long-term line of credit as of August 31,2005 was $52.4 million.  In addition, theCompany has long-term debt outstanding, as of August 31, 2005, of$50 million from a private placement of Senior Notes that occurred in September of1998; $12.9 million from a private placement of Senior Notes that occurred in January of2003; $42.9 million from ten separate issuances of Pollution Control andIndustrial Development Revenue Bonds; and a term loan with Bank of North Dakotaof $3.2 million.

 

The Company also has a seasonal line of credit with aconsortium of lenders led by CoBank, ACB of $280 million, of which therewas no outstanding balance as of August 31, 2005, and a line of creditwith Wells Fargo Bank for $1 million, of which there was no outstandingbalance as of August 31, 2005.  TheCompany’s commercial paper program provides short-term borrowings of up to $225million of which approximately $30.7 million was outstanding as of August 31,2005.  The Company had $5.9 million ofshort-term letters of credit outstanding as of August 31, 2005.  The unused short-term line of credit as of August 31,2005 was $244.4 million.  Any borrowingsunder the commercial paper program along with outstanding short-term letters ofcredit will act to reduce the available credit under the CoBank, ACB seasonalline of credit by a commensurate amount.

 

The Company had outstanding commitments totaling $9.3million as of August 31, 2005 for equipment and construction contractsrelated to various capital and maintenance projects.

 

The Company controls 50 percent of Crystech, LLC, aspecial purpose entity that operates a molasses desugarization facility at theCompany’s Hillsboro, North Dakota sugar factory.  The Company accounts for its investment usingthe equity method.  As of August 31,2005, Crystech had outstanding debt of $18.4 million.

 

The net cash provided by operations was $84.6 millionfor the year ended August 31, 2005 as compared to $83.9 million for theprevious year.  This slight increase of$.7 million was primarily due to lower inventories and receivables partiallyoffset by lower unit retains withheld from members,

 

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reduced amounts due growers resulting from the smaller crops this yearand decreased net earnings from non-member business this year.

 

The net cash used in investing activities was $43.1million for the year ended August 31, 2005 as compared to $24.9 millionfor the previous year.  The increase of$18.2 million was primarily related to increased purchases of property andequipment of $13.9 million, increased investments in marketing cooperatives of$2.1 million and the proceeds from the disposition of assets held for sale infiscal 2004 of $1.7 million.

 

The net cash used in financing activities was $41.3million for the year ended August 31, 2005 as compared to $59.7 millionfor the previous year.  This decrease of$18.4 million was primarily due to lower net proceeds from short-term debt of$19.3 million and decreased payments of unit retains and equity retention of$8.1 million. The requirement for short-term debt was lower in fiscal 2005 dueto processing smaller crops this year and the lower grower payments for thecurrent year’s crop. These decreases were partially offset by increased netpayments on long-term debt of $6.0 million and the final amount of $4.0 millionreceived last year from the 1997 stock sale.

 

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, 2005:

 
| **(In  Thousands)**               | ** ** | **Total** | ** ** | **Less than  One Year** | ** ** | **One to  Three Years** | ** ** | **Four to Five  Years** | ** ** | **After Five  Years** | ** ** |
|-----------------------------------|------------|-----------|------------|-------------------------|------------|-------------------------|------------|-------------------------|------------|-----------------------|------------|
| Long-Term Debt                    |       | $         | 237,789    |                    | $          | 20,947                  |       | $                       | 110,431    |                  | $          | 33,457 |   | $ | 72,954 |   |
| Interest on Fixed Rate  L-T Debt  |       | 98,100    |       | 13,099                  |       | 26,491                  |       | 9,172                   |       | 49,338                |       |
| Purchase Obligations              |       | 20,817    |       | 16,410                  |       | 3,457                   |       | 912                     |       | 38                    |       |
| Other Long-Term  Obligations      |       | 889       |       | 149                     |       | 447                     |       | 241                     |       | 52                    |       |
| Pension Plan  Contributions (1)   |       | 3,400     |       | 3,400                   |       |                    |       |                    |       |                  |       |
|                              |       |      |       |                    |       |                    |       |                    |       |                  |       |
| **Total Contractual Obligations** |       | $         | 360,995    |                    | $          | 54,005                  |       | $                       | 140,826    |                  | $          | 43,782 |   | $ | 122,382 |   |

 

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(1) The Company expects to contribute approximately $3.4 million to thepension plans during the next fiscal year. Contributions for future years are not known at this time and thereforeare not included in the above table.

 

**Critical Accounting Policies andEstimates**

 

Preparation of the Company’s consolidated financialstatements requires estimates and judgments to be made that affect the amountsof assets, liabilities, revenues and expenses reported.  Such decisionsinclude the selection of the appropriate accounting principles to be appliedand the assumptions on which to base accounting estimates.  Managementcontinually evaluates these estimates based on historical experience and otherassumptions we believe to be reasonable under the circumstances.

 

The difficulty in applying these policies arises fromthe assumptions, estimates and judgments that have to be made currently aboutmatters that are inherently uncertain, such as future economic conditions,operating results and valuations as well as management intentions.  As thedifficulty increases, the level of precision decreases, meaning that actualresults can and probably will be different from those currently estimated.

 

15

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Estimates are considered to be critical if they meetboth of the following criteria: (1) the estimate requires assumptionsabout material matters that are uncertain at the time the accounting estimatesare made, and (2) other materially different estimates could have beenreasonably made or material changes in the estimates are reasonably likely tooccur from period to period.  The Company’scritical accounting estimates include the following:

 

*Inventory Valuation*

 

Sugar, pulp, molasses and other agri-productinventories are valued at estimated net realizable value.  The Company derives its estimates from salescontracts, recent sales and evaluations of market conditions and trends.  Changes in market conditions may causemanagement’s estimates to differ from actual results.

 

*Property and Equipment, Property andEquipment Held for Lease, and Depreciation*

 

Property and equipment, and property and equipmentheld for lease are depreciated for financial reporting purposes principallyusing straight-line methods with estimated useful lives ranging from 3 to 45years. Economic circumstances or other factors may cause management’s estimatesof expected useful lives to differ from actual.

 

The Company reviews its property and equipment, andproperty and equipment held for lease for impairment whenever events indicatethat the carrying amount of the asset may not be recoverable.  An impairment loss is recorded when the sumof the future cash flows is less than the carrying amount of the asset.  An impairment loss is measured as the amountby which the carrying amount of the asset exceeds its fair value.  There were no impairment losses incurredduring the fiscal year covered by this report. However, considerable management judgment is necessary to estimatefuture cash flows and may differ from actual results.

 

*Pension Plan and OtherPost-Retirement Benefits*

 

Accumulated plan benefits are those future periodicpayments, including lump-sum distributions, that are attributable under theCompany’s Pension Plan and Post-Retirement Plan to the service employees haverendered. Accumulated plan benefits include benefits expected to be paid toretired or vested terminated employees or their beneficiaries; beneficiaries ofemployees who have died; and present employees or their beneficiaries.

 

The actuarial present value of accumulated planbenefits is determined by an actuary and is the amount that results fromapplying actuarial assumptions to adjust the accumulated plan benefits toreflect the time value of money and the probability of payment.

 

The significant actuarial assumptions used in thedetermination of the actuarial present value of accumulated pension planbenefits for fiscal 2005 were as follows: *ValuationFunding Method* - Entry age normal, frozen initial liability; *Life Expectancy* - 1983 group annuitymortality; *Retirement Age –*gradedrates from 1 percent retiring at age 55 to 100 percent retired by age 70*;  InvestmentReturn -*8.25 percent compounded annually for funding*;  Discount*Rate- 5.61 percent compounded annually;  *Salary Scale* - 3.5 percent compoundedannually (Plan A only).

 

The significant actuarial assumptions used in thedetermination of the actuarial present value of accumulated post-retirementbenefits for fiscal 2005 were as follows: *HealthcareCost Trend* - a 9.0 percent annual rate of increase in the per capitacost of covered healthcare benefits for participants under age 65 was assumedfor 2006.  The rate is assumed to declineto 5.0 percent over the next five years. For participants age 65 and older, a 12.0 percent annual rate ofincrease in the per capita cost of covered healthcare benefits was assumed for2006.  The rate is assumed to decline to7.0 percent over the next five years*;Discount* Rate- 5.61 percent compounded annually.

 

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Actual events may differ from the assumptions used andmay result in plan benefit payments differing significantly from these currentestimates.

 

**Results of Operations**

 

The Company’s operational results and the resultingbeet payment to members and growers are substantially dependent on marketfactors, including domestic prices for refined sugar.  These factors are continuously influenced bya wide variety of market forces, including domestic sugarbeet and caneproduction, weather conditions and United States’ farm and trade policy, whichthe 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 31,2005 and 2004**

 

Revenue for the year ended August 31, 2005, was$965.5 million, a decrease of $67.6 million from 2004.  Revenue from total sugar sales decreased 7.1percent due to a 6.9 percent decrease in the hundredweight sold and a 0.3percent decrease in the average selling price per hundredweight.  Revenue from pulp sales decreased 3.1 percentdue to an 11.5 percent decrease in the volume of pulp tons sold partiallyoffset by a 9.5 percent increase in the average selling price per ton.  Revenue from molasses sales decreased 37.8percent due to a 43.3 percent decrease in the volume of molasses sold,partially offset by a 9.8 percent increase in the average selling price perton.  Revenue from sales of ConcentratedSeparated By-Product (CSB), a by-product of the molasses desugarization process,decreased 5.5 percent due to a 9.3 percent decrease in the average sellingprice per ton, partially offset by a 4.2 percent increase in the volume of CSBsold.  Revenue from the sales of betaine,a by-product of the molasses desugarization process, increased 523 percent dueto a 475 percent increase in the volume of betaine tons sold and an 8.4 percentincrease in the average selling price per ton. Rental revenue on the ProGold operating lease was $26.1 million and$25.8 million for the years ended August 31, 2005 and 2004, respectively.

 

Cost of sales for the year ended August 31, 2005,exclusive of payments to members for sugarbeets, increased $26.7 million ascompared to fiscal 2004.  The change inthe net realizable value of product inventories impacted the cost of salesunfavorably by $9.0 million.  The costsassociated with sugar purchased to meet customer needs increased by $13.3million due to the later campaign start-up this year and a 10.0 percent reductionin sugar produced resulting from a 7.0 percent smaller crop along with a lowersugar content of the sugarbeets this year. The cost recognized associated with the non-member sugarbeets decreased$9.0 million or 20.1 percent for the year ended August 31, 2005 whencompared to last year.  This decrease wasprimarily due to fewer sugarbeets harvested this year.  Direct processing costs for sugar and pulpincreased 3.7 percent.  The increase isdue to increased prices related to energy products and major supplies partiallyoffset by harvesting and processing 7.0 percent fewer sugarbeets than lastyear.  Fixed and committed expensesincreased 3.2 percent reflecting increased wastewater treatment expenses andgeneral cost increases.

 

Selling, general and administrative expenses increased$3.3 million from 2004.  Selling expensesincreased $3.2 million primarily due to higher freight and packagingcosts.  General and Administrativeexpenses increased $.1 million due in part to increased funding for sugarindustry and association activities.

 

Interest expense decreased $1.0 million from lastyear. This was the result of decreased average borrowing levels for short-termand long-term debt, partially offset by higher short-term and long-terminterest rates.

 

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Non-member business activities resulted in a gain of$2.5 million in 2005, as compared to a gain of $4.2 million in 2004.  The gain in both years was due primarily toactivities related to Sidney Sugars. Earnings from the operations of SidneySugars were lower this year due to the smaller sugarbeet crop and reducedselling prices for sugar.

 

Payments to members for sugarbeets, net of unitretains declared, decreased by $86.9 million from $438.9 million in 2004 to$351.9 million in 2005. This was primarily due to the decreased size andquality of the crop harvested and processed in 2005.

 

**Comparison of the Years Ended August 31,2004 and 2003**

 

Revenue for the year ended August 31, 2004, was$1.0 billion, an increase of $203.8 million from 2003.  Revenue from total sugar sales increased 24.1percent due to a 25.0 percent increase in the hundredweight sold partiallyoffset by a 0.7 percent decrease in the average selling price perhundredweight.  Revenue from pulp salesincreased 20.9 percent due to a 17.1 percent increase in the volume of pulptons sold and a 3.2 percent increase in the average selling price per ton.  Revenue from molasses sales increased 35.3percent due to a 41.5 percent increase in the volume of molasses sold,partially offset by a 4.4 percent decrease in the average selling price perton.  The increases in the volume ofproducts sold were due primarily to the additional sales associated with thelarger crop in the Red River Valley and a full year of production at theSidney, Montana, factory.  Revenue fromsales of Concentrated Separated By-Product (CSB), a by-product of the molassesdesugarization process, decreased 11.2 percent due to a 20.8 percent decreasein the average selling price per ton, partially offset by a 12.1 percent increasein the volume of CSB sold.  Rentalrevenue on the ProGold operating lease was $25.8 million as compared to $8.6million last year.  This difference wasthe result of the consolidation of ProGold which commenced on May 1, 2003.

 

Cost of sales for the year ended August 31, 2004,exclusive of payments to members for sugarbeets, increased $47.5 million ascompared to fiscal 2003.  The change inthe net realizable value of product inventories impacted the cost of productsold unfavorably by $16.5 million.  Thecosts associated with sugar purchased to meet customer needs decreased $13.1million due to the normal commencement of the 2003 Red River Valley cropcampaign.  The 2002 Red River Valley cropcampaign startup was delayed because of adverse planting and growing conditionswhich slowed the maturity of the crop. As a result, additional sugar was required to be purchased to servicecustomers during this delay. The cost recognized associated with the non-membersugarbeets was $44.9 million for the year ended August 31, 2004, anincrease of $13.2 million as compared to the prior year.  This increase was primarily due to a 32.6percent increase in the tons of sugarbeets purchased.  Direct processing costs for sugar and pulpincreased 15.3 percent.  This was primarilythe result of harvesting 15.8 percent more and processing 16.4 percent moresugarbeets than in fiscal 2003.  Highernatural gas prices, increased coal costs and higher labor costs also added tothis increase.  Fixed and committedexpenses increased 7.0 percent reflecting higher labor and benefit costs,increased maintenance costs and costs related to a full year of operations ofthe Sidney, Montana, factory.  Costsrelated to ProGold were $12.0 million as compared to $4.0 million lastyear.  This difference was the result ofthe consolidation of ProGold which commenced on May 1, 2003.

 

Selling, general and administrative expenses increased$36.7 million from 2003.  Sellingexpenses increased $32.1 million primarily due to the increases in the volumeof products sold.  General andAdministrative expenses increased $4.6 million due in part to higher employeebenefit costs, increased industry membership activity and general costincreases.

 

Interest expense increased $3.3 million from lastyear. This was the result of the consolidation of ProGold along with anincreased average borrowing level for short-term debt, partially offset bylower long-term and short-term interest rates and a lower average borrowinglevel for long-term debt.

 

18

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Non-member business activities resulted in a gain of$4.2 million in 2004, as compared to a gain of $5.8 million in 2003.  The gain in both years was due primarily toactivities related to Sidney Sugars.

 

Payments to members for sugarbeets, net of unitretains declared, increased by $100.3 million from $338.6 million in 2003 to$438.9 million in 2004. This was primarily due to the increased size andquality of the crop processed in 2004.

 

**2005 Crop and Estimated Fiscal Year 2006Information**

 

This discussion contains the Company’s currentestimate of the results to be obtained from the Company’s processing of the2005 sugarbeet crop.  This discussionincludes forward-looking statements regarding the quantity of sugar to beproduced from the 2005 sugarbeet crop. These forward-looking statements are based largely upon the Company’sexpectations and estimates of future events; as a result, they are subject to avariety of risks and uncertainties.  Theactual results experienced by the Company could differ materially from theforward-looking statements contained herein.

 

The harvest of the sugarbeet crop grown during 2005 isestimated to produce a total of 9.7 million tons of sugarbeets, orapproximately 19.1 tons of sugarbeets per acre from approximately 507,000acres.  This represents a decrease intotal tons harvested of approximately 5.0 percent compared to the 2004crop.  The sugar content of the 2005 cropis estimated to be 17.9 percent as compared to the 17.8 percent sugar contentof the 2004 crop.  The Company expects toproduce a total of approximately 29.2 million hundredweight of sugar fromthe 2005 crop, a decrease of approximately 4.3 percent compared to the 2004crop.

 
| **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 ofa financial instrument may change as a result of changes in the interest rates,exchange rates, commodity prices, equity prices and other market changes.  Market risk is attributed to all market-risksensitive 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.** | **FINANCIAL STATEMENTS** |
|-------------|--------------------------|

 

The consolidated financial statements of the Companyfor the fiscal years ended August 31, 2005, 2004 and 2003 have beenaudited by Eide Bailly LLP, independent registered public accounting firm.  Such consolidated financial statements havebeen included herein in reliance upon the report of Eide Bailly LLP.  The consolidated financial statements of theCompany are included in Appendix A to this annual report.

 
| **Item 9.** | **CHANGES IN AND DISAGREEMENTS WITH  ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE** |
|-------------|-------------------------------------------------------------------------------------------|

 

None

 
| **Item 9A.** | **CONTROLS AND PROCEDURES** |
|--------------|-----------------------------|

 

The Company’s chief executive officer and chieffinancial officer have reviewed and evaluated the effectiveness of the Company’sdisclosure controls and procedures (as defined in Rules 240.13a-15(e) and15d-15(e) promulgated under the Securities Exchange Act of 1934) as of August 31,2005.

 

19

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Based on that review and evaluation, which included inquiries made tocertain other employees of the Company, the chief executive officer and chieffinancial officer have concluded that the Company’s current disclosure controlsand procedures, as designed and implemented, are effective in ensuring thatinformation relating to the Company required to be disclosed in the reports theCompany files or submits under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported within the time periods specified in theSecurity and Exchange Commission’s rules and forms, including ensuringthat such information is accumulated and communicated to the Company’s management,including the chief executive officer and the chief financial officer, asappropriate to allow timely decisions regarding required disclosure.

