**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 thequarterly period ended May 31, 2008**

# ** **

**Commissionfile 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 |
|------------------------|--------|-----------------|

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See definitions of“large accelerated filer,” “accelerated filer,” and “smaller reporting company”in Rule 12b-2 of the Exchange Act. (Check one):

 

| Large accelerated filer  o | Accelerated filer o | Non-accelerated filer x                         | Smaller reporting  company o |
|----------------------------|--------------------------|-------------------------------------------------|-----------------------------------|
|                       |                     | (Do not check if a  smaller  reporting company) |                              |

 

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** | ** ** | **July 7, 2008** |
| **$10 Par  Value**                       | ** ** | **2,839**                  |

 

 

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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** | **12**        |
| **ITEM 3.**      | **QUANTITATIVE AND  QUALITATIVE DISCLOSURES ABOUT MARKET RISK**                                 | **19**        |
| **ITEM 4.**      | **CONTROLS AND  PROCEDURES**                                                                    | **19**        |
|             |                                                                                            |          |
|             |                                                                                            |          |
| **PART II** | **OTHER  INFORMATION**                                                                          |          |
|             |                                                                                            |          |
| **ITEM 1.**      | **LEGAL PROCEEDINGS**                                                                           | **19**        |
| **ITEM 1A.**     | **RISK FACTORS**                                                                                | **20**        |
| **ITEM 2.**      | **UNREGISTERED SALES  OF EQUITY SECURITIES AND USE OF PROCEEDS**                                | **20**        |
| **ITEM 3.**      | **DEFAULTS UPON SENIOR  SECURITIES**                                                            | **20**        |
| **ITEM 4.**      | **SUBMISSION OF  MATTERS TO A VOTE OF SECURITY HOLDERS**                                        | **20**        |
| **ITEM 5.**      | **OTHER INFORMATION**                                                                           | **20**        |
| **ITEM 6.**      | **EXHIBITS**                                                                                    | **21**        |
|             |                                                                                            |          |
| **SIGNATURES**   |                                                                                            | **24**        |

 

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**American Crystal Sugar Company**

**ConsolidatedBalance Sheets**

**(Unaudited)**

**(In Thousands)**

** **

**Assets**

** **
| ** **                                    | ** ** | **May 31** | ** ** | **August 31** | ** ** |
|-----------------------------------------------|------------|-----------------|------------|--------------------|------------|
| ** **                                    | ** ** | **2008**        | ** ** | **2007**           | ** ** | **2007******* | ** ** |
| **Current Assets:**                           |       |            |       |               |       |   |   |
| Cash  and Cash Equivalents                    |       | $               | 4,483      |               | $          | 344 |   | $ | 222 |   |
| Receivables:                                  |       |            |       |               |       |   |   |
| Trade                                         |       | 64,994          |       | 80,389             |       | 77,010 |   |
| Members                                       |       | 1,948           |       | 3,706              |       | 2,746 |   |
| Other                                         |       | 1,069           |       | 2,049              |       | 5,532 |   |
| Advances  to Related Parties                  |       | 13,054          |       | 4,346              |       | 7,796 |   |
| Inventories                                   |       | 393,307         |       | 426,980            |       | 216,563 |   |
| Prepaid  Expenses                             |       | 1,584           |       | 4,787              |       | 1,204 |   |
|                                          |       |            |       |               |       |   |   |
| **Total Current Assets**                      |       | 480,439         |       | 522,601            |       | 311,073 |   |
|                                          |       |            |       |               |       |   |   |
| **Property and Equipment:**                   |       |            |       |               |       |   |   |
| Land  and Land Improvements                   |       | 58,292          |       | 56,231             |       | 57,738 |   |
| Buildings                                     |       | 111,127         |       | 106,679            |       | 109,123 |   |
| Equipment                                     |       | 870,885         |       | 823,910            |       | 846,467 |   |
| Construction  in Progress                     |       | 19,323          |       | 25,169             |       | 23,513 |   |
| Less  Accumulated Depreciation                |       | (710,398        | )          | (673,188           | )          | (672,896 | ) |
|                                          |       |            |       |               |       |   |   |
| **Net Property and Equipment**                |       | 349,229         |       | 338,801            |       | 363,945 |   |
|                                          |       |            |       |               |       |   |   |
| **Net Property and Equipment Held for Lease** |       | 122,502         |       | 132,467            |       | 129,795 |   |
|                                          |       |            |       |               |       |   |   |
| **Other Assets:**                             |       |            |       |               |       |   |   |
| Investments  in CoBank, ACB                   |       | 9,946           |       | 11,627             |       | 11,627 |   |
| Investments  in Marketing Cooperatives        |       | 5,836           |       | 5,829              |       | 5,659 |   |
| Pension  Asset                                |       | 37,485          |       | 46,891             |       | 37,400 |   |
| Other  Assets                                 |       | 11,622          |       | 17,049             |       | 15,816 |   |
|                                          |       |            |       |               |       |   |   |
| **Total Other Assets**                        |       | 64,889          |       | 81,396             |       | 70,502 |   |
|                                          |       |            |       |               |       |   |   |
| **Total Assets**                              |       | $               | 1,017,059  |               | $          | 1,075,265 |   | $ | 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**

