**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 

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

** **

# **For the quarterly periodended February 29, 2008**

#  

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

##  

**AMERICANCRYSTAL SUGAR COMPANY**

(Exact name of registrant as specified in its charter)

 

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

 

**101 North Third Street**

**Moorhead, Minnesota 56560**

(Address of principal executive offices)

 

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

(Registrant’s telephone number, including area code)

 

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

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

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reportingcompany.  See definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

Largeaccelerated filer o  Accelerated filer o  Non-accelerated filer x Smaller reporting company o

 

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

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

 

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

 

| ** **                      | ** ** | **Outstanding  at**     |
|---------------------------------|------------|-------------------------|
| **Class of  Common Stock** | ** ** | **April 7,  2008** |
| **$****10 Par Value**           | ** ** | **2,814**               |

 

 

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**AMERICAN CRYSTAL SUGAR COMPANY**

 

**FORM 10-Q**

 

**INDEX**

 
| ** **       |                      |                                                                                            | **PAGE  NO.** |
|------------------|---------------------------|-------------------------------------------------------------------------------------------------|---------------|
|             |                      |                                                                                            |          |   |
| **PART I**  | **FINANCIAL INFORMATION** |                                                                                            |          |
|             |                      |                                                                                            |          |   |
| ** **       | **ITEM 1.**               | **CONSOLIDATED FINANCIAL STATEMENTS**                                                           |          |   |
|             |                      |                                                                                            |          |   |
| ** **       | ** **                | **CONSOLIDATED BALANCE SHEETS**                                                                 | ** **    | **1** |
|             |                      |                                                                                            |          |   |
| ** **       | ** **                | **CONSOLIDATED STATEMENTS OF OPERATIONS**                                                       | ** **    | **3** |
|             |                      |                                                                                            |          |   |
| ** **       | ** **                | **CONSOLIDATED STATEMENTS OF CASH FLOWS**                                                       | ** **    | **4** |
|             |                      |                                                                                            |          |   |
| ** **       | ** **                | **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**                                              | ** **    | **5** |
|             |                      |                                                                                            |          |   |
| ** **       | **ITEM 2.**               | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION** |          | **11** |
| ** **       | **ITEM 3.**               | **QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**                                 |          | **18** |
| ** **       | **ITEM  4.**              | **CONTROLS  AND PROCEDURES**                                                                    | ** **    | **18** |
|             |                      |                                                                                            |          |   |
| **PART II** | **OTHER  INFORMATION**    |                                                                                            |          |
|             |                      |                                                                                            |          |   |
| ** **       | **ITEM  1.**              | **LEGAL  PROCEEDINGS**                                                                          | ** **    | **19** |
| ** **       | **ITEM  1A.**             | **RISK FACTORS**                                                                                | ** **    | **19** |
| ** **       | **ITEM 2.**               | **UNREGISTERED SALES  OF EQUITY SECURITIES AND USE OF PROCEEDS**                                |          | **19** |
| ** **       | **ITEM 3.**               | **DEFAULTS UPON  SENIOR SECURITIES**                                                            | ** **    | **19** |
| ** **       | **ITEM 4.**               | **SUBMISSION OF  MATTERS TO A VOTE OF SECURITY HOLDERS**                                        |          | **19** |
| ** **       | **ITEM  5.**              | **OTHER  INFORMATION**                                                                          | ** **    | **19** |
| ** **       | **ITEM 6.**               | **EXHIBITS**                                                                                    | ** **    | **20** |
|             |                      |                                                                                            |          |   |
| **SIGNATURES**   |                      |                                                                                            | **23**        |

** **

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** **

**American Crystal Sugar Company**

**Consolidated Balance Sheets**

**(Unaudited)**

**(In Thousands)**

** **

**Assets**

 
| ** **                                    | ** ** | **February 29** | ** ** | **February 28** | ** ** | **August 31** | ** ** |
|-----------------------------------------------|------------|----------------------|------------|----------------------|------------|--------------------|------------|
| ** **                                    | ** ** | **2008**             | ** ** | **2007**             | ** ** | **2007***          | ** ** |
| **Current Assets:**                           |       |                 |       |                 |       |               |       |
| Cash and Cash Equivalents                     |       | $                    | 3,873      |                 | $          | 314                |       | $ | 222 |   |
| Receivables:                                  |       |                 |       |                 |       |               |       |
| Trade                                         |       | 60,850               |       | 69,206               |       | 77,010             |       |
| Members                                       |       | 3                    |       | —               |       | 2,746              |       |
| Other                                         |       | 3,641                |       | 2,216                |       | 5,532              |       |
| Advances to Related Parties                   |       | 8,967                |       | 2,081                |       | 7,796              |       |
| Inventories                                   |       | 524,438              |       | 542,731              |       | 216,563            |       |
| Prepaid Expenses                              |       | 1,795                |       | 5,023                |       | 1,204              |       |
|                                          |       |                 |       |                 |       |               |       |
| **Total Current Assets**                      |       | 603,567              |       | 621,571              |       | 311,073            |       |
|                                          |       |                 |       |                 |       |               |       |
| **Property and Equipment:**                   |       |                 |       |                 |       |               |       |
| Land and Land Improvements                    |       | 58,246               |       | 56,542               |       | 57,738             |       |
| Buildings                                     |       | 111,183              |       | 103,807              |       | 109,123            |       |
| Equipment                                     |       | 852,107              |       | 806,139              |       | 846,467            |       |
| Construction in Progress                      |       | 32,337               |       | 19,265               |       | 23,513             |       |
| Less Accumulated Depreciation                 |       | (699,281             | )          | (661,019             | )          | (672,896           | )          |
|                                          |       |                 |       |                 |       |               |       |
| **Net Property and Equipment**                |       | 354,592              |       | 324,734              |       | 363,945            |       |
|                                          |       |                 |       |                 |       |               |       |
| **Net Property and Equipment Held for Lease** |       | 124,995              |       | 134,543              |       | 129,795            |       |
|                                          |       |                 |       |                 |       |               |       |
| **Other Assets:**                             |       |                 |       |                 |       |               |       |
| Investments in CoBank, ACB                    |       | 11,627               |       | 13,138               |       | 11,627             |       |
| Investments in Marketing Cooperatives         |       | 5,781                |       | 5,766                |       | 5,659              |       |
| Investments in Crystech, LLC                  |       | —               |       | 15,934               |       | —             |       |
| Pension Asset                                 |       | 37,457               |       | 42,787               |       | 37,400             |       |
| Other Assets                                  |       | 12,252               |       | 17,356               |       | 15,816             |       |
|                                          |       |                 |       |                 |       |               |       |
| **Total Other Assets**                        |       | 67,117               |       | 94,981               |       | 70,502             |       |
|                                          |       |                 |       |                 |       |               |       |
| **Total Assets**                              |       | $                    | 1,150,271  |                 | $          | 1,175,829          |       | $ | 875,315 |   |

 

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

 

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* Derived from audited financial statements

 

1

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**American Crystal Sugar Company**