 

**PART III**

 

**Item 10.****                                 DIRECTORS ANDEXECUTIVE OFFICERS**

 

**Board of Directors**

 

The Board of Directors of the Company consists ofthree directors from each of the five factory districts.  Directors must hold common stock of theCompany or must be representatives of such shareholders belonging to thedistrict they represent and are elected by the members of that district.  In the case of a holder of common stock whois other than a natural person, a duly appointed or elected representative ofsuch shareholder may serve as a director. The directors were elected to serve three-year terms expiring in December ofthe years indicated in the table below. One director is elected each year from each factory district.  A director cannot serve more than fourconsecutive three-year terms.

 

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

 
| **Name and  Address**                                    | ** ** | **Age**    | ** ** | **Factory  District** | ** ** | **Director  Since** | ** ** | **Term  Expires  Dec.** | ** ** |
|----------------------------------------------------------|------------|------------|------------|-----------------------|------------|---------------------|------------|-------------------------|------------|
| ** **                                               | ** ** | ** ** | ** ** | ** **            | ** ** | ** **          | ** ** | ** **              | ** ** |
| Michael A. Astrup  PO Box 219  Dilworth, MN 56529        |       | 52         |       | Moorhead              |       | 1996                |       | 2005                    |       |
| ** **                                               | ** ** | ** ** | ** ** | ** **            | ** ** | ** **          | ** ** | ** **              | ** ** |
| William Baldwin  8244 144th Ave. NE  St Thomas, ND 58276 |       | 59         |       | Drayton               |       | 2004                |       | 2007                    |       |
| ** **                                               | ** ** | ** ** | ** ** | ** **            | ** ** | ** **          | ** ** | ** **              | ** ** |
| Jerry D. Bitker  1694 Co. Highway #19  Halstad, MN 56548 |       | 57         |       | Hillsboro             |       | 1996                |       | 2005                    |       |
| ** **                                               | ** ** | ** ** | ** ** | ** **            | ** ** | ** **          | ** ** | ** **              | ** ** |
| Richard Borgen  1544 Co. Highway #39  Perley, MN 56574   |       | 56         |       | Moorhead              |       | 1997                |       | 2006                    |       |
| ** **                                               | ** ** | ** ** | ** ** | ** **            | ** ** | ** **          | ** ** | ** **              | ** ** |
| John Gudajtes  15363 County Road 15  Minto, ND 58261     |       | 56         |       | East Grand Forks      |       | 2003                |       | 2006                    |       |

 

20

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| Curtis Haugen  45508 300th St. NW  Argyle, MN 56713                       |       | 44         |       | East Grand Forks |       | 2001       |       | 2007       |       |
|---------------------------------------------------------------------------|------------|------------|------------|------------------|------------|------------|------------|------------|------------|
|                                                                      |       |       |       |             |       |       |       |       |       |
| Lonn M. Kiel  36044 275th Ave. S.W.  Crookston, MN 56716                  |       | 52         |       | Crookston        |       | 1994       |       | 2006       |       |
| ** **                                                                | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** |
| David J. Kragnes  10600 60th St. N.  Felton, MN 56536                     |       | 53         |       | Moorhead         |       | 1995       |       | 2007       |       |
| ** **                                                                | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Francis L. Kritzberger  RR #1, Box 22  Hillsboro, ND 58045                |       | 60         |       | Hillsboro        |       | 1996       |       | 2006       |       |
| ** **                                                                | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Patrick D. Mahar  502 E. 3rd Ave. S.  Cavalier, ND 58220-9789             |       | 62         |       | Drayton          |       | 1993       |       | 2005       |       |
|                                                                      |       |       |       |             |       |       |       |       |       |
| Jeff McInnes  RR 2 Box 140  Hillsboro, ND 58045                           |       | 48         |       | Hillsboro        |       | 2001       |       | 2007       |       |
|                                                                      |       |       |       |             |       |       |       |       |       |
| Ronald E. Reitmeier  30928 220th St. S.W.  Fisher, MN 56723               |       | 60         |       | Crookston        |       | 1996       |       | 2005       |       |
| ** **                                                                | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Jim A. Ross  25669 328th Ave. S.W.  Fisher, MN 56723                      |       | 55         |       | Crookston        |       | 1998       |       | 2007       |       |
| ** **                                                                | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** |
| G. Terry Stadstad  (Chairman)  1774 22nd Avenue NE  Grand Forks, ND 58203 |       | 62         |       | East Grand Forks |       | 1993       |       | 2005       |       |
|                                                                      |       |       |       |             |       |       |       |       |       |
| Neil Widner  PO Box 47  Stephen, MN 56757                                 |       | 54         |       | Drayton          |       | 2000       |       | 2006       |       |

 

Below is the biographical information on each Director.

 

**Michael A. Astrup.**  Mr. Astrup has been a director since1996.  Mr. Astrup has been a farmersince 1976, with his farming operations located near Dilworth, Minnesota.  Mr. Astrup serves on the Board of Directorsof United Sugars Corporation and is a Director of the American SugarbeetGrowers Association.

 

**William Baldwin. **Mr. Baldwin has been adirector since 2004.  Mr. Baldwinhas been farming in the Drayton Factory District since 1966 and is the Presidentof Baldwin Farms Incorporated.  Mr. Baldwinis the past President of the Red River Valley Sugarbeet Growers Association,served on the American Sugarbeet Growers Executive Committee and is currentlyserving on the Farm Service Agency, State Committee.

 

21

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**Jerry D. Bitker.**  Mr. Bitker has been a director since1996 and has been a farmer since 1974 near Halstad and Ada, Minnesota.

 

**Richard Borgen.**  Mr. Borgen has been a director since1997.  Mr. Borgen has farmed east ofPerley, Minnesota, since 1967 and has served as a director on the Perley Co-opElevator Board for nine years and the Norman County West school board for 10years.

 

**John Gudajtes. **Mr. Gudajtes has beena director since 2003.  Mr. Gudajteshas farmed in the Minto, North Dakota, area since 1967 and is the President ofGudajtes Farms.  Mr. Gudajtes hasbeen the President of Walsh County Historical Society for three years.

 

**Curtis Haugen. **Mr. Haugen has been adirector since 2001.  Mr. Haugen hasbeen a farmer since 1981****and farmsnear Argyle, Minnesota.  Mr. Haugenis serving as a director and President of the Farmer’s Union Oil Company, Oslo,Minnesota.

 

**Lonn M. Kiel.**  Mr. Kiel has been a director since 1994and has been farming near Crookston, Minnesota, since 1982.  Mr. Kiel is the president of KielCorporation.

 

**David J. Kragnes.**  Mr. Kragnes has been a director since1995.  Mr. Kragnes has been a farmersince 1972, with his farming operation located near Felton, Minnesota.  Mr. Kragnes serves on the Board ofDirectors of United Sugars Corporation, the Board of Governors of ProGoldLimited Liability Company and is also a director for the American SugarbeetGrowers Association.

 

**Francis L. Kritzberger.**  Mr. Kritzberger has been a directorsince 1996.  Mr. Kritzberger haspreviously served as a director with the Company, from July 30, 1989 untilJuly 30, 1993.  Mr. Kritzbergerhas been a farmer since 1964.  Mr. Kritzbergerserves on the Board of Directors of the North Dakota Council of Cooperatives.

 

**Patrick D. Mahar.**  Mr. Mahar has been a director since 1993and has been a farmer since 1962.  Mr. Maharis currently a partner of Mahar Farms near Cavalier, North Dakota.  Mr. Mahar previously served as presidentof the Red River Valley Sugarbeet Growers Association, Fargo, North Dakota, andas president of the American Sugarbeet Growers Association, Washington,D.C.  Mr. Mahar is also on theBoards of Directors of United Valley Bank and Farmers Co-op Elevator, both ofCavalier, North Dakota.  Mr. Maharalso serves on the Advisory Board of Directors of the Bank of North Dakota.

 

**Jeff McInnes.**  Mr. McInnes has been a director since2001.  Mr. McInnes co-manages a4,000 acre farming operation near Hillsboro, North Dakota.  Mr. McInnes is the founder and managerof the Basement Traders Marketing Club, a grain marketing association inHillsboro.  Mr. McInnes serves onthe Board of Governors of ProGold Limited Liability Company.

 

**Ronald E. Reitmeier.**  Mr. Reitmeier has been a director since1996, and has been a farmer since 1968.  Mr. Reitmeieris the President of R&J Crop Production Inc.  Mr. Reitmeier has served as ViceChairman on 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. Reitmeier previously served on theFisher, Minnesota, School Board for 18 years, as President of the Polk CountyFarmers Union and Chairman of the Minnesota Farmers Union Executive Committeeof County Chairpersons.

 

**Jim A. Ross.**  Mr. Ross has been a director since1998.  Mr. Ross has farmed nearFisher, Minnesota, since 1971 and is a board member of Fisher Fuel and HardwareCooperative.  Mr. Ross also serveson the Board of Governors of ProGold Limited Liability Company.

 

**G.****Terry Stadstad.**  Mr. Stadstad has been a director since1993 and has served as Chairman since 2004. Mr. Stadstad has been farming near Grand Forks, North Dakota, since1965.  Mr. Stadstad serves

 

22

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on the Board of Directors of United Sugars Corporation, MidwestAgri-Commodities Company and on the Board of Governors of ProGold LimitedLiability Company.

 

**Neil Widner. **Mr. Widner has been adirector since 2000.  Mr. Widner hasfarmed near Stephen, Minnesota, since 1973. Mr. Widner serves on the Board of Directors of MidwestAgri-Commodities Company and is also a director for the American SugarbeetGrowers Association.

 

The Board of Directors meets monthly.  For fiscal year 2005, the Company providedits directors with compensation consisting of (i) a payment of $500 permonth, (ii) a per diem payment of $250 for each day spent on Companyactivities, including board meetings and other Company functions, and (iii) reimbursementof expenses for attendance at Board of Directors’ meetings.  The Chairman of the Board of Directorsreceives a payment of $1,000 per month, rather than $500 per month; theChairman also receives a per diem in the amount of $250 for each day spent onCompany activities.  The Board ofDirectors has approved an increase in the monthly compensation paid todirectors and the Chairman of $25 per month for each fiscal year after fiscal2005.

 

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 irrevocable election made prior to January 1 ofeach calendar year the fees are to be paid. The amounts are deferred until either withdrawal from the Board ofDirectors by a member or until retirement from the member’s regular employmentor business, but not beyond age 65.  Twopayment options are available at the election of the participant.  Payments can be received in a single lump sumor in equal installments over a period of up to ten years.  The Board of Directors, at its discretion,can elect to distribute the remaining balance at any time.  Interest is earned on the amounts deferredbased on the five year Treasury bond rate. Currently, there are two members who have elected to participate in thisplan.  The amount deferred, as of August 31,2004 was $208,000.

 

**Audit Committee and Audit CommitteeFinancial Expert**

 

The Audit Committee assists the Board of Directors infulfilling its oversight responsibilities relating to the Company’s financialreporting and controls, the annual independent audit of the Company’sconsolidated financial statements and the legal compliance and ethics programsas established by management and the Board of Directors.  The Audit Committee selects the independentpublic accountants, approves the fees and the scope and procedural plans of theaudits of the Company’s consolidated financial statements.  The Audit Committee administers the Company’semployee complaint program and handles, on behalf of the full Board of Directors,any issues that arise under the Company’s Code of Ethics.  On August 31, 2005, the members of theAudit Committee were Jeff McInnes (Committee Chair), Michael Astrup, WilliamBaldwin, Curtis Haugen, Ronald Reitmeier and Jim Ross.

 

As of August 31, 2005, the Board of Directors ofthe Company has determined that there is no audit committee financial expertserving on the Audit Committee.  TheCompany is a cooperative formed in accordance with the Minnesota cooperativelaw of the State of Minnesota.  Inaccordance with the Minnesota cooperative law, the Amended and RestatedArticles of the Incorporation of the Company and the Amended and RestatedBylaws of the Company, the Board of Directors must be composed of members ofthe Company (the holders of common stock). Membership in the Company is limited to agricultural producers who areactively involved in the production of sugarbeets.  Based on the state law requirements for bothmembership and board service, the Company is unable to recruit outside of itsmembership to elect to its Board of Directors and its audit committee anindividual that possesses the attributes of an “audit committee financialexpert” as defined by the SEC.  To date,the Company has been unable to recruit from its membership an individual toserve on the Board of Directors that possesses the attributes of an “auditcommittee financial expert.”

 

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**Executive Officers**

 

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

 
| **Name**           | ** ** | **Age**    | ** ** | **Position**                                                                                             | ** ** |
|--------------------|------------|------------|------------|----------------------------------------------------------------------------------------------------------|------------|
| ** **         | ** ** | ** ** | ** ** | ** **                                                                                               | ** ** |
| James J. Horvath   |       | 60         |       | President and Chief Executive Officer                                                                    |       |
| Thomas S. Astrup   |       | 36         |       | Vice President- Agriculture                                                                              |       |
| David A. Berg      |       | 51         |       | Vice President-Operations and Chief Operations  Officer                                                  |       |
| Brian F. Ingulsrud |       | 42         |       | Vice President-Administration                                                                            |       |
| Joseph J. Talley   |       | 45         |       | Vice President-Finance and Chief Financial Officer                                                       |       |
| Daniel C. Mott     |       | 46         |       | Secretary                                                                                                |       |
| Samuel S. M. Wai   |       | 51         |       | Treasurer and Assistant Secretary                                                                        |       |
| Mark P. Kalvoda    |       | 33         |       | Corporate Controller, Assistant Secretary and  Assistant Treasurer                                       |       |
| Mark L. Lembke     |       | 49         |       | Finance Administration Manager, Assistant  Secretary and Assistant Treasurer                        |       |
| David L. Malmskog  |       | 48         |       | Director - Economic Analysis and Business  Development, Assistant Secretary and Assistant Treasurer |       |
| Ronald K. Peterson |       | 50         |       | Accounting & Systems Manager, Assistant  Secretary and Assistant Treasurer                 |       |
| Lisa M. Maloy      |       | 41         |       | Treasury Operations Manager and Assistant Secretary                                                      |       |

 

**James J. Horvath.**  Mr. Horvath was named President andChief Executive Officer in May, 1998.  Heserved as Chief Financial Officer from 1996 to 1998.  From 1994 to 1996, Mr. Horvath served asthe Company’s Vice President-Joint Ventures as well as Chief Manager and ChiefOperating Officer of ProGold Limited Liability Company.  Mr. Horvath also served as the Company’sVice President-Finance from 1985 to 1994. Mr. Horvath currently serves on the Boards of Directors of UnitedSugars Corporation and Midwest Agri-Commodities Company.

 

**Thomas S. Astrup**.  Mr. Astrup was named the Company’s VicePresident-Agriculture in February 2004. Mr. Astrup served as the Company’s Vice President-Administrationfrom 2000 to 2004 and as the Company’s Corporate Controller, AssistantTreasurer and Assistant Secretary from 1999 to 2000.  From 1997 until 1999, he held the position ofController for Midwest Agri-Commodities Company.  He was the Corporate Accountant for ProGoldLimited Liability Company from 1994 to 1997.

 

**David A. Berg.**  Mr. Berg was named VicePresident-Operations and Chief Operations Officer in January 2004.  He was Vice President-Agriculture during theperiod December 2000 to January 2004 and VicePresident-Administration during the period from October 1998 to December 2000.  During the period from 1994 to 1998, Mr. Bergserved as the Company’s Vice President-Business Development, VicePresident-Strategic Planning, Director-Market Information, Manager of Marketingand Analysis and Manager-Economic Research. Mr. Berg currently serves on the ProGold Limited Liability CompanyBoard of Governors and as Chairman of the Crystech, LLC Board of Managers.

 

24

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**Brian F. Ingulsrud.**  Mr. Ingulsrud was named Vice President-Administrationin February 2004.  From 2000 to2004, he served as the Corporate Controller, Assistant Secretary and AssistantTreasurer.   Mr. Ingulsrud served asDirector of Agriculture Strategy and Development from 1999 to 2000, FinancialPlanning Manager from 1997 until 1998, and Factory Offices Manager from 1995until 1997.

 

**Joseph J. Talley.**  Mr. Talley currently serves as VicePresident-Finance and Chief Financial Officer of the Company and also as ChiefOperating Officer of Sidney Sugars Incorporated. Mr. Talley was named VicePresident-Finance in 1998, Chief Operating Officer of Sidney SugarsIncorporated in 2002 and Chief Financial Officer of the Company in 2003.  He served as the Company’s Treasurer andFinance Director, Assistant Treasurer and Assistant Secretary from 1996 untilhis appointment as Vice President-Finance. Mr. Talley served as Finance Director of ProGold Limited LiabilityCompany from 1994 through 1996.  Hecurrently serves on the Board of Governors for ProGold Limited LiabilityCompany.

 

**Daniel C. Mott.**  Mr. Mott became the Company’s Secretaryduring 1999.  Previously, he had servedas Assistant Secretary since 1995.  Mr. Mottalso serves as the Company’s General Counsel. He is a Shareholder in the law firm of Fredrikson & Byron,P.A.  Mr. Mott is not an employee ofthe Company.

 

**Samuel S. M. Wai.**  Mr. Wai was named the Company’sTreasurer and Assistant Secretary in 1999. He served as the Company’s Corporate Controller from 1996 until 1999 andwas the Company’s Treasurer from 1985 to 1996. He held various financial positions with the Company from 1979 to1985.  Mr. Wai also serves on theBoard of Managers of Crystech, LLC and as Treasurer of the American CrystalSugar Political Action Committee.  Mr. Waialso serves on the Board of Directors of the Institute of Cooperative FinancialOfficers.

 

**Mark P. Kalvoda.**  Mr. Kalvoda was named AssistantSecretary and Assistant Treasurer in 2004. He was employed by the Company in 2004 and currently serves as theCorporate Controller.  Prior to hisemployment with the Company, Mr. Kalvoda held various financial positionswithin Hormel Foods Corporation.