 
| ** **                                                  | ** ** | **May 31** | ** ** | **August 31** | ** ** |
|-------------------------------------------------------------|------------|-----------------|------------|--------------------|------------|
| ** **                                                  | ** ** | **2008**        | ** ** | **2007**           | ** ** | **2007******* | ** ** |
| **Current Liabilities:**                                    |       |            |       |               |       |   |   |
| Short-Term  Debt                                            |       | $               | 210,134    |               | $          | 221,463 |   | $ | 24,980 |   |
| Current  Maturities of Long-Term Debt                       |       | 20,992          |       | 20,977             |       | 31,227 |   |
| Accounts  Payable                                           |       | 12,263          |       | 19,140             |       | 38,998 |   |
| Advances  Due to Related Parties                            |       | 1,970           |       | 1,939              |       | 2,874 |   |
| Accrued  Continuing Costs                                   |       | 92,160          |       | 85,579             |       | — |   |
| Other  Current Liabilities                                  |       | 24,673          |       | 25,761             |       | 32,805 |   |
| Amounts  Due Growers                                        |       | 72,133          |       | 118,987            |       | 143,260 |   |
|                                                        |       |            |       |               |       |   |   |
| **Total Current Liabilities**                               |       | 434,325         |       | 493,846            |       | 274,144 |   |
|                                                        |       |            |       |               |       |   |   |
| **Long-Term Debt, Net of Current Maturities**               |       | 156,879         |       | 165,428            |       | 157,974 |   |
|                                                        |       |            |       |               |       |   |   |
| **Accrued Employee Benefits**                               |       | 38,875          |       | 41,848             |       | 39,337 |   |
|                                                        |       |            |       |               |       |   |   |
| **Other Liabilities**                                       |       | 9,737           |       | 7,847              |       | 8,240 |   |
|                                                        |       |            |       |               |       |   |   |
| **Total Liabilities**                                       |       | 639,816         |       | 708,969            |       | 479,695 |   |
|                                                        |       |            |       |               |       |   |   |
| **Commitments and Contingencies**                           |       |            |       |               |       |   |   |
|                                                        |       |            |       |               |       |   |   |
| **Minority Interest in ProGold Limited Liability  Company** |       | 61,518          |       | 60,186             |       | 61,735 |   |
|                                                        |       |            |       |               |       |   |   |
| **Members’ Investments:**                              |       |            |       |               |       |   |   |
| Preferred  Stock                                            |       | 38,275          |       | 38,275             |       | 38,275 |   |
| Common  Stock                                               |       | 28              |       | 29                 |       | 29 |   |
| Additional  Paid-In Capital                                 |       | 152,261         |       | 152,261            |       | 152,261 |   |
| Unit  Retains                                               |       | 151,289         |       | 134,711            |       | 170,363 |   |
| Equity  Retention                                           |       | 1,157           |       | 2,689              |       | 2,687 |   |
| Accumulated  Other Comprehensive Income (Loss)              |       | (8,571          | )          | (428               | )          | (8,552 | ) |
| Retained  Earnings (Accumulated Deficit)                    |       | (18,714         | )          | (21,427            | )          | (21,178 | ) |
|                                                        |       |            |       |               |       |   |   |
| **Total Members’ Investments**                         |       | 315,725         |       | 306,110            |       | 333,885 |   |
|                                                        |       |            |       |               |       |   |   |
| **Total Liabilities and Members’ Investments**         |       | $               | 1,017,059  |               | $          | 1,075,265 |   | $ | 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**

**ConsolidatedStatements of Operations**

**(Unaudited)**

**(In Thousands)**

 
| ** **                                                            | ** ** | **For the Nine Months Ended** | ** ** | **For the Three Months Ended** | ** ** |
|-----------------------------------------------------------------------|------------|---------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                            | ** ** | **May 31**                                   | ** ** | **May 31**                                    | ** ** |
| ** **                                                            | ** ** | **2008**                                          | ** ** | **2007**                                           | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Net Revenue**                                                       |       | $                                                 | 889,991    |                                               | $          | 875,517 |   | $ | 332,938 |   | $ | 331,302 |   |
|                                                                  |       |                                              |       |                                               |       |   |   |   |   |
| **Cost of Sales**                                                     |       | 111,411                                           |       | 44,874                                             |       | 88,803 |   | 58,087 |   |
|                                                                  |       |                                              |       |                                               |       |   |   |   |   |
| **Gross Proceeds**                                                    |       | 778,580                                           |       | 830,643                                            |       | 244,135 |   | 273,215 |   |
|                                                                  |       |                                              |       |                                               |       |   |   |   |   |
| **Selling, General and Administrative Expenses**                      |       | 189,717                                           |       | 169,319                                            |       | 69,969 |   | 61,765 |   |
| **Accrued Continuing Costs**                                          |       | 92,160                                            |       | 85,579                                             |       | 28,912 |   | 9,125 |   |
|                                                                  |       |                                              |       |                                               |       |   |   |   |   |
| **Operating Proceeds**                                                |       | 496,703                                           |       | 575,745                                            |       | 145,254 |   | 202,325 |   |
|                                                                  |       |                                              |       |                                               |       |   |   |   |   |
| **Other Income (Expense):**                                           |       |                                              |       |                                               |       |   |   |   |   |
| Interest  Income                                                      |       | 349                                               |       | 568                                                |       | 13 |   | 62 |   |
| Interest  Expense, Net                                                |       | (11,603                                           | )          | (15,455                                            | )          | (3,681 | ) | (5,479 | ) |
| Other,  Net                                                           |       | 1,009                                             |       | 956                                                |       | 386 |   | 466 |   |
|                                                                  |       |                                              |       |                                               |       |   |   |   |   |
| **Total Other Expense**                                               |       | (10,245                                           | )          | (13,931                                            | )          | (3,282 | ) | (4,951 | ) |
|                                                                  |       |                                              |       |                                               |       |   |   |   |   |
| **Proceeds Before Minority Interest and Income Tax  Expense**         |       | 486,458                                           |       | 561,814                                            |       | 141,972 |   | 197,374 |   |
|                                                                  |       |                                              |       |                                               |       |   |   |   |   |
| **Minority Interest**                                                 |       | (5,450                                            | )          | (4,087                                             | )          | (1,523 | ) | (1,564 | ) |
|                                                                  |       |                                              |       |                                               |       |   |   |   |   |
| **Income Tax (Expense)/Benefit**                                      |       | (1,717                                            | )          | (1,422                                             | )          | 226 |   | 212 |   |
|                                                                  |       |                                              |       |                                               |       |   |   |   |   |
| **Net Proceeds Resulting from Member and  Non-Member Business**       |       | $                                                 | 479,291    |                                               | $          | 556,305 |   | $ | 140,675 |   | $ | 196,022 |   |
|                                                                  |       |                                              |       |                                               |       |   |   |   |   |
| **Distributions of Net Proceeds:**                                    |       |                                              |       |                                               |       |   |   |   |   |
| Credited/(Charged)  to Members’ Investments:                     |       |                                              |       |                                               |       |   |   |   |   |
| Non-Member  Business Income/(Loss)                                    |       | $                                                 | 2,464      |                                               | $          | 2,037 |   | $ | (327 | ) | $ | (316 | ) |
| Unit  Retains Declared to Members                                     |       | —                                            |       | —                                             |       | — |   | — |   |
| Net  Credit/(Charge) to Members’ Investments                     |       | 2,464                                             |       | 2,037                                              |       | (327 | ) | (316 | ) |
| Payments  To/Due Members for Sugarbeets, Net of Unit Retains Declared |       | 476,827                                           |       | 554,268                                            |       | 141,002 |   | 196,338 |   |
| **Total**                                                             |       | $                                                 | 479,291    |                                               | $          | 556,305 |   | $ | 140,675 |   | $ | 196,022 |   |