**Consolidated Balance Sheets**

**(Unaudited)**

**(In Thousands)**

** **

**Liabilities and Members’ Investments**

 
| ** **                                                  | ** ** | **February 29** | ** ** | **February 28** | ** ** | **August 31** | ** ** |
|-------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|--------------------|------------|
| ** **                                                  | ** ** | **2008**             | ** ** | **2007**             | ** ** | **2007***          | ** ** |
| **Current Liabilities:**                                    |       |                 |       |                 |       |               |       |
| Short-Term Debt                                             |       | $                    | 240,404    |                 | $          | 230,757            |       | $ | 24,980 |   |
| Current Maturities of Long-Term Debt                        |       | 20,977               |       | 20,962               |       | 31,227             |       |
| Accounts Payable                                            |       | 18,306               |       | 19,128               |       | 38,998             |       |
| Advances Due to Related Parties                             |       | 2,121                |       | 7,683                |       | 2,874              |       |
| Accrued Continuing Costs                                    |       | 63,248               |       | 76,454               |       | —             |       |
| Other Current Liabilities                                   |       | 24,217               |       | 25,042               |       | 32,805             |       |
| Amounts Due Growers                                         |       | 194,114              |       | 208,950              |       | 143,260            |       |
|                                                        |       |                 |       |                 |       |               |       |
| **Total Current Liabilities**                               |       | 563,387              |       | 588,976              |       | 274,144            |       |
|                                                        |       |                 |       |                 |       |               |       |
| **Long-Term Debt, Net of Current Maturities**               |       | 157,690              |       | 172,225              |       | 157,974            |       |
|                                                        |       |                 |       |                 |       |               |       |
| **Accrued Employee Benefits**                               |       | 38,277               |       | 40,958               |       | 39,337             |       |
|                                                        |       |                 |       |                 |       |               |       |
| **Other Liabilities**                                       |       | 9,053                |       | 8,356                |       | 8,240              |       |
|                                                        |       |                 |       |                 |       |               |       |
| **Total Liabilities**                                       |       | 768,407              |       | 810,515              |       | 479,695            |       |
|                                                        |       |                 |       |                 |       |               |       |
| **Commitments and Contingencies**                           |       |                 |       |                 |       |               |       |
|                                                        |       |                 |       |                 |       |               |       |
| **Minority Interest in ProGold Limited  Liability Company** |       | 65,662               |       | 58,622               |       | 61,735             |       |
|                                                        |       |                 |       |                 |       |               |       |
| **Members’ Investments:**                              |       |                 |       |                 |       |               |       |
| Preferred Stock                                             |       | 38,275               |       | 38,275               |       | 38,275             |       |
| Common Stock                                                |       | 29                   |       | 29                   |       | 29                 |       |
| Additional Paid-In Capital                                  |       | 152,261              |       | 152,261              |       | 152,261            |       |
| Unit Retains                                                |       | 151,386              |       | 134,984              |       | 170,363            |       |
| Equity Retention                                            |       | 1,157                |       | 2,694                |       | 2,687              |       |
| Accumulated Other Comprehensive Income  (Loss)              |       | (8,519               | )          | (440                 | )          | (8,552             | )          |
| Retained Earnings (Accumulated Deficit)                     |       | (18,387              | )          | (21,111              | )          | (21,178            | )          |
|                                                        |       |                 |       |                 |       |               |       |
| **Total Members’ Investments**                         |       | 316,202              |       | 306,692              |       | 333,885            |       |
|                                                        |       |                 |       |                 |       |               |       |
| **Total Liabilities and Members’ Investments**         |       | $                    | 1,150,271  |                 | $          | 1,175,829          |       | $ | 875,315 |   |

 

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

 

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* Derived from audited financial statements

 

2

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**American Crystal Sugar Company**

**Consolidated Statements ofOperations**

**(Unaudited)**

**(In Thousands)**

 
| ** **                                                      | ** ** | **For the Six Months Ended** | ** ** | **For the Three Months Ended** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                      | ** ** | **February 29**                             | ** ** | **February 28**                               | ** ** | **February 29** | ** ** | **February 28** | ** ** |
| ** **                                                      | ** ** | **2008**                                         | ** ** | **2007**                                           | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Net Revenue**                                                 |       | $                                                | 557,053    |                                               | $          | 544,215 |   | $ | 252,719 |   | $ | 285,969 |   |
|                                                            |       |                                             |       |                                               |       |   |   |   |   |
| **Cost of Sales**                                               |       | 22,608                                           |       | (13,213                                            | )          | 13,782 |   | 21,953 |   |
|                                                            |       |                                             |       |                                               |       |   |   |   |   |
| **Gross Proceeds**                                              |       | 534,445                                          |       | 557,428                                            |       | 238,937 |   | 264,016 |   |
|                                                            |       |                                             |       |                                               |       |   |   |   |   |
| **Selling, General and Administrative  Expenses**               |       | 119,748                                          |       | 107,554                                            |       | 56,716 |   | 57,631 |   |
| **Accrued Continuing Costs**                                    |       | 63,248                                           |       | 76,454                                             |       | 21,154 |   | 36,171 |   |
|                                                            |       |                                             |       |                                               |       |   |   |   |   |
| **Operating Proceeds**                                          |       | 351,449                                          |       | 373,420                                            |       | 161,067 |   | 170,214 |   |
|                                                            |       |                                             |       |                                               |       |   |   |   |   |
| **Other Income (Expense):**                                     |       |                                             |       |                                               |       |   |   |   |   |
| Interest Income                                                 |       | 336                                              |       | 506                                                |       | 22 |   | 30 |   |
| Interest Expense, Net                                           |       | (7,922                                           | )          | (9,976                                             | )          | (5,269 | ) | (6,539 | ) |
| Other, Net                                                      |       | 623                                              |       | 490                                                |       | 110 |   | 90 |   |
|                                                            |       |                                             |       |                                               |       |   |   |   |   |
| **Total Other Expense**                                         |       | (6,963                                           | )          | (8,980                                             | )          | (5,137 | ) | (6,419 | ) |
|                                                            |       |                                             |       |                                               |       |   |   |   |   |
| **Proceeds Before Minority Interest and Income  Tax Expense**   |       | 344,486                                          |       | 364,440                                            |       | 155,930 |   | 163,795 |   |
|                                                            |       |                                             |       |                                               |       |   |   |   |   |
| **Minority Interest**                                           |       | (3,927                                           | )          | (2,523                                             | )          | (1,427 | ) | (1,304 | ) |
|                                                            |       |                                             |       |                                               |       |   |   |   |   |
| **Income Tax Expense**                                          |       | (1,943                                           | )          | (1,634                                             | )          | (772 | ) | (918 | ) |
|                                                            |       |                                             |       |                                               |       |   |   |   |   |
| **Net Proceeds Resulting from Member and Non-Member  Business** |       | $                                                | 338,616    |                                               | $          | 360,283 |   | $ | 153,731 |   | $ | 161,573 |   |
|                                                            |       |                                             |       |                                               |       |   |   |   |   |
| **Distributions of Net Proceeds:**                              |       |                                             |       |                                               |       |   |   |   |   |
| Credited/(Charged) to Members’ Investments:                |       |                                             |       |                                               |       |   |   |   |   |
| Non-Member Business Income                                      |       | $                                                | 2,791      |                                               | $          | 2,353 |   | $ | 1,106 |   | $ | 1,323 |   |
| Unit Retains Declared to Members                                |       | —                                           |       | —                                             |       | — |   | — |   |
| Net Credit to Members’ Investments                         |       | 2,791                                            |       | 2,353                                              |       | 1,106 |   | 1,323 |   |
| Payments To/Due Members for Sugarbeets,                         |       |                                             |       |                                               |       |   |   |   |   |
| Net of Unit Retains Declared                                    |       | 335,825                                          |       | 357,930                                            |       | 152,625 |   | 160,250 |   |
| **Total**                                                       |       | $                                                | 338,616    |                                               | $          | 360,283 |   | $ | 153,731 |   | $ | 161,573 |   |

 

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

 

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**American Crystal Sugar Company**