 

**Mark L. Lembke.**  Mr. Lembke was named Assistant Secretaryand Assistant Treasurer in 1996.  Hecurrently serves as Finance Administration Manager.  Mr. Lembke served as the Company’sCorporate Accounting Manager from 1995 to 1999. From 1987 through 1995, Mr. Lembke served as Factory AccountingSupervisor.

 

**Ronald K. Peterson.**  Mr. Peterson has served as AssistantTreasurer and Assistant Secretary since 1993. He currently holds the position of Accounting and Systems Manager.  From 1996 to 1999 Mr. Peterson was theFinancial Systems Manager and from 1991 to 1995 served as the Company’sCorporate Accounting Manager.  Mr. Petersonhas held various financial positions with the Company since 1979.

 

**David L. Malmskog.**  Mr. Malmskog currently serves asDirector-Economic Analysis and Business Development and was appointed AssistantSecretary and Assistant Treasurer in 1998. Mr. Malmskog has held various financial positions with the Companysince 1980.

 

**Lisa M. Maloy.**Ms. Maloycurrently serves as Treasury Operations Manager and was appointed AssistantSecretary in 2002.  Prior to joining theCompany in 1997, Ms. Maloy was a tax attorney with Ernst & YoungLLP in Minneapolis, Minnesota.

 

**Code of Ethics**

 

The Company has adopted a code of ethics that appliesto its principal executive officer, principal financial officer, principalaccounting officer or controller and certain other senior financial personnel.  The Company will provide at no charge a copyof the code of ethics to any person who

 

25

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requests a copy by sending a written request to the Company’sheadquarters, attention of the Chief Executive Officer of the Company.

 

**Item 11.****                                 EXECUTIVE COMPENSATION**

 

The following table summarizes the amount ofcompensation paid for services rendered to the Company during the fiscal yearended August 31, 2005 and the two prior fiscal years to those persons servingas the Company’s Chief Executive Officer and to the four other most highlycompensated current executive officers of the Company whose cash compensationexceeded $100,000 per annum.

 

**SUMMARY COMPENSATION TABLE**

 
| ** **                     | ** ** | ** ** | ** ** | **Annual Compensation** | ** ** | **Long-Term**               | ** ** |
|--------------------------------|------------|------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                     | ** ** | **Year**   | ** ** | **Salary**              | ** ** | **Incentive  Compensation** | ** ** | **Other Annual  Compensation (1)** | ** ** | **Compensation********Payouts (2)** | ** ** |
|                           |       |       |       |                    |       |                        |       |   |   |   |   |
| James J. Horvath               |       | 2005       |       | $                       | 494,615    |                        | $          | 156,400 |   | $ | 46,961 |   | $ | 605,031 |   |
| President and Chief Executive  |       | 2004       |       | $                       | 462,652    |                        | $          | 313,875 |   | $ | 38,315 |   | $ | 83,828 |   |
| Officer                        |       | 2003       |       | $                       | 446,703    |                        | $          | 200,359 |   | $ | 42,000 |   | $ | 23,479 |   |
|                           |       |       |       |                    |       |                        |       |   |   |   |   |
| Thomas S. Astrup               |       | 2005       |       | $                       | 204,692    |                        | $          | 53,986 |   | $ | 12,650 |   | $ | 5,160 |   |
| Vice President-Agriculture*    |       | 2004       |       | $                       | 189,475    |                        | $          | 90,048 |   | $ | 10,487 |   | $ | 5,453 |   |
|                           |       | 2003       |       | $                       | 173,497    |                        | $          | 52,851 |   | $ | 10,579 |   | $ | 527 |   |
|                           |       |       |       |                    |       |                        |       |   |   |   |   |
| David A. Berg                  |       | 2005       |       | $                       | 243,846    |                        | $          | 59,852 |   | $ | 23,384 |   | $ | 99,805 |   |
| Vice President-Operations and  |       | 2004       |       | $                       | 227,731    |                        | $          | 110,000 |   | $ | 21,245 |   | $ | 18,211 |   |
| Chief Operations Officer**     |       | 2003       |       | $                       | 211,000    |                        | $          | 87,969 |   | $ | 20,941 |   | $ | 5,022 |   |
|                           |       |       |       |                    |       |                        |       |   |   |   |   |
| Brian F. Ingulsrud             |       | 2005       |       | $                       | 166,923    |                        | $          | 42,840 |   | $ | 10,764 |   | — |   |
| Vice President-Administration* |       | 2004       |       | $                       | 137,552    |                        | $          | 51,075 |   | $ | 8,290 |   | — |   |
|                           |       | 2003       |       | $                       | 119,480    |                        | $          | 21,098 |   | $ | 7,604 |   | — |   |
|                           |       |       |       |                    |       |                        |       |   |   |   |   |
| Joseph J. Talley               |       | 2005       |       | $                       | 243,846    |                        | $          | 77,933 |   | $ | 23,716 |   | $ | 254,279 |   |
| Vice President-Finance and     |       | 2004       |       | $                       | 229,077    |                        | $          | 128,296 |   | $ | 20,998 |   | $ | 18,325 |   |
| Chief Financial Officer        |       | 2003       |       | $                       | 211,001    |                        | $          | 100,643 |   | $ | 21,408 |   | $ | 5,039 |   |

 

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*                      EffectiveFebruary 9, 2004

**               EffectiveJanuary 12, 2004

 

(1)                                  Includesthe cost of additional life insurance coverage, imputed value of long-termdisability insurance, car allowance, reimbursed health club dues, costs of taxreturn preparation, Company 401(k) matching contributions, Company matchingSERP contributions, flexible spending taxable cash, and flexible spendingdollars into 401(k).

 

(2)                                  Includesamounts paid to executive officers who exercised vested contract rights and the“profit per acre payments” made to the executive under the Company’s LTIP plans(described below).  The profit per acrepayments are determined by subtracting from the Company’s beet payment per acrethe average cost of production per acre incurred by the Company’s members andmultiplying the result by the number of vested contract rights held by theexecutive.

 

26

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**Employment Agreement with CEO**

 

Effective May 15, 1998, the Company and Mr. Horvathentered into an agreement regarding Mr. Horvath’s employment by theCompany.  The agreement provides that Mr. Horvathshall serve as an “at will” employee at the pleasure of the Board ofDirectors.  The agreement also containsthe provision of a three-year non-compete/non-solicitation agreement with Mr. Horvath,grants the Board of Directors the authority to establish Mr. Horvath’sbase compensation each year, and also provides that he may participate in otherbenefit plans offered by the Company.

 

On September 28, 2005, the Company and Mr. Horvath,entered into an amendment to his existing employment agreement with the Companydated May 15, 1998.  Prior to thisAmendment, the Employment Agreement contained certain provisions that were adisincentive to Mr. Horvath continuing his employment with the Companybeyond September 30, 2005 and other provisions that required amendment asa result of recent changes in the tax laws. The Amendment (1) eliminates the disincentive to Mr. Horvathto continue his employment with the Company, (2) changes certain vacationaccruals so that Mr. Horvath accrues additional vacation days and (3) makescertain other changes required to comply with the recent changes to the taxlaws.

 

If Mr. Horvath’s employment terminates with theCompany without cause or he incurs a termination due to disability after age60, Mr. Horvath is entitled to receive reimbursement for the cost ofmedical and dental coverage for himself and his spouse from the date oftermination through their respective deaths; life insurance coverage equal tohis base salary on the date of termination until he attains age 65, from age 65to 70 equal to 50 percent of his base salary on the date of termination, andafter age 70 equal to 25 percent of his base salary on the date of termination;and supplemental pension benefits equal to the difference between thecumulative monthly amount of the retirement benefit Mr. Horvath would havereceived under Retirement Plan A and the Supplemental Executive Retirement Plan(SERP) computed as though Mr. Horvath continued his employment to age 65assuming compensation equal to or greater of (1) the actual compensationpaid twelve months immediately preceding termination (including annualincentive compensation paid in only the most recently completed fiscal year) tobe applied for the years remaining to age 65 (with actual compensation to beused for the years prior to the date of termination); or (2) thecompensation paid for the period beginning October 1, 2004, and ending September 30,2005, to be applied for each of the five years from age 60 to age 65, and ineach case assuming 30 years of service actually attained as of the date oftermination of employment or the date on which he attains age 65, with noreduction in benefits on account of an election by Mr. Horvath for anydeath benefit to be paid to his spouse under the Retirement Plan A and thecumulative monthly amount of the retirement benefits actually paid to Mr. Horvathunder Retirement Plan A and the Supplemental Executive Retirement Plan (SERP).

 

If Mr. Horvath’s employment terminates with theCompany without cause after age 60 and Mr. Horvath subsequently dies, orif Mr. Horvath dies prior to terminating his employment with the Company, Mr. Horvath’sspouse is entitled to receive monthly payments for the remainder of her lifeequal to the difference between the cumulative monthly amount of the retirementbenefit Mr. Horvath would have received under Retirement Plan A and theSupplemental Executive Retirement Plan (SERP) computed as though Mr. Horvathcontinued his employment to age 65 assuming compensation equal to or greater of(1) the actual compensation paid twelve months immediately precedingtermination (including annual 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 fiveyears from age 60 to age 65, and in each case assuming 30 years of serviceactually attained as of the date of termination of employment or the date onwhich he attains age 65, with no reduction in benefits on account of anelection by Mr. Horvath for any death benefit to be paid to his spouseunder the Retirement Plan A and the cumulative monthly amount

 

27

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of the retirement benefits actually paid to Mr. Horvath underRetirement Plan A and the Supplemental Executive Retirement Plan (SERP).

 

**Incentive Plans**

 

**Annual Incentive Plan**

 

The Company’s salaried employees are entitled toparticipate in an annual incentive program that provides for cash awards basedpartially on the performance of the Company and partially on achievement ofcertain performance objectives.  The performanceobjectives of the CEO are determined by the Board of Directors.  The performance objectives of otherexecutives are determined by the CEO. The amount of the incentive bonus is dependent on the employee’sresponsibilities, the performance of the Company and the employee’s performancefor the fiscal year.

 

**Long-Term Incentive Plans**

 

*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) discussedbelow.  All vested contract rights as of December 31,2004, remained in the 1999 Plan while all unvested contract rights weretransferred to the 2005 Plan. The value of the contract rights remaining in the1999 Plan is related to the value of preferred shares of the Company asdetermined by the Board of Directors.

 

In 2005, 593.07 vested contract rights were exercisedby executive officers who held vested contract rights at a stated value of$1,750 per contract right or a total stated value of $1,038,000.  In addition, 550.54 contract rights weretransferred to the 2005 Plan and 74.62 contract rights were forfeited.  As of August 31, 2005, there were 455.07vested contract rights remaining in the 1999 Plan.  At August 31, 2005, the Board ofDirectors increased the value of these contract rights from $1,750 to $1,800per contract right for a total increase of $23,000 bringing the total statedvalue of these contract rights as of August 31, 2005, to $819,000.

 

*2005 Long-Term Incentive Plan*

 

Under this plan, which became effective in fiscal2005, awards are based upon progress towards achieving certain long-termstrategic objectives established by the Board of Directors.  Incentive awards under the plan range from 0to 40 percent of base compensation for the Vice Presidents and from 0 to 80percent of base compensation for the CEO. The actual amount of the award available to a given individual is basedupon the collective performance level of participants as determined by theBoard of Directors.  Awards paid underthe plan may be paid in the form of cash paid to the employee’s SupplementalExecutive Retirement Plan, as discussed below, or in the form of contractrights, in each case as determined by the Board of Directors.  All awards will be subject to a three yearvesting schedule.  The Board of Directorsretains the discretion to determine the amount of any cash awards and/orcontract rights to be made available to plan participants with respect to agiven fiscal year.  The 2005 Plan establishesadditional restrictions on distributions, as compared to those contained in the1999 Plan, along with other changes necessary to comply with recent changes tothe tax laws.

 

In 2005, 122.01 contract rights were granted at astated value of $1,800 per contract right or a total stated value of$220,000.  At August 31, 2005, theBoard of Directors increased the value of the 550.54 contract rightstransferred from the 1999 Plan from $1,750 to $1,800 per contract right for atotal increase of $28,000.  As of August 31,2005, there were 672.55 rights, at a total stated value of $1.2 million, issuedand outstanding, none of which were vested.

 

28

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The table below lists the executives named in thecompensation table who have been granted and hold contract rights under theplans discussed above.  

 

**Long-Term Incentive Plan Awards**

 
| ** **              | ** ** | **Fiscal 2005**     | ** ** | ** **                     | ** ** | ** **         | ** ** | ** ** | ** ** | **Fiscal 2005**  | ** ** |
|-------------------------|------------|---------------------|------------|--------------------------------|------------|--------------------|------------|------------|------------|------------------|------------|
| ** **              | ** ** | **Contract Rights** | ** ** | **Total Contract Rights Held** | ** ** | **Representative** | ** ** |
| **Executive  Officers** | ** ** | **Granted**         | ** ** | **Stated Value**               | ** ** | **Granted**        | ** ** | **Vested** | ** ** | **Stated Value** | ** ** | **Payout (1)** | ** ** |
|                    |       |                |       |                           |       |               |       |       |       |             |       |   |   |
| James J. Horvath        |       | 65.28               |       | $                              | 117,504    |               | 691.68     |       | 309.61     |             | $          | 1,245,026 |   | $ | 605,031 |   |
| Thomas S. Astrup        |       | 13.51               |       | $                              | 24,318     |               | 135.08     |       | 58.13      |             | $          | 243,148 |   | $ | 5,160 |   |
| David A. Berg           |       | 16.06               |       | $                              | 28,908     |               | 180.09     |       | 87.33      |             | $          | 324,164 |   | $ | 99,805 |   |
| Brian F. Ingulsrud      |       | 11.10               |       | $                              | 19,980     |               | 27.68      |       | —     |             | $          | 49,815 |   | $ | — |   |
| Joseph J. Talley        |       | 16.06               |       | $                              | 28,908     |               | 93.09      |       | —     |             | $          | 167,557 |   | $ | 254,279 |   |

 

----

(1)                                  Theamount shown represents the value of vested contract rights exercised duringfiscal 2005 and a representative amount, determined for the last fiscal year,with respect to “profit per acre payments”, which are non-stock price basedpayments.  The profit per acre payments aredetermined by subtracting from the Company’s net beet payment per acre theaverage cost of production per acre incurred by the Company’s members andmultiplying the result by the number of vested contract rights held by theexecutive.  Based on that formula, theCompany must provide a beet payment per acre to its members equal to theaverage cost of production for an acre of sugarbeets in order for executivesholding contract rights to obtain any payment of profit per acre payments.  Given the method of determining the profitper acre payments, there is no maximum payment amount.

 

**Retirement Plans**

 

The Company has established noncontributory, definedbenefit retirement plans which are available to all eligible employees of theCompany.  Those employees who are coveredby a collective bargaining agreement participate in Plan B, while employees whoare not subject to a collective bargaining agreement, including the executiveofficers listed on the Summary Compensation Table, participate in pension PlanA.  The benefits of the plans are fundedby periodic Company contributions to a retirement trust which invests theCompany’s contributions and the earnings from such contributions in order topay the benefits to the employees.  Theplans provide for the payment of monthly retirement benefits determined under acalculation based on years of service and a participant’s compensation.  Retirement benefits are paid to participantsupon normal retirement at the age of 65 or later or upon early retirement.  The plans also provide for the payment ofcertain disability and death benefits.

 

Certain executive employees of the Company areeligible to participate in a “Supplemental Executive Retirement Plan.”  Subject to the discretion of the Board ofDirectors, the plan provides for the Company to credit to the account of eachexecutive eligible to participate in the Supplemental Plan amounts equal to (i) thedifference between amounts actually contributed to the Company’s 401(k) plan onbehalf of the executive and the amounts which could have been contributed if certainprovisions of the Internal Revenue Code did not prohibit the contribution ofsuch amounts and (ii) the difference between the benefits actually payableto the executive under the provisions of Retirement Plan “A” and the amountswhich would be payable under Retirement Plan “A” if certain provisions of theInternal Revenue Code did not prohibit the payment of such benefits.  In addition, the executive may elect to defera portion of his or her compensation, ranging from 2 percent to 20 percent, byregular payroll deductions under the Supplemental Plan, and may also defer 100percent of all incentive compensation

 

29

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and profits-per-acre payments. The Supplemental Plan is an “unfunded” plan, with all amounts to be paidunder the Supplemental Plan to be paid from the general assets of the Companywhen due and also to be subject to the claims of the Company’s creditors.

 

The table below shows the approximate annual pensionbenefits payable to executive officers at normal retirement under RetirementPlan A, as well as a non-qualified supplemental benefit plan.  The compensation covered by the pensionprogram is based on an employee’s annual salary and incentivecompensation.  Amounts payable arecomputed on the basis of a straight life annuity and are not reduced for socialsecurity benefits or other offsets.