 

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

 

3

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**American Crystal Sugar Company**

**ConsolidatedStatements of Cash Flows**

**(Unaudited)**

**(In Thousands)**

 
| ** **                                                            | ** ** | **For the Nine Months Ended** | ** ** |
|-----------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                            | ** ** | **May 31**                                   | ** ** |
| ** **                                                            | ** ** | **2008**                                          | ** ** | **2007** | ** ** |
| **Cash Provided By (Used In) Operating Activities:**                  | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Net  Proceeds Resulting from Member and Non-Member Business           |       | $                                                 | 479,291    |   | $ | 556,305 |   |
| Payments  To/Due Members for Sugarbeets, Net of Unit Retains Declared |       | (476,827                                          | )          | (554,268 | ) |
| Add  (Deduct) Non-Cash Items:                                         |       |                                              |       |   |   |
| Depreciation  and Amortization                                        |       | 52,043                                            |       | 51,894 |   |
| Income  from Equity Method Investees                                  |       | (30                                               | )          | (738 | ) |
| Loss  on the Disposition of Property and Equipment                    |       | 240                                               |       | 846 |   |
| Non-Cash  Portion of Patronage Dividend from CoBank, ACB              |       | (121                                              | )          | (182 | ) |
| Deferred  Gain Recognition                                            |       | (148                                              | )          | (148 | ) |
| Minority  Interest in ProGold Limited Liability Company               |       | (217                                              | )          | 4,087 |   |
| Changes  in Assets and Liabilities:                                   |       |                                              |       |   |   |
| Receivables                                                           |       | 17,277                                            |       | (483 | ) |
| Inventories                                                           |       | (176,744                                          | )          | (252,219 | ) |
| Prepaid  Expenses                                                     |       | (399                                              | )          | (291 | ) |
| Non  Current Pension Asset                                            |       | (85                                               | )          | (1,466 | ) |
| Advances  To/Due to Related Parties                                   |       | (6,162                                            | )          | (401 | ) |
| Accounts  Payable                                                     |       | (26,735                                           | )          | (7,980 | ) |
| Accrued  Continuing Costs                                             |       | 92,160                                            |       | 85,579 |   |
| Other  Liabilities                                                    |       | (7,097                                            | )          | (1,086 | ) |
| Amounts  Due Growers                                                  |       | (71,127                                           | )          | (4,661 | ) |
| **Net Cash Used In Operating Activities**                             |       | (124,681                                          | )          | (125,212 | ) |
|                                                                  |       |                                              |       |   |   |
| **Cash Provided By (Used In) Investing Activities:**                  |       |                                              |       |   |   |
| Purchases  of Property and Equipment                                  |       | (27,230                                           | )          | (35,805 | ) |
| Purchases  of Property and Equipment Held for Lease                   |       | (1,043                                            | )          | (754 | ) |
| Proceeds  from the Sale of Property and Equipment                     |       | 38                                                |       | 58 |   |
| Investments  in Crystech, LLC                                         |       | —                                            |       | (1,539 | ) |
| Equity  Refund from CoBank, ACB                                       |       | 1,802                                             |       | 1,693 |   |
| Changes  in Other Assets                                              |       | 2,155                                             |       | (756 | ) |
| **Net Cash Used In Investing Activities**                             |       | (24,278                                           | )          | (37,103 | ) |
|                                                                  |       |                                              |       |   |   |
| **Cash Provided By (Used In) Financing Activities:**                  |       |                                              |       |   |   |
| Net  Proceeds from Short-Term Debt                                    |       | 185,154                                           |       | 216,163 |   |
| Proceeds  from Issuance of Long-Term Debt                             |       | 19,183                                            |       | 11,736 |   |
| Long-Term  Debt Repayment                                             |       | (30,513                                           | )          | (46,330 | ) |
| Payment  of Unit Retains and Equity Retention                         |       | (20,604                                           | )          | (19,255 | ) |
| **Net Cash Provided By Financing Activities**                         |       | 153,220                                           |       | 162,314 |   |
| **Increase/(Decrease) In Cash and Cash Equivalents**                  |       | 4,261                                             |       | (1 | ) |
| **Cash and Cash Equivalents, Beginning of Year**                      |       | 222                                               |       | 345 |   |
|                                                                  |       |                                              |       |   |   |
| **Cash and Cash Equivalents, End of Period**                          |       | $                                                 | 4,483      |   | $ | 344 |   |

 

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

 

4

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# **AMERICAN CRYSTAL SUGARCOMPANY**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**FOR THENINE MONTHS AND THREE MONTHS ENDED**

**May 31,2008 and 2007**

**(Unaudited)**

 

**Note 1:  Basis of Presentation**

 

Theunaudited consolidated financial statements of American Crystal Sugar Company(the Company) contained herein have been prepared pursuant to the rules andregulations of the Securities and Exchange Commission.  Accordingly, they do not include all theinformation and footnotes required by accounting principles generally acceptedin the United States of America. However, in the opinion of management, all adjustments, consisting ofnormal recurring accruals, considered necessary for a fair presentation havebeen included.  These financialstatements should be read in conjunction with the consolidated financialstatements and notes included in the Company’s Annual Report on Form 10-Kfor the year ended August 31, 2007.

 

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. All material inter-company transactions have been eliminated.

 

Theoperating results for the nine months ended May 31, 2008, are notnecessarily indicative of the results that may be expected for the year ended August 31,2008.  The amount paid to shareholdersfor sugarbeets (member beet payment) depends on the future selling prices ofsugar and agri-products as well as processing and other costs incurred duringthe remainder of the fiscal year associated with the 2007 Red River Valleysugarbeet crop (RRV crop).  The amountpaid to non-member growers for sugarbeets (non-member beet payment) depends onthe future selling prices of sugar and the related selling expenses associatedwith the 2007 Sidney Sugars sugarbeet crop (Sidney crop).  For the purposes of this report, the amountof the beet payments, future revenues and costs have been estimated.  Therefore, adjustments with respect to theseestimates may be necessary in the future, as additional information becomesavailable.