**Consolidated Statements of CashFlows**

**(Unaudited)**

**(In Thousands)**

 
| ** **                                                            | ** ** | **For the Six Months Ended** | ** ** |
|-----------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                            | ** ** | **February 29**                             | ** ** | **February 28** | ** ** |
| ** **                                                            | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| **Cash Provided By (Used In) Operating  Activities:**                 | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Net Proceeds Resulting from Member and  Non-Member Business           |       | $                                                | 338,616    |   | $ | 360,283 |   |
| Payments To/Due Members for Sugarbeets, Net  of Unit Retains Declared |       | (335,825                                         | )          | (357,930 | ) |
| Add (Deduct) Non-Cash Items:                                          |       |                                             |       |   |   |
| Depreciation and Amortization                                         |       | 36,015                                           |       | 35,662 |   |
| Income from Equity Method Investees                                   |       | (24                                              | )          | (576 | ) |
| Loss on the Disposition of Property and  Equipment                    |       | 21                                               |       | 495 |   |
| Deferred Gain Recognition                                             |       | (99                                              | )          | (99 | ) |
| Minority Interest in ProGold Limited  Liability Company               |       | 3,927                                            |       | 2,523 |   |
| Changes in Assets and Liabilities:                                    |       |                                             |       |   |   |
| Receivables                                                           |       | 20,794                                           |       | 14,239 |   |
| Inventories                                                           |       | (307,875                                         | )          | (367,970 | ) |
| Prepaid Expenses                                                      |       | (559                                             | )          | (574 | ) |
| Non Current Pension Asset                                             |       | (57                                              | )          | 2,638 |   |
| Advances To/Due to Related Parties                                    |       | (1,924                                           | )          | 3,306 |   |
| Accounts Payable                                                      |       | (20,692                                          | )          | (7,992 | ) |
| Accrued Continuing Costs                                              |       | 63,248                                           |       | 76,454 |   |
| Other Liabilities                                                     |       | (8,835                                           | )          | (2,183 | ) |
| Amounts Due Growers                                                   |       | 50,854                                           |       | 85,302 |   |
| **Net Cash Used In Operating Activities**                             |       | (162,415                                         | )          | (156,422 | ) |
|                                                                  |       |                                             |       |   |   |
| **Cash Provided By (Used In) Investing  Activities:**                 |       |                                             |       |   |   |
| Purchases of Property and Equipment                                   |       | (19,796                                          | )          | (21,890 | ) |
| Purchases of Property and Equipment Held  for Lease                   |       | (757                                             | )          | (59 | ) |
| Proceeds from the Sale of Property and  Equipment                     |       | 29                                               |       | 54 |   |
| Changes in Other Assets                                               |       | 2,207                                            |       | (382 | ) |
| **Net Cash Used In Investing Activities**                             |       | (18,317                                          | )          | (22,277 | ) |
|                                                                  |       |                                             |       |   |   |
| **Cash Provided By (Used In) Financing  Activities:**                 |       |                                             |       |   |   |
| Net Proceeds from Short-Term Debt                                     |       | 215,424                                          |       | 225,457 |   |
| Proceeds from Issuance of Long-Term Debt                              |       | 19,183                                           |       | 11,500 |   |
| Long-Term Debt Repayment                                              |       | (29,717                                          | )          | (39,312 | ) |
| Payment of Unit Retains and Equity  Retention                         |       | (20,507                                          | )          | (18,977 | ) |
| **Net Cash Provided By Financing Activities**                         |       | 184,383                                          |       | 178,668 |   |
| **Increase/(Decrease) In Cash and Cash  Equivalents**                 |       | 3,651                                            |       | (31 | ) |
| **Cash and Cash Equivalents, Beginning of  Year**                     |       | 222                                              |       | 345 |   |
|                                                                  |       |                                             |       |   |   |
| **Cash and Cash Equivalents, End of Period**                          |       | $                                                | 3,873      |   | $ | 314 |   |

 

The Accompanying Notes are an IntegralPart of These Consolidated Financial Statements.

 

4

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# ** **

# **AMERICANCRYSTAL SUGAR COMPANY**

**NOTES TO THE CONSOLIDATEDFINANCIAL STATEMENTS**

**FOR THE SIX MONTHS AND THREE MONTHS ENDED**

**February 29, 2008 and February 28, 2007**

**(Unaudited)**

 

**Note1:  Basis of Presentation**

 

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

 

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

 

Allmaterial inter-company transactions have been eliminated.

 

The operating results forthe six months ended February 29, 2008, are not necessarily indicative ofthe results that may be expected for the year ended August 31, 2008.

 

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

 

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

 

**Note 2:  Recently Issued Accounting Pronouncements**

 

The Financial Accounting Standards Board (FASB) has issued Statement No. 157,*Fair Value Measurements*.  This Statement defines fair value,establishes a framework for measuring fair value in accordance with generallyaccepted accounting principles (GAAP), and expands disclosures about fair valuemeasurements.  This statement becomeseffective for the Company in the first quarter of fiscal 2009.  The Company does not expect that the adoptionof this statement will have a material effect on the Company’s financialstatements.

 

The FASB has issued Statement No. 158, *Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans—anamendment of FASB Statements No. 87, 88, 106, and 132(R)*.  This Statement will require the Company tomeasure the funded status of a plan as of the date of its year-end statement offinancial position.  This requirementbecomes effective for the Company as of August 31, 2009.

 

The FASB has issued Statement No. 160, *NoncontrollingInterests in Consolidated Financial Statements – an amendment of ARB  No. 51*.  This Statement requires all entities toreport noncontrolling (minority) interests in subsidiaries as equity in theconsolidated financial statements*.*  Itsintention is to 

 

5

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eliminate the diversity in practiceregarding the accounting for transactions between an entity and noncontrollinginterests.  This statement becomes effective for theCompany in the first quarter of fiscal 2010.

 

The FASB has issued Statement No. 161, *Disclosuresabout Derivative Instruments and Hedging Activities—an amendment of FASBStatement No. 133*.  Thisstatement enhances the disclosure requirements for derivatives and hedgingactivities.  This statement becomeseffective for the Company in the second quarter of fiscal 2009.  The Company does not expect that the adoptionof this statement will have a material effect on the Company’s financialstatements.

 

**Note 3:  Inventories**

 

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

 
| ** **                                                             | ** ** | **February 29  2008** | ** ** | **February 28  2007** | ** ** | **August 31  2007** | ** ** |
|------------------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|--------------------------|------------|
| Refined Sugar,  Pulp, Molasses, Other Agri-Products and Sugarbeet Seed |       | $                          | 355,985    |                       | $          | 357,093                  |       | $ | 178,078 |   |
| Unprocessed  Sugarbeets                                                |       | 141,394                    |       | 155,263                    |       | 9,231                    |       |
| Maintenance  Parts and Supplies                                        |       | 27,059                     |       | 30,375                     |       | 29,254                   |       |
|                                                                   |       |                       |       |                       |       |                     |       |
| Total  Inventories                                                     |       | $                          | 524,438    |                       | $          | 542,731                  |       | $ | 216,563 |   |

 

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

 

# **Note 4:  Short-TermDebt**

# ** **

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

 

As of February 29,2008, the Company had outstanding commercial paper of $206.1****million at an average interest rate of 5.14% and maturitydates between March 3, 2008 and April 30, 2008.  In addition, the Company had an outstandingnon-recourse loan with the CCC of $34.3 million, against which 1.5 millionhundredweight of sugar was pledged as collateral.  The CCC loan carried an interest rate of4.25% and a maturity date of September 30, 2008.  The Company had no outstanding short-termdebt with CoBank, ACB as of February 29, 2008.  The Company had $2.1 million of short-termletters of credit outstanding as of February 29, 2008.  The unused seasonal line of credit as of February 29,2008 was $182.8 million.

 

As of February 28,2007, the Company had outstanding commercial paper of $219.3****million at an average interest rate of 4.54% and maturitydates between March 1, 2007 and May 31, 2007.  In addition, the Company had an outstandingnon-recourse loan with the CCC of $11.5 million, against which 500,000 hundredweightof sugar was pledged as collateral.  TheCCC loan carried an interest rate of 6.0% and a maturity date of September 30,2007.  The Company had no outstandingshort-term debt with CoBank, ACB as of February 28, 2007. The Company had$5.4 million of short-term letters of credit outstanding as of February 28,2007. The unused seasonal line of credit as of February 28, 2007 was$176.3 million.

 

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

 

Interest paid, net ofamounts capitalized, was $7.4 million and $9.5 million for the six months endedFebruary 29, 2008 and February 28, 2007, respectively and $6.3million and $7.3 million for the 

 

6

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threemonths ended February 29, 2008 and February 28, 2007, respectively.  Interest capitalized, was $ .7 million ineach of the six months ended February 29, 2008 and February 28, 2007and $ .3 million in each of the three months ended February 29, 2008 and February 28,2007, respectively.

 

**Note6:  Accrued Continuing Costs**

 

For interimreporting, the net proceeds from member business is based on the forecastedgross beet payment and the percentage of the tons of sugarbeets processed tothe total estimated tons of sugarbeets to process for a given crop year.  The net proceeds from the operations ofSidney Sugars is based on the forecasted net income for the fiscal year and thepercentage of the tons of non-member sugarbeets processed to the totalestimated tons of non-member sugarbeets to process for a given fiscal year.

 

Accrued continuingcosts represent the difference between the net proceeds as determined above andactual member business crop year and Sidney Sugars fiscal year revenuesrealized and expenses incurred through the end of the reporting period.  Accrued continuing costs are reflected in theConsolidated Financial Statements as a cost on the Consolidated Statements ofOperations and as a current liability on the Consolidated Balance Sheets.