 

**American Crystal Sugar Company**

**2005 Calculation**

**Plan A Qualified and Non-QualifiedSupplemental Benefits**

 
| ** **       | ** ** | **Years of Service** | ** ** |
|------------------|------------|----------------------|------------|
| **Remuneration** | ** ** | **15**               | ** ** | **20** | ** ** | **25** | ** ** | **30** | ** ** | **35** | ** ** |
|             |       |                 |       |   |   |   |   |   |   |   |   |
| $                | 125,000    |                 | $          | 23,335 |   | $ | 31,114 |   | $ | 38,892 |   | $ | 46,671 |   | $ | 46,671 |   |
| $                | 150,000    |                 | $          | 28,585 |   | $ | 38,114 |   | $ | 47,642 |   | $ | 57,171 |   | $ | 57,171 |   |
| $                | 175,000    |                 | $          | 33,835 |   | $ | 45,114 |   | $ | 56,392 |   | $ | 67,671 |   | $ | 67,671 |   |
| $                | 200,000    |                 | $          | 39,085 |   | $ | 52,114 |   | $ | 65,142 |   | $ | 78,171 |   | $ | 78,171 |   |
| $                | 225,000    |                 | $          | 44,335 |   | $ | 59,114 |   | $ | 73,892 |   | $ | 88,671 |   | $ | 88,671 |   |
| $                | 250,000    |                 | $          | 49,585 |   | $ | 66,114 |   | $ | 82,642 |   | $ | 99,171 |   | $ | 99,171 |   |
| $                | 300,000    |                 | $          | 60,085 |   | $ | 80,114 |   | $ | 100,142 |   | $ | 120,171 |   | $ | 120,171 |   |
| $                | 400,000    |                 | $          | 81,085 |   | $ | 108,114 |   | $ | 135,142 |   | $ | 162,171 |   | $ | 162,171 |   |
| $                | 450,000    |                 | $          | 91,585 |   | $ | 122,114 |   | $ | 152,642 |   | $ | 183,171 |   | $ | 183,171 |   |
| $                | 500,000    |                 | $          | 102,085 |   | $ | 136,114 |   | $ | 170,142 |   | $ | 204,171 |   | $ | 204,171 |   |
| $                | 600,000    |                 | $          | 123,085 |   | $ | 164,114 |   | $ | 205,142 |   | $ | 246,171 |   | $ | 246,171 |   |
| $                | 700,000    |                 | $          | 144,085 |   | $ | 192,114 |   | $ | 240,142 |   | $ | 288,171 |   | $ | 288,171 |   |
| $                | 800,000    |                 | $          | 165,085 |   | $ | 220,114 |   | $ | 275,142 |   | $ | 330,171 |   | $ | 330,171 |   |
| $                | 900,000    |                 | $          | 186,085 |   | $ | 248,114 |   | $ | 310,142 |   | $ | 372,171 |   | $ | 372,171 |   |
| $                | 1,000,000  |                 | $          | 207,085 |   | $ | 276,114 |   | $ | 345,142 |   | $ | 414,171 |   | $ | 414,171 |   |

 

The five executive officers named in the SummaryCompensation Table who are currently employees of the Company, have years ofservice under the plan as follows: Mr. Horvath has served for 20 years; Mr. Astruphas served for 11 years; Mr. Berg has served for 18 years; Mr. Ingulsrudhas served for 14 years; and Mr. Talley has served for 11 years.

 

The Company maintains Section 401(k) plans thatpermit employees to elect to set aside, on a pre-tax and after-tax basis, aportion of their gross compensation in trust to pay future retirementbenefits.  The Company matches 100percent of the nonunion and eligible union year-round participant’s pre-taxcontribution up to 4 percent and 2 percent, respectively, of their grossearnings.  The total annual addition toany employee’s account in any calendar year may not exceed the lesser of (i) $40,000or (ii) 100 percent of annual compensation less the amount of the employermatch and the employee deferral.  Forcalendar 2005, the employee pre-income tax contribution is limited to $14,000and an additional $4,000 of Catch-up contributions, if applicable.  Benefits under the 401(k) plans can begin tobe paid to the employee upon the close of the plan year in which one of thefollowing events has occurred: the date the employee attains age 591⁄2, the datethe employee terminates his service with the employer and the date specified ina written election made by the employee to receive benefits no

 

30

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later than April 1 of the year following the calendar year inwhich the employee retires, dies, becomes disabled, reaches age 701⁄2 or isterminated.

 

**Item 12.****                                 SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND 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 ofthe Company is voting stock and each member of the Company holds one share ofCommon Stock.  The Preferred Stock of theCompany is non-voting stock.  The Company’sstock can only be held by individuals who are sugarbeet growers.  None of the officers or executives of theCompany hold stock of the Company.  Asmembers of the cooperative, each director owns one share of Common Stock and isentitled to one vote.  As a group, thedirectors generally own approximately 2 to 3 percent of the outstandingPreferred Stock.

 

**Item 13.****                                 CERTAIN RELATIONSHIPSAND 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 statusas such members of the Company, each director or the member he represents sellssugarbeets to the Company and receives payments for those sugarbeets.  Such payments for sugarbeets often exceed$60,000.  Such payments, however, arereceived by the directors or the entities they represent on exactly the samebasis as payments received by other members of the Company for the delivery oftheir 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.

 

**Item 14.****                                 PRINCIPAL ACCOUNTANTFEES 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 August 31,2005 and 2004 and fees for other services rendered by Eide Bailly LLP duringthose periods.

 

| **(In  Thousands)** | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------|------------|----------|------------|----------|------------|
| Audit Fees          |       | $        | 121        |     | $          | 121 |   |
| Audit-Related Fees  |       | 32       |       | 45       |       |
| Tax Fees            |       | 35       |       | 43       |       |
| All Other Fees      |       | —   |       | —   |       |
| Total               |       | $        | 188        |     | $          | 209 |   |

 

**Audit Fees.**  The Audit Fees set forth above include theaggregate fees billed by Eide Bailly LLP to the Company for audit servicesrelated to the audit of the Company’s and consolidated companies’ annualfinancial statements and review of the statements included in the Company’squarterly reports on Form 10-Q for fiscal 2005 and fiscal 2004.

 

**Audit-Related Fees.**  The Audit-Related Fees set forth aboveinclude the aggregate fees billed by Eide Bailly LLP to the Company andconsolidated companies for assurance and related services provided by EideBailly LLP related to the performance of the audit or review of the Company’sfinancial statements for fiscal 2005 and fiscal 2004.  These services include: Benefit Plan auditsand Sarbanes-Oxley Act advisory services.

 

31

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**Tax Fees.**  The Tax Fees set forth above include theaggregate fees billed by Eide Bailly LLP to the Company and consolidatedcompanies for professional services rendered by Eide Bailly for tax compliance,tax advice and tax planning for fiscal 2005 and fiscal 2004.  These services include tax returnpreparation, tax planning and tax research.

 

**All Other Fees.**  The All Other Fees set forth above includethe aggregate fees billed by Eide Bailly LLP to the Company and consolidatedcompanies for professional services provided by Eide Bailly LLP to the Companyand consolidated companies.  There wereno other fees paid to Eide Bailly LLP for fiscal 2005 or fiscal 2004.

 

The Company’s Audit Committee pre-approves allprofessional services provided by Eide Bailly LLP to the Company.  The Audit Committee approved all****of the services and the fees billed forsuch services to the Company that are included above.  The Audit Committee makes its decisions onthe approval of services with due consideration given to maintaining theindependence of the principal accountant. None of the hours expended on the audit of the 2005 financial statementswere attributed to work performed by persons who were not employed full time ona permanent basis by Eide Bailly LLP.

 

32

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# ** **

# **PART IV**

# ** **

**Item15.    EXHIBITS AND FINANCIAL STATEMENTSCHEDULES**

 
| (a)    | Documents filed as part of this report                                                                                   |                                                                                                                                               |
|--------|--------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                     |                                                                                                                                               |
|   | 1.                                                                                                                       | Consolidated Financial Statements                                                                                                                  |   |
|   |                                                                                                                     |                                                                                                                                               |
|   |                                                                                                                     | Report of Independent Registered Public Accounting  Firm                                                                                           |   |
|   |                                                                                                                     | Consolidated Statements of Operations for the Years  Ended August 31, 2005, 2004 and 2003                                                     |   |
|   |                                                                                                                     | Consolidated Balance Sheets as of August 31, 2005  and 2004                                                                                   |   |
|   |                                                                                                                     | Consolidated  Statements of Changes in Members’ Investments and Comprehensive Income for  the Years Ended August 31, 2005, 2004 and 2003 |
|   |                                                                                                                     | Consolidated Statements of Cash Flows for the Years  Ended August 31, 2005, 2004 and 2003                                                     |   |
|   |                                                                                                                     | Notes to the Consolidated Financial Statements                                                                                                     |   |
|   |                                                                                                                     |                                                                                                                                               |
|   | 2.                                                                                                                       | Financial Statement Schedules                                                                                                                      |   |
|   |                                                                                                                     | None                                                                                                                                               |   |
|   |                                                                                                                     |                                                                                                                                               |
|   | 3.                                                                                                                       | The exhibits to this Annual Report on Form 10-K  are listed in the Exhibit Index on pages E-1 to E-4 of this report                 |
|   |                                                                                                                     |                                                                                                                                               |
| (b)    | Exhibits                                                                                                                 |                                                                                                                                               |
|   |                                                                                                                     |                                                                                                                                               |
|   | The response to this portion of Item 15 is included  as a separate section of this Annual Report on Form 10-K. |

 

33

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**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15of the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized, on November 23, 2005.

 
|   | AMERICAN CRYSTAL SUGAR COMPANY |
|--------|--------------------------------|
|   | By:                            | /s/ JAMES J. HORVATH | * * |
|   |                           | *President and Chief Executive  Officer* |
|   | * *                       |
|   | Dated: November 23, 2005  |

 

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/ JAMES J. HORVATH       |       |       | President and Chief Executive Officer              |       | November 23, 2005 |   |
|                       |       |       | (Principal Executive Officer)                      |       |                   |   |
|                       |       |       |                                               |       |                   |   |
| /s/ JOSEPH J. TALLEY       |       |       | Vice President-Finance and Chief Financial Officer |       | November 23, 2005 |   |
|                       |       |       | (Principal Financial Officer)                      |       |                   |   |
|                       |       |       |                                               |       |                   |   |
| /s/ MARK P. KALVODA        |       |       | Corporate Controller                               |       | November 23, 2005 |   |
|                       |       |       | (Principal Accounting Officer)                     |       |                   |   |
|                       |       |       |                                               |       |                   |   |
| /s/ MICHAEL A. ASTRUP      |       |       | Director                                           |       | November 23, 2005 |   |
|                       |       |       |                                               |       |                   |   |
| /s/ WILLIAM BALDWIN        |       |       | Director                                           |       | November 23, 2005 |   |
|                       |       |       |                                               |       |                   |   |
| /s/ JERRY D. BITKER        |       |       | Director                                           |       | November 23, 2005 |   |
|                       |       |       |                                               |       |                   |   |
| /s/ RICHARD BORGEN         |       |       | Director                                           |       | November 23, 2005 |   |
|                       |       |       |                                               |       |                   |   |
| /s/ JOHN GUDAJTES          |       |       | Director                                           |       | November 23, 2005 |   |
|                       |       |       |                                               |       |                   |   |
| /s/ CURTIS HAUGEN          |       |       | Director                                           |       | November 23, 2005 |   |
|                       |       |       |                                               |       |                   |   |
| /s/ LONN M. KIEL           |       |       | Director                                           |       | November 23, 2005 |   |
|                       |       |       |                                               |       |                   |   |
| /s/ DAVID J. KRAGNES       |       |       | Director                                           |       | November 23, 2005 |   |
|                       |       |       |                                               |       |                   |   |
| /s/ FRANCIS L. KRITZBERGER |       |       | Director                                           |       | November 23, 2005 |   |
|                       |       |       |                                               |       |                   |   |
| /s/ PATRICK D. MAHAR       |       |       | Director                                           |       | November 23, 2005 |   |
|                       |       |       |                                               |       |                   |   |
| /s/ JEFF MCINNES           |       |       | Director                                           |       | November 23, 2005 |   |
|                       |       |       |                                               |       |                   |   |
| /s/ RONALD E. REITMEIER    |       |       | Director                                           |       | November 23, 2005 |   |
|                       |       |       |                                               |       |                   |   |
| /s/ JIM A. ROSS            |       |       | Director                                           |       | November 23, 2005 |   |
|                       |       |       |                                               |       |                   |   |
| /s/ G. TERRY STADSTAD      |       |       | Director                                           |       | November 23, 2005 |   |
|                       |       |       |                                               |       |                   |   |
| /s/ NEIL WIDNER            |       |       | Director                                           |       | November 23, 2005 |   |

 

34

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**APPENDIX A**

 

**INDEX TO THE CONSOLIDATED FINANCIALSTATEMENTS**

 
| **AMERICAN CRYSTAL SUGAR COMPANY**                                                                                                                 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| CONSOLIDATED FINANCIAL  STATEMENTS:                                                                                                                |   |
| Report of Independent Registered Public Accounting  Firm                                                                                           |   |
| Consolidated Statements of Operations for the Years  Ended August 31, 2005, 2004 and 2003                                                     |   |
| Consolidated Balance Sheets as of August 31, 2005  and 2004                                                                                   |   |
| Consolidated Statements of Changes in Members’  Investments and Comprehensive Income for the Years Ended August 31,  2005, 2004 and 2003 |   |
| Consolidated Statements of Cash Flows for the Years  Ended August 31, 2005, 2004 and 2003                                                     |   |
| Notes to the Consolidated Financial Statements                                                                                                     |   |

 

A-1

----

 

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

To the Audit Committee of American Crystal Sugar Company

Moorhead, Minnesota

 

We have audited the accompanying consolidated balancesheets of **American Crystal Sugar Company****and Subsidiaries**as of August 31,2005 and 2004, and the related consolidated statements of operations, changesin members’ investments and comprehensive income, and cash flows for the yearsended August 31, 2005, 2004 and 2003. These consolidated financial statements are the responsibility of the Company’smanagement.  Our responsibility is toexpress an opinion on these consolidated financial statements based on ouraudits.

 

We conducted our audits in accordance with standardsof the Public Company Accounting Oversight Board (United States).  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the consolidated financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the financialposition of **American Crystal Sugar Companyand Subsidiaries** as of August 31, 2005 and 2004, and theresults of their operations and their cash flows for the years ended August 31,2005, 2004 and 2003, in conformity with accounting principles generallyaccepted in the United States of America.

 

 
| /s/ EIDE BAILLY LLP |   |
|---------------------|--------|

 

Sioux Falls, South Dakota

October 5, 2005

 

A-2

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**American Crystal Sugar Company**

**Consolidated Statements of Operations**

**For the Years Ended August 31**

**(InThousands)**

 
| ** **                                                        | ** ** | **2005**    | ** **  | **2004**   | ** ** | **2003**  | ** ** |
|-------------------------------------------------------------------|------------|-------------|-------------|------------|------------|-----------|------------|
| **Net Revenue**                                                   | ** ** | **$**       | **965,474** | ** ** | $          | 1,033,088 |       | $ | 829,246 |   |
| ** **                                                        | ** ** | ** **  | ** **  |       |       |      |       |
| **Cost of Sales**                                                 | ** ** | **364,687** | ** **  | 337,988    |       | 290,461   |       |
| ** **                                                        | ** ** | ** **  | ** **  |       |       |      |       |
| **Gross Proceeds**                                                | ** ** | **600,787** | ** **  | 695,100    |       | 538,785   |       |
| ** **                                                        | ** ** | ** **  | ** **  |       |       |      |       |
| **Selling,  General and Administrative Expenses**                 | ** ** | **203,663** | ** **  | 200,314    |       | 163,650   |       |
|                                                              |       |        | ** **  |       |       |      |       |
| **Operating Proceeds**                                            | ** ** | **397,124** | ** **  | 494,786    |       | 375,135   |       |
|                                                              |       |        | ** **  |       |       |      |       |
| **Other Income (Expense):**                                       |       |        | ** **  |       |       |      |       |
| Interest  Income                                                  | ** ** | **529**     | ** **  | 169        |       | 1,520     |       |
| Interest  Expense, Net                                            | ** ** | **(19,170** | **)**       | (20,149    | )          | (16,871   | )          |
| Other,  Net                                                       | ** ** | **201**     | ** **  | 2,097      |       | 3,334     |       |
|                                                              |       |        | ** **  |       |       |      |       |
| **Total Other (Expense)**                                         | ** ** | **(18,440** | **)**       | (17,883    | )          | (12,017   | )          |
| ** **                                                        | ** ** | ** **  | ** **  |       |       |      |       |
| **Proceeds  Before Minority Interest and Income Tax Expense**     | ** ** | **378,684** | ** **  | 476,903    |       | 363,118   |       |
| ** **                                                        | ** ** | ** **  | ** **  |       |       |      |       |
| **Minority Interest**                                             | ** ** | **(4,169**  | **)**       | (3,593     | )          | (1,142    | )          |
| ** **                                                        | ** ** | ** **  | ** **  |       |       |      |       |
| **Income Tax Expense**                                            | ** ** | **(1,255**  | **)**       | (188       | )          | (74       | )          |
|                                                              |       |        | ** **  |       |       |      |       |
| **Net  Proceeds Resulting from Member and Non-Member Business**   | ** ** | **$**       | **373,260** | ** ** | $          | 473,122   |       | $ | 361,902 |   |
| ** **                                                        | ** ** | ** **  | ** **  |       |       |      |       |
| **Distributions of Net Proceeds:**                                |       |        | ** **  |       |       |      |       |
| Credited  to Members’ Investments:                           |       |        | ** **  |       |       |      |       |
| Non-Member  Business Income                                       | ** ** | **$**       | **2,475**   | ** ** | $          | 4,240     |       | $ | 5,799 |   |
| Unit Retains Declared to  Members                                 | ** ** | **18,840**  | ** **  | 29,991     |       | 17,486    |       |
| Net Credit to Members’  Investments                          | ** ** | **21,315**  | ** **  | 34,231     |       | 23,285    |       |
| Payments to Members for  Sugarbeets, Net of Unit Retains Declared |       | **351,945** | ** **  | 438,891    |       | 338,617   |       |
| **Total**                                                         | ** ** | **$**       | **373,260** | ** ** | $          | 473,122   |       | $ | 361,902 |   |

 

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

 

A-3

----

 

**American Crystal Sugar Company**

**Consolidated Balance Sheets**

**August 31**

**(InThousands)**

 