 

**Note 2:  Recently Issued Accounting Pronouncements**

 

TheFinancial Accounting Standards Board (FASB) has issued Statement No. 157, *Fair Value Measurements*(SFAS 157).  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.  Relative to SFAS 157, the FASB issued FASBStaff Positions (FSP) 157-1 and 157-2. FSP 157-1 amends SFAS 157 to excludeSFAS No. 13, *Accounting for Leases*, and itsrelated interpretive accounting pronouncements that address leasingtransactions, while FSP 157-2 delays the effective date of the application ofSFAS 157 for the Company to the first quarter of fiscal 2010 for allnon-financial assets and non-financial liabilities that are recognized ordisclosed at fair value in the financial statements on a nonrecurringbasis.  The Company does not expect thatthe adoption of this statement will have a material effect on the Company’sfinancial statements.

 

TheFASB has issued Statement No. 158, *Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans—an amendment of FASBStatements No. 87, 88, 106, and 132(R)*.  This Statement requires the Company torecognize the over-funded or under-funded status of a defined benefitpostretirement plan as an asset or liability in its statement of financialposition and to recognize changes in that funded status in the year in whichthe changes occur through comprehensive income. This requirement became effective and was adopted by the Company as of August 31,2007.  This Statement also will requirethe Company to measure the funded status of a plan as of the date of itsyear-end statement of financial position. This requirement becomes effective for the Company as of August 31,2009.

 

5

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TheFASB has issued Statement No. 160, *Noncontrolling Interestsin 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 eliminate the diversity in practice regarding the accountingfor transactions between an entity and noncontrolling interests.  This statement becomes effective forthe Company in the first quarter of fiscal 2010.  The Company does not expect that the adoptionof this statement will have a material effect on the Company’s financialstatements.

 

TheFASB has issued Statement No. 161, *Disclosures aboutDerivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133*.  This statement enhances the disclosurerequirements for derivatives and hedging activities.  This statement becomes effective for theCompany in the second quarter of fiscal 2009. The Company does not expect that the adoption of this statement willhave a material effect on the Company’s financial statements.

 

TheFASB has issued statement No. 162, *The Hierarchy of GenerallyAccepted Accounting Principles*. This Statement identifies the sources of accounting principles and theframework for selecting the principles to be used in the preparation offinancial statements of nongovernmental entities that are presented inconformity with generally accepted accounting principles (GAAP) in the UnitedStates (the GAAP hierarchy).  ThisStatement is effective 60 days following the SEC’s approval of the PublicCompany Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly inConformity With Generally Accepted Accounting Principles.  The Company does not expect that the adoptionof this statement will have a material effect on the Company’s financialstatements.

 

TheFASB has issued statement No. 163, *Accounting for FinancialGuarantee Insurance Contracts—an interpretation of FASB Statement No. 60.*  This Statement requires that an insuranceenterprise recognize a claim liability prior to an event of default (insuredevent) when there is evidence that credit deterioration has occurred in aninsured financial obligation. This Statement also clarifies how Statement 60applies to financial guarantee insurance contracts, including the recognitionand measurement to be used to account for premium revenue and claimliabilities.  This statement becomeseffective for the Company in the first quarter of fiscal 2010.  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):

 
| ** **                                                             | ** ** | **May 31  2008** | ** ** | **May 31  2007** | ** ** | **August 31  2007** | ** ** |
|------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|--------------------------|------------|
| Refined  Sugar, Pulp, Molasses, Other Agri-Products and Sugarbeet Seed |       | $                     | 363,901    |                  | $          | 393,618                  |       | $ | 178,078 |   |
| Unprocessed  Sugarbeets                                                |       | 392                   |       | 5,546                 |       | 9,231                    |       |
| Maintenance  Parts and Supplies                                        |       | 29,014                |       | 27,816                |       | 29,254                   |       |
|                                                                   |       |                  |       |                  |       |                     |       |
| Total  Inventories                                                     |       | $                     | 393,307    |                  | $          | 426,980                  |       | $ | 216,563 |   |

 

Sugar,pulp, molasses and other agri-products inventories are valued at estimated netrealizable value.  Unprocessed sugarbeetsare valued at the estimated gross beet payment. Maintenance parts and supplies and sugarbeet seed inventories are valuedat the lower of average cost or market.

 

# **Note4:  Short-Term Debt**

 

TheCompany has a seasonal line of credit with a consortium of lenders led byCoBank, ACB of $390 million and a line of credit with Wells Fargo Bank for$1 million.  The Company’scommercial paper program provides short-term borrowings of up to $325million.  Any borrowings under the commercial paper program along withoutstanding short-term letters of credit will act to reduce the availablecredit under the CoBank, ACB seasonal line of credit by a commensurateamount.  The Company also utilizes theCommodity Credit Corporation (CCC) to meet its short-term borrowing needs.

 

6

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As of May 31, 2008,the Company had outstanding commercial paper of $102.9****millionat an average interest rate of 4.41% and maturity dates between June 4,2008 and June 30, 2008.  Inaddition, the Company had an outstanding non-recourse loan with the CCC of$57.2 million, against which 2.5 million hundredweight of sugar was pledged ascollateral.  The CCC loan carried aninterest rate of 3.6% and a maturity date of September 30, 2008.  The Company also had outstanding short-termdebt with CoBank, ACB as of May 31, 2008 of $50.0 million at an averageinterest rate of 3.09% and a maturity date of June 30, 2008.  The Company had $2.1 million of short-term lettersof credit outstanding as of May 31, 2008. The unused seasonal line of credit as of May 31, 2008 was $236.0million.

 

As of May 31, 2007,the Company had outstanding commercial paper of $210****millionat an average interest rate of 5.66% and maturity dates between June 1,2007 and July 24, 2007.  Inaddition, the Company had an outstanding non-recourse loan with the CCC of$11.5 million, against which 500,000 hundredweight of sugar was pledged ascollateral.  The CCC loan carried aninterest rate of 6.0% and a maturity date of September 30, 2007.  The Company had no outstanding short-termdebt with CoBank, ACB as of May 31, 2007. The Company had $2.2 million ofshort-term letters of credit outstanding as of May 31, 2007. The unusedseasonal line of credit as of May 31, 2007 was $138.8 million.

 

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

 

Interestpaid, net of amounts capitalized, was $10.0 million and $13.9 million for thenine months ended May 31, 2008 and 2007, respectively and $2.6 million and$4.4 million for the three months ended May 31, 2008 and 2007,respectively.  Interest capitalized was $..8 million and $1.0 million for the nine months ended May 31, 2008 and2007, respectively, and $ .1 million and $ .3 million for the three monthsended May 31, 2008 and 2007, respectively.