 

**Note7: ****NetPeriodic Pension and Post-Retirement Costs**

 

The following schedules provide the components of theNet Periodic Pension and Post-Retirement Costs for the six months and threemonths ended February 29, 2008 and February 28, 2007:

 

***Components of Net Periodic PensionCost***

(In Thousands)

 
| ** **                           | ** ** | **For the Six Months Ended** | ** ** | **For the Three Months Ended** | ** ** |
|--------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                           | ** ** | **February 29**                             | ** ** | **February 28**                               | ** ** | **February 29** | ** ** | **February 28** | ** ** |
| ** **                           | ** ** | **2008**                                         | ** ** | **2007**                                           | ** ** | **2008** | ** ** | **2007** | ** ** |
| Service Cost                         |       | $                                                | 1,882      |                                               | $          | 1,766 |   | $ | 941 |   | $ | 883 |   |
| Interest Cost                        |       | 4,076                                            |       | 3,954                                              |       | 2,038 |   | 1,977 |   |
| Expected Return  on Plan Assets      |       | (6,483                                           | )          | (5,455                                             | )          | (3,241 | ) | (2,727 | ) |
| Multiple  Employer Adjustment        |       | —                                           |       | (28                                                | )          | — |   | (14 | ) |
| Amortization of  Prior Service Costs |       | 659                                              |       | 1,456                                              |       | 329 |   | 728 |   |
| Amortization of  Net Actuarial Loss  |       | 30                                               |       | 217                                                |       | 15 |   | 108 |   |
| Net Periodic  Pension Cost           |       | $                                                | 164        |                                               | $          | 1,910 |   | $ | 82 |   | $ | 955 |   |

 

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

(In Thousands)

 
| ** **                          | ** ** | **For the Six Months Ended** | ** ** | **For the Three Months Ended** | ** ** |
|-------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                          | ** ** | **February 29**                             | ** ** | **February 28**                               | ** ** | **February 29** | ** ** | **February 28** | ** ** |
| ** **                          | ** ** | **2008**                                         | ** ** | **2007**                                           | ** ** | **2008** | ** ** | **2007** | ** ** |
| Service Cost                        |       | $                                                | 538        |                                               | $          | 551 |   | $ | 269 |   | $ | 275 |   |
| Interest Cost                       |       | 932                                              |       | 962                                                |       | 466 |   | 481 |   |
| Amortization of  Net Actuarial Gain |       | (112                                             | )          | (10                                                | )          | (56 | ) | (5 | ) |
| Net Periodic  Post-Retirement Cost  |       | $                                                | 1,358      |                                               | $          | 1,503 |   | $ | 679 |   | $ | 751 |   |

 

The Company does not expectto make any contributions to the pension plans during this fiscal year.  The Company has contributed and made benefitpayments of approximately $3.6 million related to the Supplemental ExecutiveRetirement Plans during the six months ended February 29, 2008.  The 

 

7

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Companyexpects to contribute and make benefit payments of approximately $3.7 millionthis fiscal year related to the Supplemental Executive Retirement Plans.

 

TheCompany has contributed and made benefit payments of approximately $493,000 related to the post-retirement plans duringthe six months ended February 29, 2008. The Company expects to contributeand make benefit payments of approximately $1.0 million related to thepost-retirement plans during the current fiscal year.

 

**Note8:  Members’ Investments**

 
| ** **              | ** ** | ** **    | ** ** | **Shares**     | ** ** | **Shares Issued** | ** ** |
|-------------------------|------------|---------------|------------|----------------|------------|------------------------|------------|
| ** **              | ** ** | **Par Value** | ** ** | **Authorized** | ** ** | **&  Outstanding** | ** ** |
| Preferred Stock:        |       |          |       |           |       |                   |       |
| April 7,  2008     |       | $             | 76.77      |           | 600,000    |                   | 498,570    |   |
| February 29,  2008 |       | $             | 76.77      |           | 600,000    |                   | 498,570    |   |
| August 31,  2007   |       | $             | 76.77      |           | 600,000    |                   | 498,570    |   |
| February 28,  2007 |       | $             | 76.77      |           | 600,000    |                   | 498,570    |   |
|                    |       |          |       |           |       |                   |       |
| Common Stock:           |       |          |       |           |       |                   |       |
| April 7,  2008     |       | $             | 10.00      |           | 4,000      |                   | 2,814      |   |
| February 29,  2008 |       | $             | 10.00      |           | 4,000      |                   | 2,878      |   |
| August 31,  2007   |       | $             | 10.00      |           | 4,000      |                   | 2,878      |   |
| February 28,  2007 |       | $             | 10.00      |           | 4,000      |                   | 2,866      |   |

 

**Note 9:  Shipping and Handling Costs**

 

The costs incurred for the shipping and handling of products sold areclassified in the financial statements as a selling expense on the Statementsof Operations.  Shipping and handlingcosts were $82.2 million and $72.3 million for the six months ended February 29,2008 and February 28, 2007, respectively and $38.9 million and $39.4million for the three months ended February 29, 2008 and February 28,2007, respectively.

 

**Note 10:ProGold Limited Liability Company**

 

The Company is the controlling member of ProGold Limited LiabilityCompany (ProGold), which owns a corn wet-milling plant in Wahpeton, NorthDakota, that is currently being leased to Cargill, Incorporated (Cargill).  On November 6, 2007, ProGold entered intoan amended lease agreement with Cargill that superseded and replaced theprevious 10 year lease between ProGold and Cargill and provides that (1) Cargillwill pay ProGold average annual rental payments equal to $21.9 million and (2) thatthe term of the lease be extended until December 31, 2017.

 

**Note 11:Segment Reporting**

 

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

 

Summarizedfinancial information concerning the Company’s reportable segments for the six months and three months ended February 29,2008 and February 28, 2007, is shown below:

 

8

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| ** **                           | ** ** | **For the Six Months Ended February 29, 2008** | ** ** |
|--------------------------------------|------------|-----------------------------------------------------------------------------------|------------|
| ** **                           | ** ** | **(Dollars In Thousands)**                                              | ** ** |
| ** **                           | ** ** | **Sugar**                                                                         | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from  External Customers |       | $                                                                                 | 544,407    |   | $ | 12,646 |   | $ | 557,053 |   |
| Gross Proceeds                       |       | $                                                                                 | 526,094    |   | $ | 8,351 |   | $ | 534,445 |   |
| Depreciation and  Amortization       |       | $                                                                                 | 30,458     |   | $ | 5,557 |   | $ | 36,015 |   |
| Interest Income                      |       | $                                                                                 | 316        |   | $ | 20 |   | $ | 336 |   |
| Interest Expense                     |       | $                                                                                 | 7,632      |   | $ | 290 |   | $ | 7,922 |   |
| Income from  Equity Method Investees |       | $                                                                                 | 24         |   | $ | — |   | $ | 24 |   |
| Other Income/(Expense),  Net         |       | $                                                                                 | 599        |   | $ | — |   | $ | 599 |   |
| Net Proceeds                         |       | $                                                                                 | 334,529    |   | $ | 4,087 |   | $ | 338,616 |   |
|                                 |       |                                                                              |       |   |   |   |   |
| Capital  Expenditures                |       | $                                                                                 | 19,796     |   | $ | 757 |   | $ | 20,553 |   |

 
| ** **                           | ** ** | **For the Six Months Ended February 28, 2007** | ** ** |
|--------------------------------------|------------|-----------------------------------------------------------------------------------|------------|
| ** **                           | ** ** | **(Dollars In Thousands)**                                              | ** ** |
| ** **                           | ** ** | **Sugar**                                                                         | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from  External Customers |       | $                                                                                 | 531,797    |   | $ | 12,418 |   | $ | 544,215 |   |
| Gross Proceeds                       |       | $                                                                                 | 551,031    |   | $ | 6,397 |   | $ | 557,428 |   |
| Depreciation and  Amortization       |       | $                                                                                 | 30,113     |   | $ | 5,549 |   | $ | 35,662 |   |
| Interest Income                      |       | $                                                                                 | 490        |   | $ | 16 |   | $ | 506 |   |
| Interest Expense                     |       | $                                                                                 | 8,767      |   | $ | 1,209 |   | $ | 9,976 |   |
| Income from  Equity Method Investees |       | $                                                                                 | 576        |   | $ | — |   | $ | 576 |   |
| Other  Income/(Expense), Net         |       | $                                                                                 | (78        | ) | $ | (8 | ) | $ | (86 | ) |
| Net Proceeds                         |       | $                                                                                 | 357,657    |   | $ | 2,626 |   | $ | 360,283 |   |
|                                 |       |                                                                              |       |   |   |   |   |
| Capital  Expenditures                |       | $                                                                                 | 21,890     |   | $ | 59 |   | $ | 21,949 |   |