**Assets**

 
| ** **                                     | ** ** | **2005**     | ** **  | **2004**   | ** ** |
|------------------------------------------------|------------|--------------|-------------|------------|------------|
| **Current Assets:**                            |       |         | ** **  |       |       |
| Cash  and Cash Equivalents                     | ** ** | **$**        | **337**     | ** ** | $          | 184 |   |
| Receivables:                                   |       |         | ** **  |       |       |
| Trade                                          | ** ** | **39,752**   | ** **  | 79,185     |       |
| Members                                        | ** ** | **3,683**    | ** **  | 5,105      |       |
| Other                                          | ** ** | **3,490**    | ** **  | 3,605      |       |
| Advances  to Related Parties                   | ** ** | **15,108**   | ** **  | 13,508     |       |
| Inventories                                    | ** ** | **122,627**  | ** **  | 129,285    |       |
| Prepaid  Expenses                              | ** ** | **5,582**    | ** **  | 4,846      |       |
|                                           |       |         | ** **  |       |       |
| **Total Current Assets**                       | ** ** | **190,579**  | ** **  | 235,718    |       |
|                                           |       |         | ** **  |       |       |
| **Property and Equipment:**                    |       |         | ** **  |       |       |
| Land                                           | ** ** | **53,728**   | ** **  | 43,195     |       |
| Buildings                                      | ** ** | **96,816**   | ** **  | 93,988     |       |
| Equipment                                      | ** ** | **767,698**  | ** **  | 809,775    |       |
| Construction  in Progress                      | ** ** | **14,345**   | ** **  | 3,118      |       |
| Less  Accumulated Depreciation                 | ** ** | **(602,727** | **)**       | (619,534   | )          |
|                                           |       |         | ** **  |       |       |
| **Net Property and Equipment**                 | ** ** | **329,860**  | ** **  | 330,542    |       |
|                                           |       |         | ** **  |       |       |
| **Net  Property and Equipment Held for Lease** | ** ** | **150,892**  | ** **  | 160,643    |       |
|                                           |       |         | ** **  |       |       |
| **Other Assets:**                              |       |         | ** **  |       |       |
| Investments  in CoBank, ACB                    | ** ** | **16,716**   | ** **  | 19,069     |       |
| Investments  in Marketing Cooperatives         | ** ** | **6,060**    | ** **  | 4,487      |       |
| Investments  in Crystech, LLC                  | ** ** | **15,376**   | ** **  | 15,353     |       |
| Prepaid  Pension Expense                       | ** ** | **43,789**   | ** **  | 29,934     |       |
| Other  Assets                                  | ** ** | **20,752**   | ** **  | 26,409     |       |
|                                           |       |         | ** **  |       |       |
| **Total Other Assets**                         | ** ** | **102,693**  | ** **  | 95,252     |       |
|                                           |       |         | ** **  |       |       |
| **Total Assets**                               | ** ** | **$**        | **774,024** | ** ** | $          | 822,155 |   |

 

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

 

A-4

----

 

**Liabilities and Members’ Investments**

 
| ** **                                                  | ** ** | **2005**    | ** **  | **2004**   | ** ** |
|-------------------------------------------------------------|------------|-------------|-------------|------------|------------|
| **Current Liabilities:**                                    |       |        |        |       |       |
| Short-Term  Debt                                            | ** ** | **$**       | **30,685**  | ** ** | $          | 30,199 |   |
| Current Maturities of  Long-Term Debt                       | ** ** | **20,947**  | ** **  | 20,932     |       |
| Accounts  Payable                                           | ** ** | **27,165**  | ** **  | 27,063     |       |
| Advances Due to Related  Parties                            | ** ** | **8,031**   | ** **  | 7,864      |       |
| Other  Current Liabilities                                  | ** ** | **22,803**  | ** **  | 20,500     |       |
| Amounts  Due Growers                                        | ** ** | **33,434**  | ** **  | 70,487     |       |
|                                                        |       |        | ** **  |       |       |
| **Total Current Liabilities**                               | ** ** | **143,065** | ** **  | 177,045    |       |
|                                                        |       |        | ** **  |       |       |
| **Long-Term  Debt, Net of Current Maturities**              | ** ** | **216,842** | ** **  | 250,086    |       |
|                                                        |       |        | ** **  |       |       |
| **Accrued Employee Benefits**                               | ** ** | **37,990**  | ** **  | 33,939     |       |
|                                                        |       |        | ** **  |       |       |
| **Other Liabilities**                                       | ** ** | **8,897**   | ** **  | 10,297     |       |
|                                                        |       |        | ** **  |       |       |
| **Total Liabilities**                                       | ** ** | **406,794** | ** **  | 471,367    |       |
|                                                        |       |        | ** **  |       |       |
| **Commitments and Contingencies**                           |       |        | ** **  |       |       |
|                                                        |       |        | ** **  |       |       |
| **Minority  Interest in ProGold Limited Liability Company** | ** ** | **51,532**  | ** **  | 47,362     |       |
|                                                        |       |        | ** **  |       |       |
| **Members’ Investments:**                              |       |        | ** **  |       |       |
| Preferred  Stock                                            | ** ** | **38,275**  | ** **  | 38,275     |       |
| Common  Stock                                               | ** ** | **29**      | ** **  | 29         |       |
| Additional  Paid-In Capital                                 | ** ** | **152,261** | ** **  | 152,261    |       |
| Unit  Retains                                               | ** ** | **148,972** | ** **  | 138,714    |       |
| Equity  Retention                                           | ** ** | **2,703**   | ** **  | 2,708      |       |
| Accumulated Other  Comprehensive Income (Loss)              | ** ** | **(832**    | **)**       | (376       | )          |
| Retained  Earnings (Accumulated Deficit)                    | ** ** | **(25,710** | **)**       | (28,185    | )          |
|                                                        |       |        | ** **  |       |       |
| **Total Members’ Investments**                         | ** ** | **315,698** | ** **  | 303,426    |       |
|                                                        |       |        | ** **  |       |       |
| **Total  Liabilities and Members’ Investments**        | ** ** | **$**       | **774,024** | ** ** | $          | 822,155 |   |

 

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

 

A-5

----

 

**American Crystal Sugar Company**

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

**For the Years Ended August 31**

**(In Thousands)**

 
| ** **                                                | ** ** | ** **    | ** ** | ** ** | ** ** | ** **     | ** ** | ** **  | ** **  | ** **    | ** ** | **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, 2002**                        |       | $             | 38,275     |       | $          | 30             |       | $           | 143,069     |          | $          | 124,101           |       | $                | 2,733      |       | $          | (1,317            | )          | $ | (38,224 | ) | $ | 268,667 |   |   |   |
| Non-Member  Business Income                               |       | —        |       | —     |       | —         |       | —      |        | —        |       | —            |       | 5,799            |       | 5,799      |       | $                 | 5,799      |   |
| Pension Liability  Adjustment                             |       | —        |       | —     |       | —         |       | —      |        | —        |       | (10,583           | )          | —           |       | (10,583    | )          | (10,583           | )          |
| Unit Retains Withheld from  Members                       |       | —        |       | —     |       | —         |       | 17,486      |        | —        |       | —            |       | —           |       | 17,486     |       | —            |       |
| Payments of Unit Retains and Equity  Retention to Members |       | —        |       | —     |       | —         |       | (16,178     | )           | (14           | )          | —            |       | —           |       | (16,192    | )          | —            |       |
| Stock Issued,  Net                                        |       | —        |       | —     |       | 5,169          |       | —      |        | —        |       | —            |       | —           |       | 5,169      |       | —            |       |
|                                                      |       |          |       |       |       |           |       |        |        |          |       |              |       |             |       |       |       |              |       |
| **Balance,  August 31, 2003**                        |       | 38,275        |       | 30         |       | 148,238        |       | 125,409     |        | 2,719         |       | (11,900           | )          | (32,425          | )          | 270,346    |       | $                 | (4,784     | ) |
| Non-Member  Business Income                               |       | —        |       | —     |       | —         |       | —      |        | —        |       | —            |       | 4,240            |       | 4,240      |       | $                 | 4,240      |   |
| Pension Liability  Adjustment                             |       | —        |       | —     |       | —         |       | —      |        | —        |       | 11,524            |       | —           |       | 11,524     |       | 11,524            |       |
| Unit Retains Withheld from Members                        |       | —        |       | —     |       | —         |       | 29,991      |        | —        |       | —            |       | —           |       | 29,991     |       | —            |       |
| Payments of Unit Retains and Equity  Retention to Members |       | —        |       | —     |       | —         |       | (16,686     | )           | (11           | )          | —            |       | —           |       | (16,697    | )          | —            |       |
| Stock Issued,  Net                                        |       | —        |       | (1         | )          | 4,023          |       | —      |        | —        |       | —            |       | —           |       | 4,022      |       | —            |       |
|                                                      |       |          |       |       |       |           |       |        |        |          |       |              |       |             |       |       |       |              |       |
| **Balance,  August 31, 2004**                        |       | 38,275        |       | 29         |       | 152,261        |       | 138,714     |        | 2,708         |       | (376              | )          | (28,185          | )          | 303,426    |       | $                 | 15,764     |   |
| Non-Member  Business Income                               | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **—**        | ** ** | **2,475**        | ** ** | **2,475**  | ** ** | **$**             | **2,475**  | ** ** |
| Pension Liability  Adjustment                             | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **(456**          | **)**      | **—**       | ** ** | **(456**   | **)**      | **(456**          | **)**      |
| Unit Retains Withheld from  Members                       | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **18,840**  | ** **  | **—**    | ** ** | **—**        | ** ** | **—**       | ** ** | **18,840** | ** ** | **—**        | ** ** |
| Payments of Unit Retains and Equity  Retention to Members | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **(8,582**  | **)**       | **(5**        | **)**      | **—**        | ** ** | **—**       | ** ** | **(8,587** | **)**      | **—**        | ** ** |
| Stock Issued,  Net                                        | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **—**        | ** ** | **—**       | ** ** | **—** | ** ** | **—**        | ** ** |
|                                                      |       |          |       |       |       |           |       |        |        |          |       |              |       |             |       |       |       |              |       |
| **Balance,  August 31, 2005**                        | ** ** | **$**         | **38,275** | ** ** | **$**      | **29**         | ** ** | **$**       | **152,261** | ** **    | **$**      | **148,972**       | ** ** | **$**            | **2,703**  | ** ** | **$**      | **(832**          | **)**      | **$** | **(25,710** | **)** | **$** | **315,698** | ** ** | **$** | **2,019** | ** ** |

 

The Accompanying Notes are an Integral Part of These Consolidated FinancialStatements.

 

A-6

----

 

**American Crystal Sugar Company**

**Consolidated Statements of Cash Flows**

**For the Years Ended August 31**

**(InThousands)**

 
| ** **                                                                                 | ** ** | **2005**     | ** **  | **2004**   | ** ** | **2003** | ** ** |
|--------------------------------------------------------------------------------------------|------------|--------------|-------------|------------|------------|----------|------------|
| **Cash Provided By (Used In)  Operating Activities:**                                      |       |         | ** **  |       |       |     |       |
| Net Proceeds Resulting from  Member and Non-Member Business                                | ** ** | **$**        | **373,260** | ** ** | $          | 473,122  |       | $ | 361,902 |   |
| Payments To/Due Members for  Sugarbeets, Net of Unit Retains Declared                      | ** ** | **(351,945** | **)**       | (438,891   | )          | (338,617 | )          |
| Add (Deduct) Non-Cash Items:                                                               |       |         | ** **  |       |       |     |       |
| Depreciation  and Amortization                                                             | ** ** | **59,558**   | ** **  | 56,835     |       | 48,354   |       |
| Income from Equity Method  Investees                                                       | ** ** | **(1,402**   | **)**       | (286       | )          | (4,873   | )          |
| Loss on the Disposition of  Property and Equipment                                         | ** ** | **2,386**    | ** **  | 749        |       | 485      |       |
| Non-Cash Portion of  Patronage Dividend from CoBank, ACB                                   | ** ** | **(447**     | **)**       | (542       | )          | (276     | )          |
| Gain on the Disposition of  Assets Held for Sale                                           | ** ** | **—**   | ** **  | (1,341     | )          | —   |       |
| Deferred  Gain Recognition                                                                 | ** ** | **(197**     | **)**       | (197       | )          | (197     | )          |
| Minority Interest in ProGold  Limited Liability Company                                    | ** ** | **4,169**    | ** **  | 3,593      |       | 1,142    |       |
| Changes in Assets and  Liabilities:                                                        |       |         | ** **  |       |       |     |       |
| Receivables                                                                                | ** ** | **40,970**   | ** **  | (16,118    | )          | (3,862   | )          |
| Inventories                                                                                | ** ** | **6,665**    | ** **  | 1,965      |       | (14,418  | )          |
| Prepaid  Expenses                                                                          | ** ** | **(736**     | **)**       | 2,216      |       | (1,233   | )          |
| Long-Term Prepaid Pension  Expense                                                         | ** ** | **(13,855**  | **)**       | (11,196    | )          | (10,272  | )          |
| Advances To/Due to Related  Parties                                                        | ** ** | **(1,433**   | **)**       | (4,682     | )          | 7,690    |       |
| Accounts  Payable                                                                          | ** ** | **102**      | ** **  | 3,994      |       | 5,017    |       |
| Other  Liabilities                                                                         | ** ** | **4,530**    | ** **  | 3,045      |       | 6,589    |       |
| Amounts  Due Growers                                                                       | ** ** | **(37,053**  | **)**       | 11,591     |       | (20,350  | )          |
| **Net Cash Provided By  Operating Activities**                                             | ** ** | **84,572**   | ** **  | 83,857     |       | 37,081   |       |
| ** **                                                                                 | ** ** | ** **   | ** **  |       |       |     |       |
| **Cash Provided By (Used In)  Investing Activities:**                                      |       |         | ** **  |       |       |     |       |
| Purchases of Property and  Equipment                                                       | ** ** | **(43,758**  | **)**       | (30,045    | )          | (30,967  | )          |
| Purchases of Property and  Equipment Held for Lease                                        | ** ** | **(1,332**   | **)**       | (1,119     | )          | (400     | )          |
| Proceeds from the Sale of  Property and Equipment                                          | ** ** | **109**      | ** **  | 68         |       | 51       |       |
| Proceeds from the  Disposition of Assets Held for Sale                                     | ** ** | **—**   | ** **  | 1,655      |       | —   |       |
| Equity Distribution from  Crystech, LLC                                                    | ** ** | **1,044**    | ** **  | 1,044      |       | 1,044    |       |
| Equity Refund from CoBank,  ACB                                                            | ** ** | **2,800**    | ** **  | 3,158      |       | 2,816    |       |
| Investments  in Marketing Cooperatives                                                     | ** ** | **(1,067**   | **)**       | 1,068      |       | (2,093   | )          |
| Acquisition of Equity  Interest in ProGold Limited Liability Company, Net of Cash Acquired | ** ** | **—**   | ** **  | —     |       | (9,766   | )          |
| Acquisition by Sidney Sugars  Incorporated                                                 | ** ** | **—**   | ** **  | —     |       | (35,184  | )          |
| Acquisition by Crab Creek  Sugar Company                                                   | ** ** | **—**   | ** **  | (5,763     | )          | —   |       |
| Changes  in Other Assets                                                                   | ** ** | **(885**     | **)**       | 5,053      |       | 1        |       |
| **Net Cash (Used In) Investing  Activities**                                               | ** ** | **(43,089**  | **)**       | (24,881    | )          | (74,498  | )          |
| ** **                                                                                 | ** ** | ** **   | ** **  |       |       |     |       |
| **Cash Provided By (Used In)  Financing Activities:**                                      |       |         | ** **  |       |       |     |       |
| Net Proceeds from (Payments  on) Short-Term Debt                                           | ** ** | **486**      | ** **  | (19,790    | )          | 42,989   |       |
| Proceeds from Issuance of  Long-Term Debt                                                  | ** ** | **5,203**    | ** **  | —     |       | 31,000   |       |
| Long-Term  Debt Repayment                                                                  | ** ** | **(38,432**  | **)**       | (27,186    | )          | (24,712  | )          |
| Proceeds from Issuance of  Stock                                                           | ** ** | **—**   | ** **  | 4,022      |       | 5,169    |       |
| Payment of Unit Retains and  Equity Retention                                              | ** ** | **(8,587**   | **)**       | (16,697    | )          | (16,192  | )          |
| **Net Cash Provided By (Used  In) Financing Activities**                                   | ** ** | **(41,330**  | **)**       | (59,651    | )          | 38,254   |       |
| **Increase (Decrease) In Cash  and Cash Equivalents**                                      | ** ** | **153**      | ** **  | (675       | )          | 837      |       |
| **Cash and Cash Equivalents,  Beginning of Year**                                          | ** ** | **184**      | ** **  | 859        |       | 22       |       |
| ** **                                                                                 | ** ** | ** **   | ** **  |       |       |     |       |
| **Cash and Cash Equivalents,  End of Year**                                                | ** ** | **$**        | **337**     | ** ** | $          | 184      |       | $ | 859 |   |

 

**Non-CashInvesting and Financing activities:**In September 2003, a note payable in the amount of $969,000 was issuedin connection with the acquisition by Crab Creek Sugar Company.

 

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

 

A-7

----

 

**American Crystal Sugar Company**

**Notes tothe Consolidated Financial Statements**

 

**(1) PRINCIPAL ACTIVITY ANDSIGNIFICANT ACCOUNTING POLICIES:**

 

*Organization*

 

American Crystal Sugar Company (the Company) is aMinnesota agricultural cooperative corporation which processes and marketssugar, sugarbeet pulp, molasses, concentrated separated by-product (CSB),betaine and seed.  Business done with itsshareholders (members) constitutes “patronage business” as defined by theInternal Revenue Code, and the net proceeds therefrom are credited to members’investments in the form of unit retains or distributed to members in the formof payments for sugarbeets.  Members arepaid the net amounts realized from the current year’s production less member operatingcosts determined in conformity with accounting principles generally accepted inthe United States of America.

 

*Basis of Presentation*

 

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.

 

Effective May 1, 2003, the Company increased itsownership in ProGold to 51 percent.  Dueto the Company’s resulting controlling ownership interest in ProGold, theCompany began to consolidate ProGold in its financial statements as of May 1,2003.  The financial statements for priorperiods have not been restated and therefore do not include consolidated datapertaining to ProGold prior to May 1, 2003.