 

**Note 6:  Accrued Continuing Costs**

 

For interim reporting,the net proceeds from member business is based on the forecasted gross beetpayment and the percentage of the tons of sugarbeets processed to the totalestimated 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 continuing costsrepresent 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.

 

**Note 7: ****Net Periodic Pension andPost-Retirement Costs**

 

The following schedules provide the components of theNet Periodic Pension and Post-Retirement Costs for the nine months and threemonths ended May 31, 2008 and 2007:

 

7

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***Components of Net Periodic Pension Cost***

(InThousands)

 
| ** **                           | ** ** | **For the Nine Months Ended** | ** ** | **For the Three Months Ended** | ** ** |
|--------------------------------------|------------|---------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                           | ** ** | **May 31**                                   | ** ** | **May 31**                                    | ** ** |
| ** **                           | ** ** | **2008**                                          | ** ** | **2007**                                           | ** ** | **2008** | ** ** | **2007** | ** ** |
| Service  Cost                        |       | $                                                 | 2,822      |                                               | $          | 2,650 |   | $ | 940 |   | $ | 883 |   |
| Interest  Cost                       |       | 6,115                                             |       | 5,930                                              |       | 2,039 |   | 1,977 |   |
| Expected  Return on Plan Assets      |       | (9,724                                            | )          | (8,182                                             | )          | (3,241 | ) | (2,727 | ) |
| Multiple  Employer Adjustment        |       | —                                            |       | (42                                                | )          | — |   | (14 | ) |
| Amortization  of Prior Service Costs |       | 988                                               |       | 2,184                                              |       | 329 |   | 728 |   |
| Amortization  of Net Actuarial Loss  |       | 45                                                |       | 325                                                |       | 15 |   | 108 |   |
| Net  Periodic Pension Cost           |       | $                                                 | 246        |                                               | $          | 2,865 |   | $ | 82 |   | $ | 955 |   |

 

***Components of Net Periodic Post-RetirementCost***

(InThousands)

 
| ** **                          | ** ** | **For the Nine Months Ended** | ** ** | **For the Three Months Ended** | ** ** |
|-------------------------------------|------------|---------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                          | ** ** | **May 31**                                   | ** ** | **May 31**                                    | ** ** |
| ** **                          | ** ** | **2008**                                          | ** ** | **2007**                                           | ** ** | **2008** | ** ** | **2007** | ** ** |
| Service  Cost                       |       | $                                                 | 807        |                                               | $          | 827 |   | $ | 269 |   | $ | 275 |   |
| Interest  Cost                      |       | 1,398                                             |       | 1,442                                              |       | 466 |   | 481 |   |
| Amortization  of Net Actuarial Gain |       | (169                                              | )          | (15                                                | )          | (57 | ) | (5 | ) |
| Net  Periodic Post-Retirement Cost  |       | $                                                 | 2,036      |                                               | $          | 2,254 |   | $ | 678 |   | $ | 751 |   |

 

TheCompany does not expect to make any contributions to the pension plans duringthis fiscal year.  The Company hascontributed and made benefit payments of approximately $3.6 million related tothe Supplemental Executive Retirement Plans during the nine months ended May 31,2008.  The Company expects to contributeand make benefit payments of approximately $3.7 million this fiscal yearrelated to the Supplemental Executive Retirement Plans.

 

TheCompany has contributed and made benefit payments of approximately $1.3 millionrelated to the post-retirement plans duringthe nine months ended May 31, 2008. The Company expects to contributeand make benefit payments of approximately $1.7 million related to thepost-retirement plans during the current fiscal year.

 

**Note 8:  Members’ Investments**

 
| ** **            | ** ** | ** **     | ** ** | **Shares**     | ** ** | **Shares Issued** | ** ** |
|-----------------------|------------|----------------|------------|----------------|------------|------------------------|------------|
| ** **            | ** ** | **Par  Value** | ** ** | **Authorized** | ** ** | **&  Outstanding** | ** ** |
| Preferred  Stock:     |       |           |       |           |       |                   |       |
| July 7,  2008    |       | $              | 76.77      |           | 600,000    |                   | 498,570    |   |
| May 31,  2008    |       | $              | 76.77      |           | 600,000    |                   | 498,570    |   |
| August 31,  2007 |       | $              | 76.77      |           | 600,000    |                   | 498,570    |   |
| May 31,  2007    |       | $              | 76.77      |           | 600,000    |                   | 498,570    |   |
|                  |       |           |       |           |       |                   |       |
| Common  Stock:        |       |           |       |           |       |                   |       |
| July 7,  2008    |       | $              | 10.00      |           | 4,000      |                   | 2,839      |   |
| May 31,  2008    |       | $              | 10.00      |           | 4,000      |                   | 2,838      |   |
| August 31,  2007 |       | $              | 10.00      |           | 4,000      |                   | 2,878      |   |
| May 31,  2007    |       | $              | 10.00      |           | 4,000      |                   | 2,879      |   |

 

8

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**Note 9:  Shipping and Handling Costs**

 

Thecosts incurred for the shipping and handling of products sold are classified inthe financial statements as a selling expense on the Statements ofOperations.  Shipping and handling costswere $131.6 million and $116.4 million for the nine months ended May 31,2008 and 2007, respectively and $49.4 million and $44.1 million for the threemonths ended May 31, 2008 and 2007, respectively.

 

**Note 10:  ProGold Limited Liability Company**

 

TheCompany is the controlling member of ProGold Limited Liability Company(ProGold), which owns a corn wet-milling plant in Wahpeton, North Dakota, thatis currently being leased to Cargill, Incorporated (Cargill).  On November 6, 2007, ProGold enteredinto an 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.