 
| ** **                           | ** ** | **For the Three Months Ended February 29, 2008** | ** ** |
|--------------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| ** **                           | ** ** | **(Dollars In Thousands)**                                                | ** ** |
| ** **                           | ** ** | **Sugar**                                                                           | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from  External Customers |       | $                                                                                   | 246,902    |   | $ | 5,817 |   | $ | 252,719 |   |
| Gross Proceeds                       |       | $                                                                                   | 235,898    |   | $ | 3,039 |   | $ | 238,937 |   |
| Depreciation and  Amortization       |       | $                                                                                   | 15,279     |   | $ | 2,778 |   | $ | 18,057 |   |
| Interest Income                      |       | $                                                                                   | 8          |   | $ | 14 |   | $ | 22 |   |
| Interest Expense                     |       | $                                                                                   | 5,153      |   | $ | 116 |   | $ | 5,269 |   |
| Income from  Equity Method Investees |       | $                                                                                   | 10         |   | $ | — |   | $ | 10 |   |
| Other  Income/(Expense), Net         |       | $                                                                                   | 100        |   | $ | — |   | $ | 100 |   |
| Net Proceeds                         |       | $                                                                                   | 152,246    |   | $ | 1,485 |   | $ | 153,731 |   |
|                                 |       |                                                                                |       |   |   |   |   |
| Capital  Expenditures                |       | $                                                                                   | 10,686     |   | $ | 107 |   | $ | 10,793 |   |

 

9

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| ** **                           | ** ** | **For the Three Months Ended February 28, 2007** | ** ** |
|--------------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| ** **                           | ** ** | **(Dollars In Thousands)**                                                | ** ** |
| ** **                           | ** ** | **Sugar**                                                                           | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from  External Customers |       | $                                                                                   | 279,734    |   | $ | 6,235 |   | $ | 285,969 |   |
| Gross Proceeds                       |       | $                                                                                   | 260,788    |   | $ | 3,228 |   | $ | 264,016 |   |
| Depreciation and  Amortization       |       | $                                                                                   | 15,121     |   | $ | 2,771 |   | $ | 17,892 |   |
| Interest Income                      |       | $                                                                                   | 23         |   | $ | 7 |   | $ | 30 |   |
| Interest Expense                     |       | $                                                                                   | 5,995      |   | $ | 544 |   | $ | 6,539 |   |
| Income from  Equity Method Investees |       | $                                                                                   | 288        |   | $ | — |   | $ | 288 |   |
| Other  Income/(Expense), Net         |       | $                                                                                   | (190       | ) | $ | (8 | ) | $ | (198 | ) |
| Net Proceeds                         |       | $                                                                                   | 160,216    |   | $ | 1,357 |   | $ | 161,573 |   |
|                                 |       |                                                                                |       |   |   |   |   |
| Capital  Expenditures                |       | $                                                                                   | 9,060      |   | $ | 56 |   | $ | 9,116 |   |

 
| ** **                   | ** ** | **As of February 29, 2008** | ** ** |
|------------------------------|------------|-------------------------------------------------|------------|
| ** **                   | ** ** | **(Dollars In Thousands)**            | ** ** |
| ** **                   | ** ** | **Sugar**                                       | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Property and  Equipment, Net |       | $                                               | 354,592    |   | $ | — |   | $ | 354,592 |   |
| Assets Held for  Lease, Net  |       | $                                               | —     |   | $ | 124,995 |   | $ | 124,995 |   |
| Segment Assets               |       | $                                               | 1,015,666  |   | $ | 134,605 |   | $ | 1,150,271 |   |

 
| ** **                   | ** ** | **As of February 28, 2007** | ** ** |
|------------------------------|------------|-------------------------------------------------|------------|
| ** **                   | ** ** | **(Dollars In Thousands)**            | ** ** |
| ** **                   | ** ** | **Sugar**                                       | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Property and  Equipment, Net |       | $                                               | 324,734    |   | $ | — |   | $ | 324,734 |   |
| Assets Held for  Lease, Net  |       | $                                               | —     |   | $ | 134,543 |   | $ | 134,543 |   |
| Segment Assets               |       | $                                               | 1,032,084  |   | $ | 143,745 |   | $ | 1,175,829 |   |

 

**Note 12:Income Taxes**

 

On September 1, 2007, the Company adopted the provisions of theFinancial Accounting Standards Board Interpretation No. 48, *Accounting for Uncertainty in Income Taxes—an interpretation of FASBStatement No. 109*.  ThisInterpretation clarifies the accounting for uncertainty in income taxesrecognized in the financial statements in accordance with FASB Statement No. 109,*Accounting for Income Taxes.*

 

The Company had no unrecognized tax benefitson September 1, 2007.  No interestor penalties are recognized in the consolidated statements of operations or inthe consolidated balance sheets.  TheCompany is no longer subject to U.S. Federal or state income tax examinationsby tax authorities for fiscal years 2004 and earlier.

 

**Note 13:Environmental Matters**

 

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

 

10

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Capitalexpenditures will be required to prevent future occurrences of theemissions.  The Company’s capitalappropriations budgets at the beginning of the current fiscal year includedapproximately $6.2 million for environmentally related projects at the Company’sfactory locations.  Expenditures duringthe six months ended February 29, 2008 on these projects wereapproximately $1.2 million while total project-to-date spending on theseprojects has been $4.6 million. Environmental related projects that were placed into service during thesix months ended February 29, 2008 totaled approximately $4.2million.  The amount and timing of anyadditional capital expenditures that may be required is not currently known.

 

TheCompany is also addressing the following environmental matters:

·                  InOctober 2007, the East Grand Forks, Minnesota factory failed a stackemission performance test on its pellet cooler. A notice of non-compliance was issued by the MPCA on December 4,2007 related to this occurrence.

·                  InNovember 2007, the Moorhead, Minnesota factory failed a stack emissionperformance test on its lime kiln.  Anotice of non-compliance was issued by the MPCA on February 5, 2008 relatedto this occurrence.

·                  InJuly 2007, the Company received Compliance Monitoring Survey-Letters ofWarning from the MPCA for the East Grand Forks and Moorhead, Minnesotafactories.

·                  InNovember 2007, the Company received a Compliance Monitoring Survey-Letterof Warning from the MPCA for the Crookston Minnesota factory.

·                  OnFebruary 15, 2008, the Montana Department of Environmental Quality (MDEQ)issued a notice of violation related to the retention of environmentalmonitoring data at the Sidney, Montana factory.

 

Correctiveactions have been taken related to these occurrences.  While the Company may be assessed penaltiesfor these occurrences, as of the date of this report none have been assessed.   Any potential penalties assessed are notexpected to be material to the Company.

 

**Note 14:Legal Matters**

 

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

 

**Item 2.   Management’s Discussion and Analysis ofResults of Operations and Financial Condition for the Six Months and ThreeMonths Ended February 29, 2008 and February 28, 2007**

** **

This reportcontains forward-looking statements that involve risks and uncertainties.  Such forward-looking statements include,among others, those statements including the words “expect”, “anticipate”, “believe”,“may” and similar expressions.  TheCompany’s actual results could differ materially from those indicated.  Risk factors that could cause or contributeto such differences include, without limitation, market factors, weather andgeneral economic conditions, farm and trade policy, and available quantity andquality of sugarbeets.  For a morecomplete discussion of “Risk Factors”, please refer to the Company’s 2007 Form 10-K.

 

**Overview**

 

Due to the large size of the 2007 Red River Valley crop, the Company,for the second consecutive year, commenced the harvest and processing of thecrop in August as compared to a typical start-up in September.  Allthe costs incurred prior to the beginning of the Company’s 2008 fiscal yearthat related to receiving and processing the 2007 sugarbeet crop were deferredin fiscal 2007 and recognized in fiscal 2008. Similarly, the net realizable values of products produced prior to thebeginning of the Company’s 2008 fiscal year that related to the 2007 sugarbeetcrop were deferred in fiscal 2007 and recognized in fiscal 2008.