 

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 lease revenue is recognized asearned ratably over the term of the lease.

 

*Operating Lease*

 

ProGold owns a corn wet milling facility which itleases under an operating lease. Payments are to be received monthly under the lease, which runs through December 31,2007.  The lease contains provisions forextension or modification of the lease terms at the end of the leaseperiod.  The lease also containsprovisions for increased payments to be received during the lease periodrelated 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 cashequivalents.  The Company places itstemporary cash investments with high credit quality financialinstitutions.  At times, such investmentsmay be in excess of the applicable insurance limit.

 

A-8

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*Accounts Receivable and CreditPolicies*

 

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 are uncollateralized customerobligations due under normal trade terms requiring payment within 15 to 90 daysfrom the invoice date.  The receivablesare non-interest bearing.  Tradereceivables are stated at the amount billed to the customer.  Payments of trade receivables are allocatedto the specific invoices identified on the customer’s remittance advice or, ifunspecified, are applied to the earliest unpaid invoices.

 

Ongoing credit evaluations of customers’ financialcondition are performed and the Company maintains a reserve for potentialcredit losses.  The carrying amount oftrade receivables is reduced by a valuation allowance that reflects the Company’sbest estimate of the amounts that will not be collected.

 

*Inventories*

 

Sugar, pulp, molasses and other agri-productsinventories are valued at estimated net realizable value.  Maintenance parts and supplies and sugarbeetseed inventories are valued at the lower of average cost or market.  Sugarbeets are valued at the projected grossper-ton beet payment related to that year’s crop.

 

*Net Property and Equipment*

 

Property and equipment are recorded at cost.  Indirect costs and construction periodinterest are capitalized as a component of the cost of qualified assets.  Property and equipment are depreciated forfinancial reporting purposes principally using straight-line methods withestimated useful lives ranging from 3 to 45 years.

 

*Net Property and Equipment Held forLease*

 

Net property and equipment held for lease are statedat cost.  Depreciation on assets placedin service is provided using the straight-line method over the estimated usefullives of the individual assets, 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 lossis recorded when the sum of the future cash flows is less than the carryingamount of the asset.  An impairment lossis measured 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);Midwest Agri-Commodities Company (Midwest); and Crystech, LLC (Crystech).

 

*Investments*

 

Investments in CoBank, ACB are stated at cost plusunredeemed patronage refunds received in the form of capital stock.  Investments in marketing cooperatives andCrystech are accounted for using the 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 ownonly one share of common stock and is entitled to one vote in the affairs ofthe Company.  Each shareholder isrequired to grow a specified number of acres of sugarbeets in proportion to theshares of preferred stock owned.  Thepreferred 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 Companyhas never exercised this repurchase option for preferred stock.  The bylaws do not allow dividends to be paidon 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 retirements of unit retainsmust 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 PIK certificatesand is approximately equivalent (on a Company-wide average basis) to the unitretain declared by the Company on the corresponding year’s sugarbeet crop.  All refunds and retirements of equity retainsmust be approved by 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 minimum pensionliability adjustment.  Consistent withthe Company’s treatment of income taxes related to member-source income andexpenses, accumulated other comprehensive income (loss) does not include anyadjustment for income taxes.

 

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.  These patronage dividends are applied againstinterest expense.

 

*Income Taxes*

 

The Company is a non-exempt cooperative for federalincome tax purposes.  As such, theCompany is subject to corporate income taxes on its net income from non-membersources.  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 notably of which is depreciation.

 

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.

 

A-10

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*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 coulddiffer 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.

 

*Recently Issued AccountingPronouncements*

 

The Financial Accounting Standards Board (FASB) hasissued FASB Staff Position (FSP) FAS-106-2, which provides accounting guidancerelated to the Medicare Prescription Drug, Improvement, and Modernization Actof 2003.  This FSP became effective forthe Company in fiscal 2005.  The Companyhas a post-retirement plan for certain non-union employees that currentlycoordinates with Medicare’s medical coverage and provides tiered prescriptiondrug coverage.  The Company has determinedthat the plan is actuarially equivalent to Medicare Part D (See Note 9).

 

*Shipping and Handling Costs*

 

The costs incurred for the shipping and handling ofproducts sold are classified in the financial statements as a selling expenseon the Statements of Operations. Shipping and handling costs were $125.5million, $127.8 million and $100.2 million for the years ended August 31,2005, 2004 and 2003, respectively.

 

*Reclassifications*

 

Certain reclassifications have been made to the 2004and 2003 financial statements to conform with the 2005 presentation. Thesereclassifications had no effect on previously reported results of operations orMembers’ Investments.

 

**(2) RECEIVABLES:**

 

There is no single customer of United SugarsCorporation or Midwest Agri-Commodities Company attributable to the Companythat accounted for 10 percent or more of the Company’s total receivables as of August 31,2005 or 2004 or that accounted for 10 percent or more of the revenues of theCompany for the years ended August 31, 2005, 2004 or 2003.

 

**(3) INVENTORIES:**

 

The major components of inventories as of August 31,2005 and 2004 are as follows:

 
| **(In  Thousands)**                                                    | ** ** | **2005**   | ** **  | **2004** | ** ** |
|------------------------------------------------------------------------|------------|------------|-------------|----------|------------|
| Refined Sugar, Pulp,  Molasses, Other Agri-Products and Sugarbeet Seed | ** ** | **$**      | **96,647**  |     | $          | 107,812 |   |
| Maintenance Parts and  Supplies                                        | ** ** | **25,980** |        | 21,473   |       |
| Total Inventories                                                      | ** ** | **$**      | **122,627** |     | $          | 129,285 |   |

 

A-11

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

 

Indirect costs capitalized were $1.0 million, $1.1million and $1.0 million in 2005, 2004 and 2003, respectively.  Construction period interest capitalized was$.6 million, $.3 million and $.3 million in 2005, 2004 and 2003, respectively.Depreciation expense was $41.9 million, $41.6 million and $41.4 million in2005, 2004 and 2003, respectively. The Company had outstanding commitmentstotaling $9.3 million as of August 31, 2005, for equipment andconstruction contracts related to various capital projects.

 

**(5) NET PROPERTY AND EQUIPMENTHELD FOR LEASE:**

 

ProGold owns a corn wet-milling facility that itleases under an operating lease which runs through December 31, 2007.  Under the terms of the operating lease, thelessee manages all aspects of the operations of the ProGold corn wet-millingfacility.

 

Net Property and Equipment Held for Lease are statedat cost, net of accumulated depreciation. The components of Net Property andEquipment Held for Lease as of August 31, 2005 and 2004 are shown below:

 
| **(In  Thousands)**                        | ** ** | **2005**    | ** **  | **2004** | ** ** |
|--------------------------------------------|------------|-------------|-------------|----------|------------|
| Land and Land  Improvements                | ** ** | **$**       | **7,905**   |     | $          | 7,795 |   |
| Buildings                                  | ** ** | **41,055**  |        | 40,919   |       |
| Equipment                                  | ** ** | **200,151** |        | 199,261  |       |
| Construction in  Progress                  | ** ** | **503**     |        | 319      |       |
| Less Accumulated  Depreciation             | ** ** | **(98,722** | **)**       | (87,651  | )          |
|                                       |       |        |        |     |       |
| Net Property and  Equipment Held for Lease | ** ** | **$**       | **150,892** |     | $          | 160,643 |   |

 

Future minimum payments to be received under the leaseare as follows:

 
| **Fiscal  year ending August 31, (In Thousands)** | ** ** | ** ** | ** ** |
|--------------------------------------------------------|------------|------------|------------|
| 2006                                                   |       | $          | 23,452     |   |
| 2007                                                   |       | 23,452     |       |
| 2008                                                   |       | 8,093      |       |
|                                                   |       |       |       |
| Total                                                  |       | $          | 54,997     |   |

 

**(6) INVESTMENTS IN MARKETINGCOOPERATIVES:**

 

The Company has a 65 percent ownership interest and a33 1/3 percent voting interest in United. The investment is accounted for using the equity method.  All sugar products produced are sold byUnited as an agent for the Company.  Theamount of sales and related costs to be recognized by each owner of United isallocated based on its pro rata share of sugar production for the year.  The owners provide United with cash advanceson an ongoing basis for operating and marketing expenses incurred by United.  The Company had outstanding advances toUnited of $14.6 million and $12.9 million as of August 31, 2005 and 2004,respectively.  The Company providesadministrative services for United and is reimbursed for costs incurred.  The Company was reimbursed $1.1 million, $1.0million and $1.0 million for services provided during 2005, 2004 and 2003,respectively.

 

A-12

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The Company has a 55 percent ownership interest and a25 percent voting interest in Midwest. The investment is accounted for using the equity method.  Substantially all sugarbeet pulp, molassesand other agri-products produced are sold by Midwest as an agent for theCompany.  The amount of sales and relatedcosts to be recognized by each owner of Midwest is allocated based on its prorata share of production for each product for the year.  The owners provide Midwest with cash advanceson an ongoing basis for operating and marketing expenses incurred byMidwest.  The Company had outstandingadvances from Midwest of $4.1 million and $4.4 million as of August 31,2005 and 2004, respectively.  The Companyprovides administrative services for Midwest and is reimbursed for costsincurred.  The Company was reimbursed$95,000, $71,000 and $57,000 for services provided during 2005, 2004 and 2003,respectively.  The owners of Midwest areguarantors of the short-term line of credit Midwest has with CoBank, ACB.  As of August 31, 2005, Midwest hadoutstanding short-term debt with CoBank, ACB of $4.3 million, of which $1.8million was guaranteed by the Company.

 

**(7) CRYSTECH, LLC:**

 

Crystech is a special purpose entity that operates 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.  The Company controls 50 percent of Crystechand accounts for its investment using the equity method.

 

The Company has a tolling services agreement withCrystech whereby the Company pays for tolling services for processing sugarbeetmolasses delivered to Crystech with title and risk of loss throughout theprocess maintained by the Company.  Thetolling agreement expires in 2012 and is subject to early termination by theCompany in the event that specified plant performance is not maintained.

 

On a cumulative basis, the Company receives an annualallocation of Crystech’s net income equal to 7.5 percent of the initial valueof the Preferred Equity contribution by the Company or approximately $1.0million.  The Company had outstandingpayables to Crystech of approximately $3.9 million and $3.5 million as of August 31,2005 and 2004, respectively, related to the tolling services agreement.  Following is summary financial informationfor Crystech:

 
| **As of  August 31, (In Thousands)**                | ** ** | **2005**   | ** ** | **2004** | ** ** | ** ** | ** ** |
|----------------------------------------------------------|------------|------------|------------|----------|------------|------------|------------|
| Current Assets                                           | ** ** | **$**      | **3,933**  |     | $          | 3,542      |       |   |   |
| Long-Term Assets                                         | ** ** | **31,267** |       | 43,844   |       |       |       |
| Total Assets                                             | ** ** | **$**      | **35,200** |     | $          | 47,386     |       |   |   |
|                                                     |       |       |       |     |       |       |       |
| Current Liabilities                                      | ** ** | **$**      | **9,216**  |     | $          | 9,215      |       |   |   |
| Long-Term Liabilities                                    | ** ** | **9,214**  |       | 21,501   |       |       |       |
| Total Liabilities                                        | ** ** | **18,430** |       | 30,716   |       |       |       |
| Members’ Equity                                     | ** ** | **16,770** |       | 16,670   |       |       |       |
| Total Liabilities and Members’ Equity               | ** ** | **$**      | **35,200** |     | $          | 47,386     |       |   |   |
|                                                     |       |       |       |     |       |       |
| **For  the Years Ended August 31,  (In Thousands)** | ** ** | **2005**   | ** ** | **2004** | ** ** | **2003**   | ** ** |
| Revenue                                                  | ** ** | **$**      | **21,186** |     | $          | 21,261     |       | $ | 23,070 |   |
| Operating Expenses                                       | ** ** | **17,727** |       | 16,911   |       | 16,890     |       |
| Other Expenses                                           | ** ** | **2,315**  |       | 3,206    |       | 5,036      |       |
| Net Income                                               | ** ** | **$**      | **1,144**  |     | $          | 1,144      |       | $ | 1,144 |   |
|                                                          |            |            |            |          |            |            |            |  |  |  |  |

 

A-13

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

 

The long-term debt outstanding as of August 31,2005 and 2004 is summarized below: 

 
| **(In  Thousands)**                                                                                                                                                                                                                             | ** ** | **2005**    | ** **  | **2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|-------------|----------|------------|
| Term Loans from CoBank, ACB, due in varying amounts  through 2011, interest at fixed rates of 4.04% to 8.57%, with senior lien on  substantially all non-current assets                                                                         | ** ** | **$**       | **128,793** |     | $          | 158,293 |   |
| 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                                                       | ** ** | **62,857**  |        | 65,714   |       |
| Pollution Control and Industrial Development Revenue  Bonds, due in varying amounts through 2018, interest at fixed rates of 5.0%  to 5.40% and a varying rate of 2.35% as of August 31, 2005,  substantially secured by letters of credit | ** ** | **42,939**  |        | 43,011   |       |
| Term Loan from the Bank of North Dakota, due in  equal amounts through 2009, interest at a fixed rate of 3.30%, unsecured                                                                                                                       | ** ** | **3,200**   |        | 4,000    |       |
| Total Long-Term Debt                                                                                                                                                                                                                            | ** ** | **237,789** |        | 271,018  |       |
| Less Current Maturities                                                                                                                                                                                                                         | ** ** | **(20,947** | **)**       | (20,932  | )          |
| Long-Term Debt, Net of Current Maturities                                                                                                                                                                                                       | ** ** | **$**       | **216,842** |     | $          | 250,086 |   |

 

Minimum annual principal payments for the next fiveyears are as follows:

 
| **(In Thousands)** | ** ** | ** ** | ** ** |
|--------------------|------------|------------|------------|
| 2006               |       | $          | 20,947     |   |
| 2007               |       | $          | 20,962     |   |
| 2008               |       | $          | 68,477     |   |
| 2009               |       | $          | 20,992     |   |
| 2010               |       | $          | 1,789      |   |

 

The Company has a long-term debt line of credit withCoBank, ACB of $229.1 million, of which $128.8 million in loans and $47.9million in long-term letters of credit were outstanding as of August 31,2005.  The unused long-term line ofcredit as of August 31, 2005 was $52.4 million.

 

The short-term debt outstanding as of August 31,2005 and 2004 is summarized below:

 
| **(In  Thousands)**                                              | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Commercial Paper, at a  fixed interest rate of 3.76%, due 9/8/05 | ** ** | **$**    | **30,685** |     | $          | 30,199 |   |
|                                                                  |            |          |            |          |            |  |  |

 

During the year ended August 31, 2005, theCompany borrowed from CoBank, ACB, and issued commercial paper to meet its short-termborrowing requirements.  As of August 31,2005, the Company had available short-term lines of credit totaling $281million, of which $30.7 million in commercial paper and $5.9 million inshort-term letters of credit were outstanding as of August 31, 2005.  The unused short-term line of credit as of August 31,2005 was $244.4 million.

 

A-14

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Maximum borrowings, average borrowing levels andaverage interest rates for short-term debt for the years ended August 31,2005 and 2004, follow:

 
| **(In  Thousands, Except Interest Rates)** | ** ** | **2005** | ** **  | **2004** | ** ** |
|--------------------------------------------|------------|----------|-------------|----------|------------|
| Maximum Borrowings                         | ** ** | **$**    | **197,077** |     | $          | 257,102 |   |
| Average Borrowing  Levels                  | ** ** | **$**    | **112,560** |     | $          | 146,141 |   |
| Average Interest Rates                     | ** ** | **3.18** | %           | 1.49     | %          |

 

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 all non-current assets arepledged to the senior lenders to provide security to support the Company’sseasonal and long-term financing.  As of August 31,2005, the Company was in compliance with the terms of the loan agreements.

 

Interest paid, net of amounts capitalized, was $20.0million, $21.1 million and $17.3 million for the years ended August 31,2005, 2004 and 2003, respectively.

 

**(9) EMPLOYEE BENEFIT PLANS:**

 

*Company-Sponsored Defined BenefitPension and Other Post-Retirement Benefit Plans*

 

Substantially all employees who meet eligibilityrequirements of age and length of service are covered by a Company-sponsoredretirement plan.  As of August 31,2005, the pension plans were funded as required by the funding standards setforth by the Employee Retirement Income Security Act (ERISA).  The Company also has non-qualifiedsupplemental executive retirement plans for certain employees.

 

The following schedule reflects the percentage ofpension plan assets by asset class as of the latest measurement date, May 31,2005:

 

**Percentage of Pension Plan Assetsby Asset Class as of M ay 31, 2005**

 
| **Asset  Class**  | ** ** | **Target Range** | ** ** | **Actual Allocation** | ** ** |
|-------------------|------------|------------------|------------|-----------------------|------------|
| Large U.S. Stocks |       | 20.0%-40.0%      |       | 27                    | %          |
| Small U.S. Stocks |       | 17.5%-27.5%      |       | 19                    | %          |
| Non-U.S. Stocks   |       | 17.5%-27.5%      |       | 22                    | %          |
| U.S. Bonds        |       | 15.0%-35.0%      |       | 19                    | %          |
| Cash              |       | 0.0%-5.0%        |       | 13                    | %          |

 

The Investment Committee has the responsibility ofmanaging the operations and administration of American Crystal Sugar Company’sretirement plans and trust.  TheInvestment Committee has an investment policy for the pension plan assets thatestablishes target asset allocations as shown above.  The Investment Committee is committed todiversification to reduce the risk of large losses.  To that end, the Investment Committee hasadopted policies requiring that each asset class will be diversified and equityexposure will be limited to 85% of the total portfolio value. The stated goalis for each component of the plan to earn a rate of return greater than itscorresponding benchmark.  Progress of theplan against its return objectives will be measured over a full market cycle.

 

To develop the expected long-term rate of return onassets assumption, the Company considered the historical returns and the futureexpectations for returns for each asset class, as well as, the target

 

A-15

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asset allocation of the pension portfolio.  This resulted in the selection of the 8.25%long-term rate of return on assets assumption.

