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Cooperative Profile

American Crystal Sugar Company is an agricultural cooperative corporation owned by approximately 2,800 sugarbeet growers in the Minnesota and North Dakota portions of the Red River Valley. The Red River Valley forms a band approximately 35 miles wide on either side of the North Dakota and Minnesota border and extending approximately 200 miles south from the border of the United States and Canada. The Company was organized in 1973 by sugarbeet growers to acquire the business and assets of the American Crystal Sugar Company, then a publicly held New Jersey corporation in operation since 1899. By owning and operating five sugarbeet processing facilities in the Red River Valley, the Company provides its shareholders (members) with the ability to process their sugarbeets into sugar and agri-products such as: molasses; sugarbeet pulp; and by-products of the molasses desugarization process, betaine and concentrated separated by-product (CSB). The Company's Board of Directors establishes sugarbeet acreage planting requirements in the Red River Valley (Red River Valley crop) each year based on factory processing capacity, expected crop quality, government regulations and other factors. The total authorized acres to be planted are allocated ratably to each preferred share held by the members. The Company processes sugarbeets from approximately 425,000 acres for the Red River Valley crop.

The Company, through its wholly-owned subsidiary, Sidney Sugars Incorporated (Sidney Sugars), owns and operates a sugarbeet processing facility in Sidney, Montana, which processes non-member sugarbeets from approximately 30,000 acres.

The Company owns all of its factories and the land on which they are located. The locations of the Company's factories are: Crookston, East Grand Forks and Moorhead, Minnesota and Drayton and Hillsboro, North Dakota. Each of the processing factories includes the physical facilities and equipment necessary to store and process sugarbeets into sugar. The Company owns molasses desugarization (MDS) plants at its East Grand Forks and Hillsboro facilities. The MDS plants process 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 holds a 51 percent ownership interest in ProGold Limited Liability Company (ProGold). ProGold owns a corn wet-milling plant in Wahpeton, North Dakota that processes corn into high fructose corn syrup and various agri-products. The plant is currently being leased to Cargill, Incorporated.

The Company markets its sugar through United Sugars Corporation (United), a cooperative common marketing agent owned by the Company, Minn-Dak Farmers Cooperative and United States Sugar Corporation. The Company's agri-products are marketed by Midwest Agri-Commodities Company (Midwest). Midwest is a cooperative common marketing agent owned by the Company, Minn-Dak Farmers Cooperative, Southern Minnesota Beet Sugar Cooperative and Michigan Sugar Company.

Principal Products Produced

The Company is engaged primarily in the production of sugar from sugarbeets. Total sugar sales account for approximately 90 percent of the Company's consolidated total revenues. United , the Company's sugar marketing agent, sells sugar primarily to industrial users such as confectioners, breakfast cereal manufacturers and bakeries which makes up approximately 90 percent (by weight) of the sugar sold. The remaining portion is marketed by United to wholesalers and retailers under the "Crystal Sugar" trademark and various private labels for household consumption. With regard to brand name sales, the Company licenses the use of the "Crystal Sugar" trademark to United.

The Company also produces 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's agri-products are marketed through Midwest. Sugarbeet pulp is marketed to livestock feed mixers and livestock feeders in the United States and foreign markets. A large proportion of the Company's pulp production is exported to Japan and Europe. The market for sugarbeet pulp is affected by the availability and quality of competitive feedstuffs and foreign exchange rates. Sugarbeet molasses is marketed primarily to yeast manufacturers, livestock feed mixers and livestock feeders. Total agri-product sales account for approximately 10 percent of the Company's consolidated total revenues. The Company operates a sugarbeet seed division, which produces and processes sugarbeet seed for sale to the Company's members.

The Company's total annual sugar and agri-product production is influenced by the amount and the quality of sugarbeets grown by its members and non-members, the processing capacity of the Company's plants, by its ability to store harvested sugarbeets and by government programs and regulations.

Sugarbeet Delivery

The Company purchases all of its Red River Valley sugarbeets from members under contract with the Company. All members are party to a five year contract with the Company that automatically renews for an additional five-year terms unless terminated by one of the parties at the end of the then current term. In addition, each member has an annual contract with the Company specifying the number of acres the member is obligated to grow during that year. Members are required to have a five-year contract and an annual contract with the Company and to own shares of Preferred Stock in proportion to the number of acres of sugarbeets they wish to deliver to the Company. The Company's Board of Directors has the discretion to adjust the acreage that is required to be planted for each share of Preferred Stock held by the members by setting the "planting tolerance". The Board of Directors and management regularly review and determine the relationship between the ownership of Preferred Stock and acreage planting.