 

11

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The harvest of the Red River Valley and Sidney sugarbeet crops grownduring 2007 and to be processed during fiscal 2008 produced a total of12.5 million tons of sugarbeets, or approximately 23.6 tons of sugarbeetsper acre from approximately 529,000 acres. This represents a decrease in total tons harvested of approximately 3.0percent compared to the 2006 crop.  Thesugar content of the 2007 crop is 18.1 percent as compared to the 18.2 percentsugar content of the 2006 crop.  TheCompany expects to produce a total of approximately 35.8 million hundredweightof sugar from the 2007 crop, a decrease of approximately 3.8 percent comparedto the 2006 crop.  Due to the limitsimposed by government sugar marketing allocations, it is anticipated thatapproximately 2.3 million hundredweight of sugar produced from the 2007 cropwill not be permitted to be sold during the time period of October 1, 2007to September 30, 2008.

 

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

 

**Comparisonof the Six Months Ended February 29, 2008 and February 28, 2007**

 

Revenuefor the six months ended February 29, 2008 was $557.1 million, an increaseof $12.8 million from the six months ended February 28, 2007.  The table below reflects the percentagechanges in product revenues, prices and volumes for the six months ended February 29,2008, as compared to the six months ended February 28, 2007.

 
| **Product** | ** ** | **Revenue** | ** ** | **Selling Price** | ** ** | **Volume** | ** ** |
|-------------|------------|-------------|------------|------------------------|------------|------------|------------|
| Sugar       |       | -0.3        | %          | -6.6                   | %          | 6.7        | %          |
| Pulp        |       | 1.5         | %          | 16.6                   | %          | -12.9      | %          |
| Molasses    |       | 40.0        | %          | 1.8                    | %          | 37.5       | %          |
| CSB         |       | 29.2        | %          | 9.0                    | %          | 18.5       | %          |
| Betaine     |       | 83.4        | %          | 8.2                    | %          | 69.5       | %          |

 

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

 

Rentalrevenue on the ProGold operating lease was $12.6 million and $12.4 million forthe six months ended February 29, 2008 and February 28, 2007,respectively.

 

Costof sales for the six months ended February 29, 2008, exclusive of paymentsto members for sugarbeets, increased $35.8 million as compared to the sixmonths ended February 28, 2007. Operating costs increased slightly by $ .7 million.  This was primarily due to increased costs forsugarbeet transportation, process chemicals and property taxes partially offsetby lower natural gas consumption along with harvesting 3.0 percent lesssugarbeets and processing 4.5 percent less sugarbeets during the first sixmonths of fiscal 2008 as compared to the same period last year.  The cost recognized associated with thenon-member sugarbeets decreased $4.9 million for the six months ended February 29,2008, when compared to the six months ended February 28, 2007.  This decrease was primarily due to an 11.2percent decrease in tons processed along with a lower per ton estimated growerpayment this year resulting from a lower projected sugar net sellingprice.  Costs associated with the ProGoldfacility decreased $1.7 million.  At theend of each reporting period, product inventories are recorded at their netrealizable value.  The change in the netrealizable value of the product inventories from the beginning of the reportingperiod is recorded on the balance sheet as either an increase or decrease toinventories with a corresponding dollar for dollar adjustment to cost of saleson the statement of operations.  Theincrease in the net realizable value of product inventories for the six monthsended February 29, 2008 was $196.7 million as compared to an increase of$238.6 million for the previous year’s six month period ended February 28,2007 resulting in a $41.9 million unfavorable change in the cost of salesbetween the two years as shown in the table below:

 

12

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**Change in the Net Realizable Value of ProductInventories**

 
| ** **                                                   | ** ** | **For the Six Months Ended** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                   | ** ** | **February 29**                             | ** ** | **February 28** | ** ** | ** ** | ** ** |
| **(In Millions)**                                       | ** ** | **2008**                                         | ** ** | **2007** | ** ** | **Change** | ** ** |
| Beginning  Product Inventories at Net Realizable Value       |       | $                                                | (156.4     | ) | $ | (116.0 | ) | $ | (40.4 | )(1) |
|                                                         |       |                                             |       |   |   |   |   |
| Ending Product  Inventories at Net Realizable Value          |       | 353.1                                            |       | 354.6 |   | (1.5 | )(2) |
|                                                         |       |                                             |       |   |   |   |   |
| Increase in the  Net Realizable Value of Product Inventories |       | $                                                | 196.7      |   | $ | 238.6 |   | $ | (41.9 | ) |

 

----

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

 

(2) The change isprimarily due to a 5.1 percent decrease in the per hundredweight net realizablevalue of sugar inventory as of February 29, 2008 as compared to February 28,2007 partially offset by a 3.9 percent increase in the hundredweight of sugarinventory as of February 29, 2008 as compared to February 28, 2007.

 

Selling,general and administrative expenses increased $12.2 million for six monthsended February 29, 2008, as compared to the six months ended February 28,2007.  Selling expenses increased $11.8million primarily due to the increase in the volumes of products sold resultingin increased shipping and handling expenses. General and administrative expenses increased $ .4 million due togeneral cost increases.

 

Interestexpense decreased $2.1 million for the six months ended February 29, 2008,as compared to the six months ended February 28, 2007.  This reflects a decrease in the averageborrowing level of short-term and long-term debt and a lower average interestrate for short-term and long-term debt.

 

Non-memberbusiness activities resulted in a gain of $2.8 million for the six months endedFebruary 29, 2008, as compared to a gain of $2.4 million for the sixmonths ended February 28, 2007.  Theincrease was primarily related to increased income from the activities ofProGold partially offset by the reduced earnings of Sidney Sugars.

 

**Comparisonof the Three Months Ended February 29, 2008 and February 28, 2007**

 

Revenuefor the three months ended February 29, 2008, was $252.7 million, adecrease of $33.3 million from the three months ended February 28,2007.  The table below reflects the percentagechanges in product revenues, prices and volumes for the three months ended February 29,2008, as compared to the three months ended February 28, 2007.

 
| **Product** | ** ** | **Revenue** | ** ** | **Selling Price** | ** ** | **Volume** | ** ** |
|-------------|------------|-------------|------------|------------------------|------------|------------|------------|
| Sugar       |       | -13.5       | %          | -6.6                   | %          | -7.4       | %          |
| Pulp        |       | -11.9       | %          | 20.1                   | %          | -26.7      | %          |
| Molasses    |       | 26.7        | %          | 0.2                    | %          | 26.4       | %          |
| CSB         |       | 24.0        | %          | 4.1                    | %          | 19.2       | %          |
| Betaine     |       | 65.1        | %          | 5.2                    | %          | 57.0       | %          |

 

Thesubstantial increases in the volumes of molasses and betaine sold are primarilydue to increased availability of saleable product resulting from higher beginninginventory levels as of December 1, 2007 as compared to the inventorylevels as of December 1, 2006.

 

Rentalrevenue on the ProGold operating lease was $5.8 million and $6.2 million forthe three months ended February 29, 2008 and February 28, 2007, respectively.

 

Costof sales for the three months ended February 29, 2008, exclusive ofpayments to members for sugarbeets, decreased $8.2 million as compared to thethree months ended February 28, 2007. Operating costs increased $3.9 million. This was primarily due to increased costs for sugarbeet transportation,process chemicals, coal and limerock consumption and property taxes partiallyoffset by   

 

13

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lowernatural gas consumption along with processing 1.6 percent less sugarbeetsduring the second quarter of fiscal 2008 as compared to the same period lastyear.  The cost recognized associatedwith the non-member sugarbeets decreased $4.0 million for the three monthsended February 29, 2008, when compared to the three months ended February 28,2007.  This decrease was primarily due toan 18.6 percent decrease in tons processed along with a lower per ton estimatedgrower payment this year resulting from a lower projected sugar net sellingprice.  At the end of each reportingperiod, product inventories are recorded at their net realizable value.  The change in the net realizable value of theproduct inventories from the beginning of the reporting period is recorded onthe balance sheet as either an increase or decrease to inventories with acorresponding dollar for dollar adjustment to cost of sales on the statement ofoperations.  The increase in the netrealizable value of product inventories for the three months ended February 29,2008 was $107.8 million as compared to an increase of $100.0 million for theprevious year’s three month period ended February 28, 2007 resulting in a$7.8 million favorable change in the cost of sales between the two quarters asshown in the table below:

 

**Change in the Net Realizable Value of ProductInventories**

 
| ** **                                                   | ** ** | **For the Three Months Ended** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                   | ** ** | **February 29**                               | ** ** | **February 28** | ** ** | ** ** | ** ** |
| **(In Millions)**                                       | ** ** | **2008**                                           | ** ** | **2007** | ** ** | **Change** | ** ** |
| Beginning  Product Inventories at Net Realizable Value       |       | (245.3                                             | )          | (254.6 | ) | $ | 9.3 | (1) |
|                                                         |       |                                               |       |   |   |   |   |
| Ending Product  Inventories at Net Realizable Value          |       | 353.1                                              |       | 354.6 |   | (1.5 | )(2) |
|                                                         |       |                                               |       |   |   |   |   |
| Increase in the  Net Realizable Value of Product Inventories |       | $                                                  | 107.8      |   | $ | 100.0 |   | $ | 7.8 |   |
|                                                              |            |                                                    |            |  |  |  |  |  |  |  |

 

----

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

 

(2) The change isprimarily due to a 5.1 percent decrease in the per hundredweight net realizablevalue of sugar inventory as of February 29, 2008 as compared to February 28,2007 partially offset by a 3.9 percent increase in the hundredweight of sugarinventory as of February 29, 2008 as compared to February 28, 2007.