 

The development of the discount rate was based on abond matching model whereby a hypothetical portfolio of bonds with an “AA” orbetter rating by a nationally recognized debt rating agency was constructed tomatch the expected benefit payments under the Company’s pension plans throughthe year 2034.  The reinvestment rate forbenefit cash flow occurring after 2034 was discounted back to the year 2034 ata rate consistent with the yields on long-term zero-coupon bonds. The resultingpresent value was treated as additional benefit cash flow for the year 2034 andconsistently applied as any other benefit cash flow during the bond matchingprocess.

 

The following schedule reflects the expectedpension and post-retirement benefit payments during each of the next five yearsand the aggregate for the following five years:

 

 
| ** **          | ** ** | **Expected Benefit Payments** | ** ** |
|---------------------|------------|-------------------------------|------------|
| **(In  Thousands)** | ** ** | **Pension**                   | ** ** | **Post-Retirement** | ** ** |
| 2006                |       |                          | $          | 4,149 |   | $ | 791 |   |
| 2007                |       |                          | 6,117      |   | 898 |   |
| 2008                |       |                          | 6,432      |   | 1,119 |   |
| 2009                |       |                          | 5,100      |   | 1,278 |   |
| 2010                |       |                          | 5,522      |   | 1,553 |   |
| 2011-2015           |       |                          | 36,157     |   | 11,965 |   |
| Total               |       |                          | $          | 63,477 |   | $ | 17,604 |   |

 

The Company expects to contribute approximately $3.4million to the pension plans and $760,000 to the post-retirement plans duringthe next fiscal year.

 

The Company has a medical plan and a Medicaresupplement plan which are available to union retirees and certain non-unionretirees.  The costs of these plans areshared by the Company and plan participants. The Company’s post-retirement plan for certain non-union employeescurrently coordinates with Medicare’s medical coverage and provides tieredprescription drug coverage.  The Companyhas determined that this plan is actuarially equivalent to Medicare Part Dand therefore qualifies for the Federal subsidy provision in the MedicarePrescription Drug, Improvement, and Modernization Act of 2003.  This provision allows the Company to take atax deduction for 28 percent of the dollars spent providing prescription drugcoverage beginning in calendar year 2006. In accordance with FASB Staff Position (FSP) FAS-106-2, the Companyrecognized a reduction in the accumulated post-retirement benefit obligation infiscal 2005 of approximately $4.6 million due to the effect of thesubsidy.  The Company anticipates areduction in post-retirement expense of approximately $680,000 in fiscal 2006as a result of the subsidy.

 

The following schedules provide the components of theNet Periodic Pension and Post-Retirement Costs for the years ended August 31,2005, 2004 and 2003:

 

A-16

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***Components of NetPeriodic Pension Cost***

 
| **(In  Thousands)**                    | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003** | ** ** |
|----------------------------------------|------------|------------|------------|------------|------------|----------|------------|
| Service Cost                           | ** ** | **$**      | **3,383**  | ** ** | $          | 2,772    |       | $ | 2,271 |   |
| Interest Cost                          | ** ** | **7,075**  | ** ** | 6,017      |       | 5,718    |       |
| Expected Return on Plan  Assets        | ** ** | **(8,062** | **)**      | (5,960     | )          | (5,416   | )          |
| Multiple Employer  Adjustment          | ** ** | **(348**   | **)**      | (342       | )          | (96      | )          |
| Amortization of Net  Transition Assets | ** ** | **(21**    | **)**      | (124       | )          | (124     | )          |
| Amortization of Prior  Service Costs   | ** ** | **1,428**  | ** ** | 544        |       | 544      |       |
| Amortization of Net  Loss              | ** ** | **2,197**  | ** ** | 1,999      |       | 862      |       |
| Net Periodic Pension  Cost             | ** ** | **$**      | **5,652**  | ** ** | $          | 4,906    |       | $ | 3,759 |   |

 

***Components of NetPeriodic Post-Retirement Cost***

 
| **(In  Thousands)**                | ** ** | **2005**  | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------|------------|-----------|------------|----------|------------|----------|------------|
| Service Cost                       | ** ** | **$**     | **1,099**  |     | $          | 1,223    |       | $ | 814 |   |
| Interest Cost                      | ** ** | **2,172** |       | 1,924    |       | 1,457    |       |
| Amortization of Net  Loss          | ** ** | **287**   |       | 498      |       | 20       |       |
| Net Periodic  Post-Retirement Cost | ** ** | **$**     | **3,558**  |     | $          | 3,645    |       | $ | 2,291 |   |

 

For measurement purposes, a 9.0 percent annual rate ofincrease in the per capita cost of covered healthcare benefits for participantsunder age 65 was assumed for 2006.  Therate is assumed to decline to 5.0 percent over the next five years.  For participants age 65 and older, a 12.0percent annual rate of increase in the per capita cost of covered healthcarebenefits was assumed for 2006.  The rate isassumed to decline to 7.0 percent over the next five years.

 

Assumed healthcare trends can have a significanteffect on the amounts reported for healthcare plans.  A one percent change in the assumedhealthcare 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 |       | $                | 605        |             | $          | (481 | ) |
| Effect on the  accumulated post-retirement benefit obligation                                       |       | $                | 6,174      |             | $          | (4,956 | ) |

 

A-17

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The following schedules set forth a reconciliation ofthe changes in the plans’ benefit obligation and fair value of assets for theyears ending August 31, 2005 and 2004 and a statement of the funded statusand amounts recognized in the Balance Sheets as of August 31, 2005 and2004:

 
| ** **                                                           | ** ** | **Pension** |        | **Post-Retirement** | ** ** |
|----------------------------------------------------------------------|------------|-------------|-------------|---------------------|------------|
| **(In  Thousands)**                                                  | ** ** | **2005**    | ** **  | **2004**            |       | **2005** | ** ** | **2004** | ** ** |
| ***Change  in Benefit Obligation***                                  | ** ** | ** **  | ** **  | ** **          |       | ** ** | ** ** | ** ** | ** ** |
| Obligation at the  Beginning of the Year                             | ** ** | **$**       | **96,936**  | ** **          | $          | 98,979 |   | **$** | **32,152** | ** ** | $ | 31,540 |   |
| Service Cost                                                         | ** ** | **3,383**   | ** **  | 2,772               |       | **1,099** | ** ** | 1,223 |   |
| Interest Cost                                                        | ** ** | **7,075**   | ** **  | 6,017               |       | **2,172** | ** ** | 1,924 |   |
| Plan Amendments                                                      | ** ** | **8,164**   | ** **  | —              |       | — | ** ** | — |   |
| Plan Participant  Contributions                                      | ** ** | **—**  | ** **  | —              |       | **626** | ** ** | 712 |   |
| Actuarial (Gain) Loss                                                | ** ** | **19,196**  | ** **  | (6,801              | )          | **2,997** | ** ** | (1,993 | ) |
| Benefits Paid                                                        | ** ** | **(4,107**  | **)**       | (4,031              | )          | **(1,386** | **)** | (1,254 | ) |
| Obligation at the End  of the Year                                   | ** ** | **$**       | **130,647** | ** **          | $          | 96,936 |   | **$** | **37,660** | ** ** | $ | 32,152 |   |
|                                                                 |       |        | ** **  |                |       |   | ** ** |   |   |
| ***Change  in Plan Assets***                                         |       |        | ** **  |                |       |   | ** ** |   |   |
| Fair Value at the  Beginning of the Year                             | ** ** | **$**       | **98,107**  | ** **          | $          | 73,992 |   | **$** | **—** | ** ** | $ | — |   |
| Actual Return on Plan  Assets                                        | ** ** | **8,730**   | ** **  | 12,972              |       | **—** | ** ** | — |   |
| Plan Participant  Contributions                                      | ** ** | **—**  | ** **  | —              |       | **626** | ** ** | 712 |   |
| Employer Contributions                                               | ** ** | **18,823**  | ** **  | 15,174              |       | **760** | ** ** | 542 |   |
| Benefits Paid                                                        | ** ** | **(4,107**  | **)**       | (4,031              | )          | **(1,386** | **)** | (1,254 | ) |
| Fair Value at the End  of the Year                                   | ** ** | **$**       | **121,553** | ** **          | $          | 98,107 |   | **$** | **—** | ** ** | $ | — |   |
|                                                                 |       |        | ** **  |                |       |   | ** ** |   |   |
| ***Funded  Status***                                                 |       |        | ** **  |                |       |   | ** ** |   |   |
| Funded Status as of  August 31,                                 | ** ** | **$**       | **(9,094**  | **)**               | $          | 1,171 |   | **$** | **(37,660** | **)** | $ | (32,152 | ) |
| Unrecognized Net  Transition Asset                                   | ** ** | **—**  | ** **  | (21                 | )          | **—** | ** ** | — |   |
| Unrecognized Actuarial  Loss                                         | ** ** | **42,812**  | ** **  | 27,315              |       | **9,390** | ** ** | 6,680 |   |
| Unrecognized Prior  Service Cost                                     | ** ** | **9,304**   | ** **  | 1,734               |       | — | ** ** | — |   |
| Adjustment for Multiple  Employer Plan                               | ** ** | **(6**      | **)**       | (6                  | )          | **—** | ** ** | — |   |
| Net Amount Recognized                                                | ** ** | **$**       | **43,016**  | ** **          | $          | 30,193 |   | **$** | **(28,270** | **)** | $ | (25,472 | ) |
|                                                                 |       |        | ** **  |                |       |   | ** ** |   |   |
| ***Amounts  Recognized in the Balance Sheets***                      |       |        | ** **  |                |       |   | ** ** |   |   |
| Prepaid Pension Cost                                                 | ** ** | **$**       | **48,262**  | ** **          | $          | 33,688 |   | **$** | **—** | ** ** | $ | — |   |
| Accrued Benefit  Liability                                           | ** ** | **(6,078**  | **)**       | (3,903              | )          | **(28,270** | **)** | (25,472 | ) |
| Intangible Asset                                                     | ** ** | **—**  | ** **  | 32                  |       | **—** | ** ** | — |   |
| Accumulated Other  Comprehensive Loss                                | ** ** | **832**     | ** **  | 376                 |       | **—** | ** ** | — |   |
| Net Amount Recognized                                                | ** ** | **$**       | **43,016**  | ** **          | $          | 30,193 |   | **$** | **(28,270** | **)** | $ | (25,472 | ) |
|                                                                 |       |        | ** **  |                |       |   | ** ** |   |   |
| ***Change  in Additional Minimum Liability (for the current year)*** | ** ** |        |        |                | ** ** |   |   |
| *** ***                                                         |       |        |        | ** **          |       |   |
| **(In  Thousands)**                                                  | ** ** | **2005**    | ** **  | ** **          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Other Comprehensive  Loss                                            | ** ** | **$**       | **456**     | ** **          |       |   |   | ** ** |   |   |
| Intangible Asset  Decrease                                           | ** ** | **$**       | **(32**     | **)**               |       |   |   | ** ** |   |   |
| Accrued Pension  Liability Increase                                  | ** ** | **$**       | **(424**    | **)**               |       |   |   | ** ** |   |   |
|                                                                      |            |             |             |                     |            |  |  |  |  |  |  |  |  |  |  |

 

A-18

----

 

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

 

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

 
| ** **                                           | ** ** | **Pension** |       | **Post-Retirement** | ** ** |
|------------------------------------------------------|------------|-------------|------------|---------------------|------------|
| ** **                                           | ** ** | **2005**    | ** ** | **2004**            |       | **2005** | ** ** | **2004** | ** ** |
| Discount Rate                                        | ** ** | **5.61**    | **%**      | 6.84                | %          | **5.61** | **%** | 6.84 | % |
| Expected Return on Plan  Assets                      | ** ** | **8.25**    | **%**      | 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 vested contract rights as of December 31,2004, remained in the 1999 Plan while all unvested contract rights weretransferred to the 2005 Plan. The value of the contract rights remaining in the1999 Plan is related to the value of preferred shares of the Company asdetermined by the Board of Directors.  In2005, 593.07 vested contract rights were exercised at a stated value of $1,750per contract right or a total stated value of $1,038,000.  In addition, 550.54 contract rights weretransferred to the 2005 Plan and 74.62 contract rights were forfeited.  As of August 31, 2005, there were 455.07vested contract rights remaining in the 1999 Plan.  At August 31, 2005, the Board ofDirectors increased the value of these contract rights from $1,750 to $1,800per contract right for a total increase of $23,000 bringing the total statedvalue of these contract rights as of August 31, 2005, to $819,000.

 

*2005 Long-Term Incentive Plan*

 

The 2005 Long-Term Incentive Plan provides deferredcompensation to certain key executives of the Company.  The plan creates financial incentives thatare based upon contract rights which are available to the executive under theterms of the plan, the value of which is related to the value of preferredshares of the Company as determined by the Board of Directors.  The 2005 Plan establishes additionalrestrictions on distributions, as compared to those contained in the 1999 Plan,along with other changes necessary to comply with recent changes to the taxlaws.  In 2005, 122.01 contract rightswere granted at a stated value of $1,800 per contract right or a total statedvalue of $220,000.  At August 31,2005, the Board of Directors increased the value of the 550.54 contract rightstransferred from the 1999 Plan from $1,750 to $1,800 per contract right for atotal increase of $28,000.  As of August 31,2005, there were 672.55 rights, at a total stated value of $1.2 million, issuedand outstanding, none of which were vested.

 

*Defined Contribution Plans*

 

The Company has qualified 401(k) plans for alleligible employees.  The plans providefor immediate vesting of benefits. Participants may contribute a percentage of their gross earnings eachpay period as provided in the participation agreement.  The Company matches the non-union andeligible union year-round participants’ contributions up to 4 percent and 2percent respectively, of their gross earnings. The Company’s contributions to these plans totaled $1.7 million, $1.6million and $1.6 million for the years ended August 31, 2005, 2004 and2003, respectively.

 

A-19

----

 

**(10) MEMBERS’ INVESTMENTS:**

 

The following schedule details the PreferredStock and Common Stock as of August 31, 2005, 2004 and 2003:

 
| ** **           | ** ** | **Par**   | ** ** | **Shares**     | ** ** | **Shares Issued**     | ** ** |
|----------------------|------------|-----------|------------|----------------|------------|-----------------------|------------|
| ** **           | ** ** | **Value** | ** ** | **Authorized** | ** ** | **& Outstanding** | ** ** |
| Preferred Stock:     |       |      |       |           |       |                  |       |
| August 31, 2005 |       | $         | 76.77      |           | 600,000    |                  | 498,570    |   |
| August 31, 2004 |       | $         | 76.77      |           | 600,000    |                  | 498,570    |   |
| August 31, 2003 |       | $         | 76.77      |           | 600,000    |                  | 498,570    |   |
|                 |       |      |       |           |       |                  |       |
| Common Stock:        |       |      |       |           |       |                  |       |
| August 31, 2005 |       | $         | 10.00      |           | 4,000      |                  | 2,904      |   |
| August 31, 2004 |       | $         | 10.00      |           | 4,000      |                  | 2,873      |   |
| August 31, 2003 |       | $         | 10.00      |           | 4,000      |                  | 2,995      |   |

 

The Company received $4.0 million and $5.2 million in2004 and 2003, respectively, related to the 1997 stock offering.  The $4.0 million received in 2004 was thefinal amount due from the 1997 stock offering.

 

**(11) SIDNEY SUGARS INCORPORATED:**

 

In October 2002, the Company, through SidneySugars, acquired three sugarbeet processing facilities and the relatedmarketing allocations associated with such facilities for a purchase price ofapproximately $35.2 million.  SidneySugars operates the facility located at Sidney, Montana.  The facility located in Torrington, Wyoming,has been leased, on a long-term basis, to another sugar producer.  The lease payments due under the long-term leaseare nominal.  The facility located inHereford, Texas, was sold in July 2004. As part of the acquisition transaction, the Company acquired the rightsto marketing allocations equal to approximately 4.8 percent of the totalallocation for the domestic sugarbeet segment. A portion of these marketing allocations are being used to market thesugar produced at the Sidney, Montana, facility.  Any excess allocations are available to theCompany.  The sugar produced by SidneySugars is marketed through United while substantially all the agri-productsproduced are marketed through Midwest.

 

**(12) CRAB CREEK SUGAR COMPANY:**

 

In September 2003, the Company, through itswholly-owned subsidiary Crab Creek Sugar Company (Crab Creek), acquired all ofthe assets of Pacific Northwest Sugar Company, LLC (PNSC), certain assets ofCentral Leasing of Washington, LLC (Central Leasing) that were associated withPNSC and the Moses Lake, Washington, sugarbeet factory previously operated byPNSC and control of the sugar production assets owned by Central Leasingassociated with the Moses Lake, Washington, sugarbeet factory for a purchaseprice of approximately $6.7 million.  Inaddition, Crab Creek entered into various contracts with Central Leasing suchthat Crab Creek controls the long-term production of sugar at the Moses Lake,Washington, facility.  In connection withthis acquisition, the United States Department of Agriculture (USDA)transferred to the Company the sugar marketing allocations formerly allocatedto PNSC.  Neither Crab Creek nor theCompany intends to operate the Moses Lake, Washington, facility.

 

A-20

----

 

**(13) PROGOLD LIMITED LIABILITYCOMPANY:**

 

Effective May 1, 2003, the Company increased itsownership interest in ProGold to 51 percent. Due to the Company’s resulting controlling ownership interest inProGold, the Company began to consolidate ProGold in its financial statementsas of May 1, 2003.  Following issummary financial information for ProGold prior to consolidation:

 
| **(In  Thousands)**                | ** ** | **For the Eight  Months Ended  April 30, 2003** | ** ** |
|------------------------------------|------------|------------------------------------------------------|------------|
| Rental Revenue on  Operating Lease |       | $                                                    | 17,026     |   |
| Expenses                           |       | 12,751                                               |       |
| Net Income                         |       | $                                                    | 4,275      |   |

 

**(14) SEGMENT REPORTING:**

 

The Company has identified two reportable segments:Sugar and Leasing.  The sugar segment isengaged primarily in the production and marketing of sugar fromsugarbeets.  It also sells agri-productsand sugarbeet seed.  The leasing segmentis engaged in the leasing of a corn wet milling plant used in the production ofhigh-fructose corn syrup sweetener.  Thesegments are managed separately.  Thereare no inter-segment sales.  The leasingsegment has a major customer that accounts for all of that segment’s revenue.