 

Summarized financialinformation concerning the Company’s reportable segments for the nine months and three months ended May 31,2008 and 2007, is shown below:

 
| ** **                           | ** ** | **For the Nine Months Ended May 31, 2008** | ** ** |
|--------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                           | ** ** | **(Dollars In Thousands)**                                          | ** ** |
| ** **                           | ** ** | **Sugar**                                                                     | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net  Revenue from External Customers |       | $                                                                             | 871,583    |   | $ | 18,408 |   | $ | 889,991 |   |
| Gross  Proceeds                      |       | $                                                                             | 767,247    |   | $ | 11,333 |   | $ | 778,580 |   |
| Depreciation  and Amortization       |       | $                                                                             | 43,706     |   | $ | 8,337 |   | $ | 52,043 |   |
| Interest  Income                     |       | $                                                                             | 314        |   | $ | 35 |   | $ | 349 |   |
| Interest  Expense                    |       | $                                                                             | 11,445     |   | $ | 158 |   | $ | 11,603 |   |
| Income  from Equity Method Investees |       | $                                                                             | 30         |   | $ | — |   | $ | 30 |   |
| Other  Income/(Expense), Net         |       | $                                                                             | 979        |   | $ | — |   | $ | 979 |   |
| Net  Proceeds                        |       | $                                                                             | 473,618    |   | $ | 5,673 |   | $ | 479,291 |   |
|                                 |       |                                                                          |       |   |   |   |   |
| Capital  Expenditures                |       | $                                                                             | 27,230     |   | $ | 1,043 |   | $ | 28,273 |   |

 

9

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| ** **                           | ** ** | **For the Nine Months Ended May 31, 2007** | ** ** |
|--------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                           | ** ** | **(Dollars In Thousands)**                                          | ** ** |
| ** **                           | ** ** | **Sugar**                                                                     | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net  Revenue from External Customers |       | $                                                                             | 856,859    |   | $ | 18,658 |   | $ | 875,517 |   |
| Gross  Proceeds                      |       | $                                                                             | 820,931    |   | $ | 9,712 |   | $ | 830,643 |   |
| Depreciation  and Amortization       |       | $                                                                             | 43,574     |   | $ | 8,320 |   | $ | 51,894 |   |
| Interest  Income                     |       | $                                                                             | 538        |   | $ | 30 |   | $ | 568 |   |
| Interest  Expense                    |       | $                                                                             | 14,139     |   | $ | 1,316 |   | $ | 15,455 |   |
| Income  from Equity Method Investees |       | $                                                                             | 772        |   | $ | — |   | $ | 772 |   |
| Other  Income/(Expense), Net         |       | $                                                                             | 192        |   | $ | (8 | ) | $ | 184 |   |
| Net  Proceeds                        |       | $                                                                             | 552,051    |   | $ | 4,254 |   | $ | 556,305 |   |
|                                 |       |                                                                          |       |   |   |   |   |
| Capital  Expenditures                |       | $                                                                             | 35,805     |   | $ | 754 |   | $ | 36,559 |   |

 
| ** **                           | ** ** | **For the Three Months Ended May 31, 2008** | ** ** |
|--------------------------------------|------------|--------------------------------------------------------------------------------|------------|
| ** **                           | ** ** | **(Dollars In Thousands)**                                           | ** ** |
| ** **                           | ** ** | **Sugar**                                                                      | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net  Revenue from External Customers |       | $                                                                              | 327,176    |   | $ | 5,762 |   | $ | 332,938 |   |
| Gross  Proceeds                      |       | $                                                                              | 241,153    |   | $ | 2,982 |   | $ | 244,135 |   |
| Depreciation  and Amortization       |       | $                                                                              | 13,248     |   | $ | 2,780 |   | $ | 16,028 |   |
| Interest  Income                     |       | $                                                                              | (2         | ) | $ | 15 |   | $ | 13 |   |
| Interest  Expense                    |       | $                                                                              | 3,813      |   | $ | (132 | ) | $ | 3,681 |   |
| Income  from Equity Method Investees |       | $                                                                              | 6          |   | $ | — |   | $ | 6 |   |
| Other  Income/(Expense), Net         |       | $                                                                              | 380        |   | $ | — |   | $ | 380 |   |
| Net  Proceeds                        |       | $                                                                              | 139,089    |   | $ | 1,586 |   | $ | 140,675 |   |
|                                 |       |                                                                           |       |   |   |   |   |
| Capital  Expenditures                |       | $                                                                              | 7,434      |   | $ | 286 |   | $ | 7,720 |   |

 
| ** **                           | ** ** | **For the Three Months Ended May 31, 2007** | ** ** |
|--------------------------------------|------------|--------------------------------------------------------------------------------|------------|
| ** **                           | ** ** | **(Dollars In Thousands)**                                           | ** ** |
| ** **                           | ** ** | **Sugar**                                                                      | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net  Revenue from External Customers |       | $                                                                              | 325,062    |   | $ | 6,240 |   | $ | 331,302 |   |
| Gross  Proceeds                      |       | $                                                                              | 269,900    |   | $ | 3,315 |   | $ | 273,215 |   |
| Depreciation  and Amortization       |       | $                                                                              | 13,461     |   | $ | 2,771 |   | $ | 16,232 |   |
| Interest  Income                     |       | $                                                                              | 48         |   | $ | 14 |   | $ | 62 |   |
| Interest  Expense                    |       | $                                                                              | 5,372      |   | $ | 107 |   | $ | 5,479 |   |
| Income  from Equity Method Investees |       | $                                                                              | 196        |   | $ | — |   | $ | 196 |   |
| Other  Income/(Expense), Net         |       | $                                                                              | 270        |   | $ | — |   | $ | 270 |   |
| Net  Proceeds                        |       | $                                                                              | 194,394    |   | $ | 1,628 |   | $ | 196,022 |   |
|                                 |       |                                                                           |       |   |   |   |   |
| Capital  Expenditures                |       | $                                                                              | 13,915     |   | $ | 695 |   | $ | 14,610 |   |

 

10

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| ** **                   | ** ** | **As of May 31, 2008** | ** ** |
|------------------------------|------------|--------------------------------------------|------------|
| ** **                   | ** ** | **(Dollars In Thousands)**       | ** ** |
| ** **                   | ** ** | **Sugar**                                  | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Property  and Equipment, Net |       | $                                          | 349,229    |   | $ | — |   | $ | 349,229 |   |
| Assets  Held for Lease, Net  |       | $                                          | —     |   | $ | 122,502 |   | $ | 122,502 |   |
| Segment  Assets              |       | $                                          | 890,012    |   | $ | 127,047 |   | $ | 1,017,059 |   |

 
| ** **                   | ** ** | **As of May 31, 2007** | ** ** |
|------------------------------|------------|--------------------------------------------|------------|
| ** **                   | ** ** | **(Dollars In Thousands)**       | ** ** |
| ** **                   | ** ** | **Sugar**                                  | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Property  and Equipment, Net |       | $                                          | 338,801    |   | $ | — |   | $ | 338,801 |   |
| Assets  Held for Lease, Net  |       | $                                          | —     |   | $ | 132,467 |   | $ | 132,467 |   |
| Segment  Assets              |       | $                                          | 934,722    |   | $ | 140,543 |   | $ | 1,075,265 |   |

 

**Note 12:  Income Taxes**

 

OnSeptember 1, 2007, the Company adopted the provisions of the FinancialAccounting Standards Board Interpretation No. 48, *Accountingfor Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109*.  This Interpretation clarifies the accountingfor uncertainty in income taxes recognized in the financial statements inaccordance with FASB Statement No. 109, *Accountingfor Income Taxes.*

 

The Company had no unrecognized tax benefits on September 1,2007.  No interest or penalties arerecognized in the consolidated statements of operations or in the consolidatedbalance sheets.  The Company is no longersubject to U.S. Federal or state income tax examinations by tax authorities forfiscal 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.