 

Selling,general and administrative expenses decreased $ .9 million for the three monthsended February 29, 2008, as compared to the three months ended February 28,2007.  Selling expenses decreased $ .6million primarily due to the decrease in the volumes of products sold resultingin decreased shipping and handling expenses. General and administrative expenses decreased $ .3 million due togeneral cost decreases.

 

Interestexpense decreased $1.3 million for the three months ended February 29,2008, as compared to the three months ended February 28, 2007.  This reflects a decrease in the averageborrowing level of short-term and long-term debt and a lower average interestrate for short-term and long-term debt.

 

Non-memberbusiness activities resulted in a gain of $1.1 million for the three monthsended February 29, 2008, as compared to a gain of $1.3 million for thethree months ended February 28, 2007. The increase was primarily related to increased income from the activitiesof ProGold partially offset by the reduced earnings of Sidney Sugars.

 

**PendingLegislation**

 

OnJuly 27, 2007, the U.S. House of Representatives passed the Farm,Nutrition, and Bioenergy Act of 2007.  OnDecember 14, 2007, the U.S. Senate passed the Food and Energy Security Actof 2007.  Negotiations are currentlyunderway in an attempt to reconcile these bills.  The resulting legislation, if signed intolaw, would replace the Farm Security and Rural Investment Act of 2002.  The Company has no way to predict theoutcome, but the impact could be material and significant.

 

14

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**NorthAmerican Free Trade Agreement**

 

TheNorth American Free Trade Agreement (NAFTA) governs sweetener trade between theUnited States and Mexico.  Under the NAFTA, tariffs on over-quota importsof sugar from Mexico expired on January 1, 2008.  Early in thecurrent calendar year, there has been no indication of an influx of sugar fromMexico.  However, market conditions forsugar and other sweeteners could change and excessive imports of Mexican sugarcould cause material harm to the United States sugar market.  The Companyhas no way to predict the extent to which Mexico will take advantage of itsexport opportunities**.**

 

**Regionaland Bilateral Free Trade Agreements**

 

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

 

OnDecember 14, 2007, the U.S. President signed the U.S.-Peru Free TradeAgreement.  This agreement establishes aduty-free Tariff Rate Quota (TRQ), in addition to that provided under the WorldTrade Organization (WTO), for those sugar and sugar-containing products forwhich overall TRQ’s under the U.S. sugar import program are in operation.  This TRQ is set at 9,000 metric tons in year1 of the agreement and rises to 11,250 metric tons in year 15; after year 15the in-quota quantity grows by 180 metric tons per year. Eligibility for thisTRQ, however, is limited to the amount of Peru’s trade surplus in sugar. Inaddition to the TRQ described above, a duty-free TRQ of 2,000 metric tons hasbeen established for specialty sugars. This TRQ does not increase and is not subject to the “net exporter”provision described above.

 

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

 

·                  Colombia– the proposed agreement would allow Colombia to export to the U.S. anadditional 50,000 metric tons of sugar in the first year of the agreement,rising to more than 60,000 tons in year 15, with the first-yearincrease tripling the duty-free sugar market access Colombia already enjoys.

·                  Panama– the proposed agreement includes 7,000 metric tons of additional duty-freeaccess to the U.S. sugar market and provides for duty-free access for U.S.sugar shipments into Panama and requires that at least 6,000 tons of thePanamanian sugar sent to the U.S. be in a raw form.

 

Thecurrent U.S President’s administration has indicated its interest in pursuingother bilateral or regional free trade agreements.  These include the Free Trade Area of theAmericas, the Association of Southeast Asian Nations, South Africa, Thailand,and others.  Since these negotiations arein some cases stalled or at various stages of development, the Company isunable to assess the risk associated with these potential agreements.

 

TheDoha Round negotiations of the WTO continue to be pursued by the U.S.Administration and some of its international counterparts.  It is unclear at this time whether negotiationswill be completed.  If the negotiationsare completed, the outcome of any negotiated arrangement could have significantadverse consequences for the Company.

 

TheU.S. sugar industry and the Company, as an influential member of such industry,recognize the potential negative impact that could result if these agreementsare entered into by the United States 

 

15

----

 

andare taking steps to attempt to positively influence the outcome.  The Company and the sugar industry intend tocontinue to focus significant attention on trade issues in the future.

 

The impact of the varioustrade agreements on the Company cannot be assessed at this time due to theuncertainty concerning the terms of the agreements and whether they willultimately be implemented.  It ispossible, however, that the passage of various trade agreements could have amaterial adverse effect on the Company through a reduction in acreage that canbe planted by the Company’s shareholders and by the growers for Sidney SugarsIncorporated, and/or a reduction in sugar selling prices, and a correspondingreduction in the beet payment to the shareholders and the Companyearnings.  Although the magnitude of theimpact cannot be determined at this time, the Company estimates that for everyadditional 500,000 tons of sugar entering the U.S. market and thereforereducing the overall allotment quantity (and assuming no other variableschange), the Company may need to reduce planted acres by approximately 30,000,which would negatively impact shareholder profits.

 

**Environmental**

 

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

 

Capitalexpenditures will be required to prevent future occurrences of theemissions.  The Company’s capitalappropriations budgets at the beginning of the current fiscal year includedapproximately $6.2 million for environmentally related projects at the Company’sfactory locations.  Expenditures duringthe six months ended February 29, 2008 on these projects wereapproximately $1.2 million while total project-to-date spending on theseprojects has been $4.6 million. Environmental related projects that were placed into service during thesix months ended February 29, 2008 totaled approximately $4.2million.  The amount and timing of anyadditional capital expenditures that may be required is not currently known.

 

TheCompany is also addressing the following environmental matters:

·                  InOctober 2007, the East Grand Forks, Minnesota factory failed a stackemission performance test on its pellet cooler. A notice of non-compliance was issued by the MPCA on December 4,2007 related to this occurrence.

·                  InNovember 2007, the Moorhead, Minnesota factory failed a stack emissionperformance test on its lime kiln.  Anotice of non-compliance was issued by the MPCA on February 5, 2008related to this occurrence.

·                  InJuly 2007, the Company received Compliance Monitoring Survey-Letters ofWarning from the MPCA for the East Grand Forks and Moorhead, Minnesotafactories.

·                  InNovember 2007, the Company received a Compliance Monitoring Survey-Letterof Warning from the MPCA for the Crookston Minnesota factory.

·                  OnFebruary 15, 2008, the Montana Department of Environmental Quality (MDEQ)issued a notice of violation related to the retention of environmentalmonitoring data at the Sidney, Montana factory.

 

Correctiveactions have been taken related to these occurrences.  While the Company may be assessed penaltiesfor these occurrences, as of the date of this report none have beenassessed.   Any potential penaltiesassessed are not expected to be material to the Company.

 

16

----

 

**Liquidityand Capital Resources**

 

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

 

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

 

TheCompany has long-term debt availability with CoBank, ACB of****$174.8 million,of which $55.3 million in loans and $69.5 million in long-term letters ofcredit were outstanding as of February 29, 2008.  The unused long-term line of credit as of February 29,2008, was $50.0 million.  In addition,the Company had long-term debt outstanding, as of February 29, 2008, of$50 million from a private placement of Senior Notes that occurred in September of1998; $5.5 million from a private placement of Senior Notes that occurred in January of2003; $67.1 million from ten separate issuances of Pollution Control and Industrial Development Revenue Bonds; and a termloan with Bank of North Dakota of $.8 million.