 

Summarized financial information concerning theCompany’s reportable segments is shown below:

 
| ** **                           | ** ** | **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 |   |
| Net Proceeds                         |       | $                                           | 368,920    |   | $ | 4,340 |   | $ | 373,260 |   |
|                                 |       |                                        |       |   |   |   |   |
| Capital Expenditures                 |       | $                                           | 43,758     |   | $ | 1,332 |   | $ | 45,090 |   |

 

A-21

----

 
| ** **                           | ** ** | **For the Year Ended August 31, 2004** | ** ** |
|--------------------------------------|------------|---------------------------------------------|------------|
| **(In  Thousands)**                  | ** ** | **Sugar**                                   | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from  External Customers |       | $                                           | 1,007,251  |   | $ | 25,837 |   | $ | 1,033,088 |   |
| Gross Proceeds                       |       | $                                           | 681,234    |   | $ | 13,866 |   | $ | 695,100 |   |
|                                 |       |                                        |       |   |   |   |   |
| Depreciation and  Amortization       |       | $                                           | 45,809     |   | $ | 11,026 |   | $ | 56,835 |   |
| Interest Income                      |       | $                                           | 163        |   | $ | 6 |   | $ | 169 |   |
| Interest Expense                     |       | $                                           | 13,822     |   | $ | 6,327 |   | $ | 20,149 |   |
| Income from Equity  Method Investees |       | $                                           | 286        |   | $ | — |   | $ | 286 |   |
| Net Proceeds                         |       | $                                           | 469,383    |   | $ | 3,739 |   | $ | 473,122 |   |
|                                 |       |                                        |       |   |   |   |   |
| Capital Expenditures                 |       | $                                           | 30,045     |   | $ | 1,119 |   | $ | 31,164 |   |
|                                 |       |                                        |       |   |   |   |   |
| ** **                           | ** ** | **For the Year Ended August 31, 2003** | ** ** |
| **(In  Thousands)**                  | ** ** | **Sugar**                                   | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from  External Customers |       | $                                           | 820,606    |   | $ | 8,640 |   | $ | 829,246 |   |
| Gross Proceeds                       |       | $                                           | 534,126    |   | $ | 4,659 |   | $ | 538,785 |   |
|                                 |       |                                        |       |   |   |   |   |   |   |   |
| Depreciation and  Amortization       |       | $                                           | 44,687     |   | $ | 3,667 |   | $ | 48,354 |   |
| Interest Income                      |       | $                                           | 1,519      |   | $ | 1 |   | $ | 1,520 |   |
| Interest Expense                     |       | $                                           | 14,582     |   | $ | 2,289 |   | $ | 16,871 |   |
| Income from Equity  Method Investees |       | $                                           | 4,873      |   | $ | — |   | $ | 4,873 |   |
| Net Proceeds                         |       | $                                           | 360,713    |   | $ | 1,189 |   | $ | 361,902 |   |
|                                 |       |                                        |       |   |   |   |   |
| Capital Expenditures                 |       | $                                           | 46,783     |   | $ | 400 |   | $ | 47,183 |   |
|                                 |       |                                        |       |   |   |   |   |
| ** **                           | ** ** | **As of August 31, 2005**              | ** ** |
| **(In  Thousands)**                  | ** ** | **Sugar**                                   | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Property and Equipment,  Net         |       | $                                           | 329,859    |   | $ | 1 |   | $ | 329,860 |   |
| Assets Held for Lease,  Net          |       | $                                           | —     |   | $ | 150,892 |   | $ | 150,892 |   |
| Segment Assets                       |       | $                                           | 611,964    |   | $ | 162,060 |   | $ | 774,024 |   |
|                                 |       |                                        |       |   |   |   |   |
| ** **                           | ** ** | **As of August 31, 2004**              | ** ** |
| **(In  Thousands)**                  | ** ** | **Sugar**                                   | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Property and Equipment,  Net         |       | $                                           | 330,540    |   | $ | 2 |   | $ | 330,542 |   |
| Assets Held for Lease,  Net          |       | $                                           | —     |   | $ | 160,643 |   | $ | 160,643 |   |
| Segment Assets                       |       | $                                           | 650,015    |   | $ | 172,140 |   | $ | 822,155 |   |

 

A-22

----

 

**(15) 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 liquidationsale.  Quoted market prices are generallynot available for the Company’s financial instruments.  Fair values are based on judgments regardinganticipated cash flows, future expected loss experience, current economicconditions, risk characteristics of various financial instruments and otherfactors.  These estimates involveuncertainties and matters of judgment, and therefore, cannot be determined withprecision.  Changes in assumptions couldsignificantly affect the estimates.

 

*Long-Term Debt* -Based upon current borrowing rates with similar maturities, the fair value ofthe long-term debt is approximately $247.8 million in comparison to thecarrying value of $237.8 million.

 

*Investments in CoBank, ACB,Investments in Marketing Cooperatives, and Investments in Crystech, LLC*- The Company believes it is not practical to estimate the fair value of theseinvestments without incurring excessive costs because there is no establishedmarket for these securities and equity interests, and it is inappropriate toestimate future cash flows which are largely dependent on future earnings ofthese organizations.

 

**(16) INCOME TAXES:**

 

Total income tax payments (refunds) were $336,000;$70,000; and $(16,000) for the years ended August 31, 2005, 2004 and 2003,respectively.

 

As of August 31, 2005, the Company had accumulatedapproximately $25.4 million of net operating loss carry-forwards for income taxreporting purposes.  The net operatingloss carry-forwards expire in the years 2012 through 2023.  The Company’s net deferred tax liability asof August 31, 2005 and 2004 is reflected below:

 
| **(In  Thousands)**                                                           | ** ** | **2005**   | ** ** | **2004** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------------|------------|------------|------------|----------|------------|------------|------------|
| Deferred Tax Assets  related to non-patronage source temporary differences    | ** ** | **$**      | **14,600** |     | $          | 11,000     |       |   |   |
| Deferred Tax Liability  related to non-patronage source temporary differences | ** ** | **17,800** |       | 13,300   |       |       |       |
|                                                                          |       |       |       |     |       |       |       |
| Net Deferred Tax  Liability                                                   | ** ** | **$**      | **3,200**  |     | $          | 2,300      |       |   |   |

 

Income tax expense (benefit) for the years ended August 31,2005, 2004 and 2003 is as follows:

 
| **(In  Thousands)**       | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------|------------|----------|------------|----------|------------|----------|------------|
| Current Income Taxes      | ** ** | **$**    | **355**    |     | $          | 88       |       | $ | (26 | ) |
| Deferred Income Taxes     | ** ** | **900**  |       | 100      |       | 100      |       |
|                      |       |     |       |     |       |     |       |
| Total Income Tax  Expense | ** ** | **$**    | **1,255**  |     | $          | 188      |       | $ | 74 |   |

 

A-23

----

 

A reconciliation of the Company’s effective tax ratesfor the years ended August 31, 2005, 2004 and 2003 is shown below:

 
| ** **                             | ** ** | **2005**  | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------------------|------------|-----------|------------|----------|------------|----------|------------|
| 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                    | ** ** | **(40.5** | **)%**     | (41.2    | )%         | (41.2    | )%         |
| Other, net                             | ** ** | **(0.2**  | **)%**     | 0.3      | %          | 0.3      | %          |
| Effective tax rate                     | ** ** | **0.3**   | **%**      | 0.1      | %          | 0.1      | %          |

 

**(17) 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 ongoing compliance program designed to meetthese environmental laws and regulations. The Company believes that it is in substantial compliance withapplicable environmental laws and regulations. From time to time, however, the Company may be involved in investigationsor determinations regarding non-material matters that may arise.

 

In 2005, the Company paid a penalty of $6,500 to theMinnesota Pollution Control Agency related to a storm water spill that occurredat the East Grand Forks, Minnesota factory.

 

The Company makes capital expenditures ofapproximately $2.0 million each year for environmental related projects.

 

**(18) LEGAL MATTERS:**

 

As of August 31, 2005, 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 theUSDA.  These proceedings are in variousstages of the applicable administrative process.  While the Company is not a party to any ofthese administrative proceedings, it is, solely or in coordination with othersugar processors, an intervenor in these administrative proceedings.  The initial decisions by the USDA in the fourproceedings were decided such that the Company would not experience a reductionin its marketing allocations.  Theinitial decisions by the USDA were appealed to an administrative law judgeunder guidelines promulgated by the USDA. Three of these appeals were decided such that the Company would notexperience a reduction in its marketing allocations.  The decision in the fourth proceeding,however, if it stands, will result in the Company experiencing a reduction inmarketing allocations equal to the loss of approximately 25,000 acres in futurecrop years assuming no other related factors were to change.  All of the decisions of the administrativelaw judge have been appealed by various parties, including the Company, to thechief judicial officer of the USDA.  Oneof the decisions that was favorable to the Company was affirmed by the chiefjudicial officer and the other three appeals are still pending.  Any decision made by the chief judicialofficer of the USDA can be further appealed in federal court.  The Company intends to vigorously pursuefavorable outcomes in these matters.

 

A-24

----

 

**EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-KFOR FISCAL YEAR ENDED AUGUST 31, 2005**

 
| **Item No.** | ** ** | ** **                                                                                                          | ** ** | **Method of  Filing**                                                                                                                                                                         | ** ** |
|--------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|         |       |                                                                                                                |       |                                                                                                                                                                                          |       |
| 3.1          |       | Restated Articles of  Incorporation of American Crystal Sugar Company                                               |       | Incorporated by  reference to Exhibit 3(i) from the Company’s Registration Statement  on Form S-1 (File No. 33-83868), declared effective  November 23, 1994.   |       |
|         |       |                                                                                                                |       |                                                                                                                                                                                          |       |
| 3.2          |       | Restated By-laws of  American Crystal Sugar Company                                                                 |       | Incorporated by reference  to Exhibit 3(ii) from the Company’s Registration Statement on  Form S-1 (File No. 333-11693), declared effective November 13,  1996. |       |
|         |       |                                                                                                                |       |                                                                                                                                                                                          |       |
| 4.1          |       | Restated Articles of  Incorporation of American Crystal Sugar Company                                               |       | See Exhibit 3.1                                                                                                                                                                          |       |
|         |       |                                                                                                                |       |                                                                                                                                                                                          |       |
| 4.2          |       | Restated By-laws of  American Crystal Sugar Company                                                                 |       | See Exhibit 3.2                                                                                                                                                                          |       |
|         |       |                                                                                                                |       |                                                                                                                                                                                          |       |
| 10.1         |       | Form of Operating  Agreement between Registrant and ProGold Limited Liability Company                          |       | Incorporated by  reference to Exhibit 10(u) from the Company’s Registration Statement on  Form S-1 (File No. 33-83868), declared effective November 23,  1994.       |       |
|         |       |                                                                                                                |       |                                                                                                                                                                                          |       |
| 10.2         |       | Form of Member  Control Agreement between Registrant and ProGold Limited Liability Company                     |       | Incorporated by  reference to Exhibit 10(v) from the Company’s Registration  Statement on Form S-1 (File No. 33-83868), declared effective  November 23, 1994.  |       |
|         |       |                                                                                                                |       |                                                                                                                                                                                          |       |
| 10.3         |       | Pledge Agreement  between Registrant and First Union Trust Company, NA                                              |       | Incorporated by  reference to Exhibit 10(ee) from the Company’s Annual Report on  Form 10-K for the year ended August 31, 1998.                                           |       |
|         |       |                                                                                                                |       |                                                                                                                                                                                          |       |
| 10.4         |       | Indemnity Agreement  between Registrant, Newcourt Capital USA Inc., Crystech, LLC and Crystech  Senior Lender Trust |       | Incorporated by  reference to Exhibit 10(ff) from the Company’s Annual Report on  Form 10-K for the year ended August 31, 1998.                                           |       |
|         |       |                                                                                                                |       |                                                                                                                                                                                          |       |

 

E-1

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| 10.5    |   | Tolling Services  Agreement between Crystech, LLC and Registrant                                                     |   | Incorporated by  reference to Exhibit 10(gg) from the Company’s Annual Report on  Form 10-K for the year ended August 31, 1998.      |   |
|---------|--------|----------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|    |   |                                                                                                                 |   |                                                                                                                                                     |   |
| 10.6    |   | Operations and  Maintenance Agreement between Crystech, LLC and Registrant                                           |   | Incorporated by  reference to Exhibit 10(hh) from the Company’s Annual Report on  Form 10-K for the year ended August 31, 1998.      |   |
|    |   |                                                                                                                 |   |                                                                                                                                                     |   |
| +10.7   |   | Limited Liability  Company Agreement of Crystech, LLC                                                                |   | Incorporated by  reference to Exhibit 10(ii) from the Company’s Annual Report on  Form 10-K for the year ended August 31, 1998. |   |
|    |   |                                                                                                                 |   |                                                                                                                                                     |   |
| 10.8    |   | Registrant’s Senior  Note Purchase Agreement                                                                    |   | Incorporated by  reference to Exhibit 10.24 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 1999        |   |
|    |   |                                                                                                                 |   |                                                                                                                                                     |   |
| 10.9    |   | Registrant’s Senior  Note Inter-creditor and Collateral Agency Agreement                                        |   | Incorporated by  reference to Exhibit 10.25 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 1999        |   |
|    |   |                                                                                                                 |   |                                                                                                                                                     |   |
| 10.10   |   | Registrant’s Senior  Note Restated Mortgage and Security Agreement                                              |   | Incorporated by  reference to Exhibit 10.26 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 1999        |   |
|    |   |                                                                                                                 |   |                                                                                                                                                     |   |
| ++10.11 |   | Employment Agreement  between the Registrant and James J. Horvath                                                    |   | Incorporated by  reference to Exhibit 10.28 from the Company’s Annual Report on  Form 10-K form the year ended August 31, 1999       |   |
|    |   |                                                                                                                 |   |                                                                                                                                                     |   |
| 10.12   |   | Stipulation Agreement  between Registrant and State of Minnesota Pollution Control Agency, dated  April 4, 2000 |   | Incorporated by  reference to Exhibit 10.28 from the Company’s Form 10-Q for the  quarter ended May 31, 2000                         |   |
|    |   |                                                                                                                 |   |                                                                                                                                                     |   |
| ++10.13 |   | Board of Directors  Deferred Compensation Plan, dated June 30, 1994                                             |   | Incorporated by  reference to Exhibit 10.29 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2000        |   |

 

E-2

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| ++10.14 |   | Long Term Incentive  Plan, dated June 23, 1999                                                                            |   | Incorporated by  reference to Exhibit 10.31 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2000 |   |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|    |   |                                                                                                                           |   |                                                                                                                                              |   |
| 10.15   |   | Uniform Member Sugar  Marketing Agreement between the Registrant and United Sugars Corporation dated  September 1, 2001.  |   | Incorporated by  reference to Exhibit 10.27 from the Company’s Form 10-Q for the  quarter ended November 30, 2001             |   |
|    |   |                                                                                                                           |   |                                                                                                                                              |   |
| 10.16   |   | Uniform Member  Marketing Agreement between the Registrant and Midwest Agri-Commodities  Company dated September 1, 2001. |   | Incorporated by  reference to Exhibit 10.28 from the Company’s Form 10-Q for the  quarter ended November 30, 2001             |   |
|    |   |                                                                                                                           |   |                                                                                                                                              |   |
| 10.17   |   | Registrant’s Senior  Note Purchase Agreement dated January 15, 2003                                                  |   | Incorporated by  reference to Exhibit 10.29 from the Company’s Form 10-Q for the  quarter ended February 28, 2003             |   |
|    |   |                                                                                                                           |   |                                                                                                                                              |   |
| 10.18   |   | Growers’ Contract  (5-year Agreement) for the crop years 2003 through 2007                                                |   | Incorporated by  reference to Exhibit 10.30 from the Company’s Form 10-Q for the  quarter ended February 28, 2003             |   |
|    |   |                                                                                                                           |   |                                                                                                                                              |   |
| +10.19  |   | Beet Loading and  Hauling Agreement between the Registrant and Transystems LLC for the crop  years 2003 through 2007           |   | Incorporated by  reference to Exhibit 10.31 from the Company’s Form 10-Q for the  quarter ended May 31, 2003                  |   |
|    |   |                                                                                                                           |   |                                                                                                                                              |   |
| 10.20   |   | Stipulation Agreement  between Registrant and State of Minnesota Pollution Control Agency, dated  August 5, 2003          |   | Incorporated by  reference to Exhibit 10.30 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2003 |   |
|    |   |                                                                                                                           |   |                                                                                                                                              |   |
| 10.21   |   | Term and Seasonal Loan  Agreements between the Registrant and CoBank, ACB dated July 21, 2003                             |   | Incorporated by  reference to Exhibit 10.31 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2003 |   |
|    |   |                                                                                                                           |   |                                                                                                                                              |   |
| 10.22   |   | 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                  |   |

 

E-3

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| ++10.23 |   | 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 |   |
|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------|--------|
|    |   |                                                                                                                                     |   |                                                                                                                 |   |
| 10.24   |   | Supplements to Term and  Seasonal Loan Agreements between the Registrant and CoBank, ACB dated  July 8, 2005 and July 11, 2005 |   | Filed herewith  electronically                                                                                       |   |
|    |   |                                                                                                                                     |   |                                                                                                                 |   |
| ++10.25 |   | Long Term Incentive  Plan, dated August 24, 2005                                                                                    |   | 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                                                                                |   |

 

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

 

++           A management contractor compensatory plan required to be filed with this report.

 

E-4

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