 

Capitalexpenditures will be required to prevent future occurrences of theemissions.  The Company’s capitalexpenditure budget at the beginning of the current fiscal year includedapproximately $6.2 million for environmental related projects at the Company’sfactory locations.  Expenditures duringthe nine months ended May 31, 2008 on these projects were approximately$1.6 million while total project-to-date spending on these projects has been$5.1 million.  Environmental relatedprojects that were placed into service during the nine months ended May 31,2008 totaled approximately $4.4 million. The amount and timing of any additional capital expenditures that may berequired is not currently known.

 

TheCompany is also addressing the following environmental matters:

·                  In July 2007, the Company receivedCompliance Monitoring Survey-Letters of Warning from the MPCA for the EastGrand Forks and Moorhead, Minnesota factories.

·                  In October 2007, the East Grand Forks,Minnesota factory failed a stack emission performance test on its pelletcooler.  A notice of non-compliance wasissued by the MPCA on December 4, 2007 related to this occurrence.

 

11

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·                  In November 2007, the Moorhead,Minnesota factory failed a stack emission performance test on its limekiln.  A notice of non-compliance wasissued by the MPCA on February 5, 2008 related to this occurrence.

·                  In November 2007, the Company received aCompliance Monitoring Survey-Letter of Warning from the MPCA for the CrookstonMinnesota factory.

·                  On February 15, 2008, the MontanaDepartment of Environmental Quality (MDEQ) issued a notice of violation relatedto the retention of environmental monitoring data at the Sidney, Montanafactory.

 

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.

 

**Note15:  Subsequent Events**

 

TheCompany announced to its shareholders in a letter dated June 25, 2008,that the forecasted average gross beet payment for the 2007 crop is currentlyprojected at $43.00 per ton, an increase of $2.00 from the projection announcedin March 2008.  The financialstatements contained in the Company’s Form 10-Q for the quarter ended May 31,2008, reflect a forecasted average gross beet payment for the 2007 crop of$41.00 per ton.  The actual gross beetpayment for the 2007 crop will necessarily differ from the current estimate toreflect final Company operations and selling prices for the Company’s productsduring fiscal year 2008.

 

OnJuly 10, 2008, the U.S. Department of Agriculture increased the 2007 cropyear Overall Allotment Quantity (OAQ). The OAQ is the quantity of sugar that may be marketed in the UnitedStates without being subject to penalties. As a result of the increase in the OAQ, the Company is now able to sellan additional 1.9 million hundredweight of sugar during the period of October 1,2007 through September 30, 2008. Approximately 300,000 hundredweight of sugar produced from the 2007 cropwill not be permitted to be sold during this time period.

 

**Item 2.   Management’s Discussion and Analysis ofResults of Operations and Financial Condition for the Nine Months and ThreeMonths Ended May 31, 2008 and 2007**

** **

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

 

**Overview**

 

Dueto the large size of the 2007 Red River Valley crop, the Company, for thesecond consecutive year, commenced the harvest and processing of the crop in August ascompared 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 the beginning

 

12

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ofthe Company’s 2008 fiscal year that related to the 2007 sugarbeet crop weredeferred in fiscal 2007 and recognized in fiscal 2008.

 

Theharvest of the Red River Valley and Sidney sugarbeet crops grown during 2007and to be processed during fiscal 2008 produced a total of 12.5 milliontons of sugarbeets, or approximately 23.6 tons of sugarbeets per acre fromapproximately 529,000 acres.  This representsa decrease in total tons harvested of approximately 3.0 percent compared to the2006 crop.  The sugar content of the 2007crop is 18.1 percent as compared to the 18.2 percent sugar content of the 2006crop.  The Company expects to produce atotal of approximately 36.7 million hundredweight of sugar from the 2007crop, a decrease of approximately 1.4 percent compared to the 2006 crop.  Due to the limits imposed by government sugarmarketing allocations, it is anticipated that approximately 2.4 million hundredweightof sugar produced from the 2007 crop will not be permitted to be sold duringthe time period of October 1, 2007 to September 30, 2008.

 

NetProceeds from Member and Non-Member Business for fiscal 2008 are expected to beapproximately 20 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 Nine Months Ended May 31, 2008 and 2007**

 

Revenuefor the nine months ended May 31, 2008 was $890.0 million, an increase of$14.5 million from the nine months ended May 31, 2007.  The table below reflects the percentagechanges in product revenues, prices and volumes for the nine months ended May 31,2008, as compared to the nine months ended May 31, 2007.

 
| **Product** | ** ** | **Revenue** | ** ** | **Selling Price** | ** ** | **Volume** | ** ** |
|-------------|------------|-------------|------------|------------------------|------------|------------|------------|
| Sugar       |       | 0.4         | %          | -6.3                   | %          | 7.1        | %          |
| Pulp        |       | -0.1        | %          | 19.0                   | %          | -16.1      | %          |
| Molasses    |       | 19.8        | %          | 0.5                    | %          | 19.2       | %          |
| CSB         |       | 11.3        | %          | 4.6                    | %          | 6.4        | %          |
| Betaine     |       | 106.0       | %          | 10.6                   | %          | 86.3       | %          |

 

Thesubstantial increase in the volume of betaine sold is primarily due toincreased availability of saleable product resulting from a higher beginninginventory level as of September 1, 2007 as compared to the inventory levelas of September 1, 2006.

 

Rentalrevenue on the ProGold operating lease was $18.4 million and $18.7 million forthe nine months ended May 31, 2008 and 2007, respectively.