Beet Payments

The gross beet payment is the value of recovered sugar from the sugarbeets a member delivers, plus the member's share of agri-product revenues, minus the member's share of member business operating costs. The following allowances, costs and deductions, if applicable, are used to adjust the gross beet payment to arrive at the net payment to the members: hauling program allowance and costs, pre-pile premium and costs, tare incentive premium/penalty program and unit retains. The costs of these programs are shared among members on the basis of the net tonnage of sugarbeets delivered by each member.

Under the five year agreement, payments to members for sugarbeets delivered 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's estimate of the member's net beet payment for the then current fiscal year's crop; (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 for the then current fiscal year's crop; (iii) and not more than 15 days after completion and acceptance by the Board of Directors of the audit of the Company's annual consolidated financial statements for the then completed fiscal year, the Company pays the remainder of the member's net beet payment for the immediately prior completed fiscal year. All of the sugarbeets processed at the Sidney, Montana, factory are purchased from non-member growers under contract with Sidney Sugars. Each non-member grower has an annual contract with Sidney Sugars specifying the number of acres the non-member grower is obligated to grow during each year.

The price per ton of sugarbeets paid to the growers who deliver to Sidney Sugars (Scale Payment) is determined according to the sugarbeet payment scale contained in the grower contract and is calculated based on Sidney Sugars' average net return for sugar from that year's crop, the adjusted average sugar content of each grower's sugarbeets and sugarbeet storage results.

Seasonality

The period during which the Company's plants are in operation to process sugarbeets into sugar and agri-products is referred to as the "campaign." During the campaign, the Company's factories operate twenty-four hours per day, seven days per week. In the Red River Valley, the campaign typically begins in September and continues until the available supply of sugarbeets has been depleted, which generally occurs in May of the following year. Based on current processing capacity, an average campaign lasts approximately 260 days, assuming normal crop yields. At the Sidney, Montana factory, the campaign begins in late September or early October and generally concludes in February.

While the timing of the Company's processing activities are connected to the start of the harvest and the available supply of sugarbeets, the sales of sugar and agri-products occur ratably throughout the year.

Market and Competition

The United States refined sugar market has grown at about 1-2 percent per year over the last ten years. Corn sweeteners and non-nutritive sweeteners also constitute a large portion of the overall sweetener market. The Company believes that the United States annual market growth for sugar in the near future will be approximately 1.0 percent.

Approximately 65 percent of the United States refined sugar market share is concentrated in the top three sellers. The Company's sugar production and sales represent approximately 13 percent of the total domestic market for refined sugar. Sugar sales by United Sugars Corporation, the Company's marketing agent, represent approximately 25 percent of the United States refined sugar market.

United is currently the second largest marketer of refined sugar in the United States. Main competitors in the domestic market are: Domino Foods Incorporated; Cargill, Incorporated; The Amalgamated Sugar Company LLC; Louis Dreyfus Commodities LLC: Michigan Sugar Company; and The Western Sugar Cooperative.

Employees

Substantially all of the hourly employees at the Company's factories, including full-time and seasonal employees, are represented by the Bakery, Confectionery, Tobacco Workers and Grain Millers (BCTGM) AFL-CIO. Office, clerical and management employees are not unionized, except for certain office employees at the Moorhead and Crookston, Minnesota, and Hillsboro, North Dakota, factories who are covered by the collective bargaining agreement with the BCTGM.

The Company generally employs approximately 1,400 full-time employees, of which approximately 1,100 are hourly and 300 are salaried. In addition, the Company generally employs approximately 900 hourly seasonal workers, approximately 400 during the sugarbeet harvest and approximately 500 during the remainder of the sugarbeet processing campaign. During the sugarbeet harvest, the Company also contracts with third party agencies for approximately another 1,300 additional workers.

Available Information

The Company's corporate headquarters are located at 101 North Third Street, Moorhead, Minnesota 56560, telephone number (218) 236-4400. The Company's fiscal year ends August 31. The Company's website is www.crystalsugar.com.