 

TheCompany also has a seasonal line of credit with a consortium of lenders led byCoBank, ACB of $390 million, against which there was no outstandingbalance as of February 29, 2008 and a line of credit with Wells Fargo Bankfor $1 million, against which there was no outstanding balance as of February 29,2008.  The Company’s commercial paperprogram provides short-term borrowings of up to $325 million of whichapproximately $206.1 million was outstanding as of February 29, 2008.  The Company had $2.1 million of short-termletters of credit outstanding as of February 29, 2008.  Any borrowings under the commercial paperprogram along with outstanding short-term letters of credit will act to reducethe available credit under the CoBank, ACB seasonal line of credit by acommensurate amount.  The unusedshort-term line of credit as of February 29, 2008, was $182.8million.  In addition, the Company had anoutstanding non-recourse loan with the CCC, as of February 29, 2008, of$34.3 million, against which 1.5 million hundredweight of sugar was pledged ascollateral.

 

TheCompany had outstanding purchase commitments totaling $8.1 million as of February 29,2008, for equipment and construction contracts related to various capital andmaintenance projects.

 

Thechanges that have occurred in the Company’s financial statements from August 31,2007, to February 29, 2008, were primarily due to normal businessseasonality.  The first six months of theCompany’s fiscal year includes: the completion of the sugarbeet harvest; thestartup of the processing campaign; the final payments to growers forsugarbeets delivered from the previous year’s crop; and the initial payments togrowers for sugarbeets delivered from the current year’s crop.

 

Thenet cash used by operations was $162.4 million for the six months ended February 29,2008, as compared to $156.4 million for the six months ended February 28,2007.  This increase in the use of cashof $6.0 million was primarily the result of additional cash usages due tochanges in the amounts due growers of $34.4 million, changes in accruedcontinuing costs of $13.2 million and changes in accounts payable of $12.7million.  The additional usages of cashwere partially offset by changes in inventories of $60.1 million. Amounts duegrowers changed primarily as the result of a lower estimated grower payment forthe 2007 crop as compared to the 2006 crop. The change in accrued continuing costs was the result of the differencein the timing of revenues and expenses between the two years.  Increased payments of accounts payable thisyear was primarily due to a higher liability balance as of August 31, 2007as compared to the previous year resulting from increased maintenance andproject activities during the later

 

17

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part of fiscal 2007.  The change in inventories was due primarilyto a higher beginning sugar inventory value this fiscal year as compared to theprevious year.  The change in inventorieswas also impacted by the lower per ton value for unprocessed sugarbeets as of February 29,2008 as compared to February 28, 2007 resulting from of a lower estimatedgrower payment for the 2007 crop as compared to the 2006 crop.

 

Thenet cash used in investing activities was $18.3 million for the six monthsended February 29, 2008, as compared to $22.3 million for the six monthsended February 28, 2007.  Thedecrease of $4.0 million was primarily related to decreased purchases ofproperty and equipment of $1.4 million and changes in other assets of $2.6million.

 

Thenet cash provided by financing activities was $184.4 million for the six monthsended February 29, 2008, as compared to $178.7 million for the six monthsended February 28, 2007.  Thisincrease of $5.7 million was primarily due to additional proceeds from issuanceof long-term debt of $7.7 million, decreased payments on long-term debt of $9.6million partially offset by decreased borrowings of short-term debt of $10.0million and increased payments of Unit Retains and Equity Retention of $1.5million.

 

TheCompany anticipates that the funds necessary for working capital requirementsand future capital expenditures will be derived from operations and unitretains along with short-term and long-term borrowings.

 

**Item 3.  Quantitative andQualitative Disclosures about Market Risk**

 

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

 

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

 

**Item 4.   Controls and Procedures**

 

TheCompany’s chief executive officer and chief financial officer have reviewed andevaluated the effectiveness of the Company’s disclosure controls and procedures(as defined in Rules 240.13a-15(e) and 15d-15(e) promulgatedunder the Securities Exchange Act of 1934) as of February 29, 2008.  Based on that review and evaluation, whichincluded inquiries made to certain other employees of the Company, the chiefexecutive officer and chief financial officer have concluded that the Company’scurrent disclosure controls and procedures, as designed and implemented, areeffective in ensuring that information relating to the Company required to bedisclosed in the reports the Company files or submits under the SecuritiesExchange Act of 1934 is recorded, processed, summarized and reported within thetime periods specified in the Securities and Exchange Commission’s rules andforms, including ensuring that such information is accumulated and communicatedto the Company’s management, including the chief executive officer and thechief financial officer, as appropriate to allow timely decisions regardingrequired disclosure.  There were nochanges in the Company’s internal controls over financial reporting thatoccurred during the Company’s most recent fiscal quarter that may havematerially affected, or are reasonably likely to materially affect, the Company’sinternal control over financial reporting.

 

18

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## **PART II.OTHER INFORMATION**

 

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

#### ** **

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

 

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

 

**Item1A.  Risk Factors.**

 

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

 

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

 

None

 

**Item3.  Defaults Upon Senior Securities**

 

None

 

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

 

None.

 

**Item5.  Other Information.**

 

None.

 

19

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### ** **

### **Item 6. Exhibits**

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

 

20

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

 

21

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| 10.22  |   | Fourth Amendment to Amended and Restated Loan Agreement between the  Registrant and CoBank, ACB dated July 25, 2007. |   | Incorporated by  reference to Exhibit 10.23 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2007 |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                      |   |                                                                                                                                              |
| 10.23  |   | Growers’ Contract (5-year Agreement) for the crop  years 2008 through 2012                                           |   | Incorporated by reference to Exhibit 10.24 from  the Company’s Annual Report on Form 10-K for the year ended  August 31, 2007 |
|   |   |                                                                                                                      |   |                                                                                                                                              |
| 10.24  |   | Commitment and  Acceptance Agreement between the  Registrant and CoBank, ACB dated November 6, 2007                  |   | Incorporated by  reference to Exhibit 10.24 from the Company’s Form 10-Q for the  quarter ended November 30, 2007             |
|   |   |                                                                                                                      |   |                                                                                                                                              |
| 21.1   |   | List of Subsidiaries of  the Registrant                                                                                   |   | Incorporated by  reference to Exhibit 21.1 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2007  |
|   |   |                                                                                                                      |   |                                                                                                                                              |
| 31.1   |   | Rule 13a-14(a)/15(d)-14(a) Certification  of the Chief Executive Officer                                        |   | Accompanying herewith electronically                                                                                                              |
|   |   |                                                                                                                      |   |                                                                                                                                              |
| 31.2   |   | Rule 13a-14(a)/15(d)-14(a) Certification  of the Chief Financial Officer                                        |   | Accompanying herewith electronically                                                                                                              |
|   |   |                                                                                                                      |   |                                                                                                                                              |
| 32.1   |   | Section 1350 Certification of the Chief  Executive Officer                                                           |   | Accompanying herewith electronically                                                                                                              |
|   |   |                                                                                                                      |   |                                                                                                                                              |
| 32.2   |   | Section 1350 Certification of the Chief  Financial Officer                                                           |   | Accompanying herewith electronically                                                                                                              |

 

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+              Confidential treatment under Rule 24b-2 of theSecurities and Exchange Act of 1934, as amended, has been granted with respectto designated portions of this document.

 

++           A management contract or compensatory plan required to befiled with this report.

 

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SIGNATURES

 

**Pursuantto the requirement of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.**

 

 
|       |                    | **AMERICAN CRYSTAL SUGAR COMPANY**       |
|------------|-------------------------|------------------------------------------|
| ** ** | ** **              | **    (Registrant)** |
| ** ** | ** **              | ** **                               |
| ** ** | ** **              | ** **                               |
| **Date:**  | **April 14, 2008** |                                     |   | **/s/ Teresa Warne** |
| ** ** | ** **              | ** **                               | **Teresa Warne** |
| ** ** | ** **              | ** **                               | **Corporate Controller,** |
| ** ** | ** **              | ** **                               | **Chief Accounting Officer** |
| ** ** | ** **              | ** **                               | **Duly  Authorized Officer** |
|            |                         |                                          |  |  |

 

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