 

Costof sales for the nine months ended May 31, 2008, exclusive of payments tomembers for sugarbeets, increased $66.5 million as compared to the nine monthsended May 31, 2007.  This increasewas primarily related to the following:

 

·                    Thechange in the net realizable value of the product inventories from thebeginning of the reporting period is recorded on the balance sheet as either anincrease or decrease to inventories with a corresponding dollar for dollaradjustment to cost of sales on the statement of operations.  The increase in the net realizable value ofproduct inventories for the nine months ended May 31, 2008 was $205.0million as compared to an increase of $276.2 million for the previous year’snine month period ended May 31, 2007 resulting in a $71.2 millionunfavorable change in the cost of sales between the two years as shown in thetable below:

 

13

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

 
| ** **                                                   | ** ** | **For the Nine Months Ended May 31** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| **(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          |       | 361.4                                                              |       | 392.2 |   | (30.8 | )(2) |
|                                                         |       |                                                               |       |   |   |   |   |
| Increase  in the Net Realizable Value of Product Inventories |       | $                                                                  | 205.0      |   | $ | 276.2 |   | $ | (71.2 | ) |

 

----

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

(2) The change isprimarily due to a 6.6 percent decrease in the per hundredweight net realizablevalue of sugar inventory as of May 31, 2008 as compared to May 31,2007 along with a 2.3 percent decrease in the hundredweight of sugar inventoryas of May 31, 2008 as compared to May 31, 2007.

 

·                  The cost recognized associated with thenon-member sugarbeets decreased $5.5 million for the nine months ended May 31,2008, when compared to the same period last year.  This decrease was primarily due to an 11.7percent decrease in tons purchased along with a lower per ton estimated growerpayment this year resulting from a lower projected sugar net selling price.

 

Selling,general and administrative expenses increased $20.4 million for nine monthsended May 31, 2008, as compared to the nine months ended May 31,2007.  Selling expenses increased $20.5million primarily due to the increase in the volumes of products sold resultingin increased shipping and handling expenses. General and administrative expenses decreased $ .1 million due togeneral cost decreases.

 

Interestexpense decreased $3.9 million for the nine months ended May 31, 2008, ascompared to the nine months ended May 31, 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 $2.5 million for the nine monthsended May 31, 2008, as compared to a gain of $2.0 million for the ninemonths ended May 31, 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 May 31, 2008 and 2007**

 

Revenuefor the three months ended May 31, 2008, was $332.9 million, an increaseof $1.6 million from the three months ended May 31, 2007.  The table below reflects the percentagechanges in product revenues, prices and volumes for the three months ended May 31,2008, as compared to the three months ended May 31, 2007.

 
| **Product** | ** ** | **Revenue** | ** ** | **Selling Price** | ** ** | **Volume** | ** ** |
|-------------|------------|-------------|------------|------------------------|------------|------------|------------|
| Sugar       |       | 1.6         | %          | -5.7                   | %          | 7.7        | %          |
| Pulp        |       | -3.1        | %          | 24.1                   | %          | -21.9      | %          |
| Molasses    |       | -6.1        | %          | -1.2                   | %          | -5.0       | %          |
| CSB         |       | -17.0       | %          | -2.5                   | %          | -14.9      | %          |
| Betaine     |       | 169.8       | %          | 14.5                   | %          | 135.7      | %          |

 

Thesubstantial increase in the volume of betaine sold is primarily due toincreased demand in the third quarter of this year as compared to that of thethird quarter last year.

 

Rentalrevenue on the ProGold operating lease was $5.8 million and $6.2 million forthe three months ended May 31, 2008 and 2007, respectively.

 

14

----

 

Costof sales for the three months ended May 31, 2008, exclusive of payments tomembers for sugarbeets, increased $30.7 million as compared to the three monthsended May 31, 2007.  This increasewas primarily related to the following:

 

·                  At the end of each reporting period, productinventories 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 May 31,2008 was $8.3 million as compared to an increase of $37.6 million for theprevious year’s three month period ended May 31, 2007 resulting in a $29.3million unfavorable 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 May 31** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| **(In Millions)**                                       | ** ** | **2008**                                                            | ** ** | **2007** | ** ** | **Change** | ** ** |
| Beginning  Product Inventories at Net Realizable Value       |       | (353.1                                                              | )          | (354.6 | ) | $ | 1.5 | (1) |
|                                                         |       |                                                                |       |   |   |   |   |
| Ending  Product Inventories at Net Realizable Value          |       | 361.4                                                               |       | 392.2 |   | (30.8 | )(2) |
|                                                         |       |                                                                |       |   |   |   |   |
| Increase  in the Net Realizable Value of Product Inventories |       | $                                                                   | 8.3        |   | $ | 37.6 |   | $ | (29.3 | ) |
|                                                              |            |                                                                     |            |  |  |  |  |  |  |  |

 

----

(1) 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.

(2) The change isprimarily due to a 6.6 percent decrease in the per hundredweight net realizablevalue of sugar inventory as of May 31, 2008 as compared to May 31,2007 along with a 2.3 percent decrease in the hundredweight of sugar inventoryas of May 31, 2008 as compared to May 31, 2007.

 

Selling,general and administrative expenses increased $8.2 million for the three monthsended May 31, 2008, as compared to the three months ended May 31,2007.  Selling expenses increased $8.8million primarily due to the increase in the volume of sugar sold resulting inincreased shipping and handling expenses. General and administrative expenses decreased $ .6 million due togeneral cost decreases.

 

Interestexpense decreased $1.8 million for the three months ended May 31, 2008, ascompared to the three months ended May 31, 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 loss of $ .3 million for the three months endedMay 31, 2008 and 2007.  The decreasewas primarily related to the reduced earnings of Sidney Sugars partially offsetby increased income from the activities of ProGold.

 

**Food,Conservation and Energy Act of 2008**

 

TheFood, Conservation and Energy Act of 2008 (the Farm Bill) enacted in May, 2008,contains several provisions related to the domestic sugar industry, aimed atachieving balance and stability in the U.S. sugar market while minimizing thecost to the Federal government.  The FarmBill applies to the 2008 through 2012 crop years.  Generally, the Farm Bill:

 

·                  maintains a non-recourse loan program,

·                  sets a minimum overall allotment quantity forU.S. producers at no less than 85% of domestic consumption,

·                  maintains a system of marketing allocationsfor sugarbeet and sugar cane producers,

·                  restricts imports of foreign sugar and

·                  provides a new market balancing mechanism todivert any oversupply of sugar from sugar producers to ethanol producers.

 

15

----

 

Underthe Farm Bill, sugar processors can borrow funds on a non-recourse basis fromthe Commodity Credit Corporation (CCC), with repayment of such funds secured bysugar.  If the price of sugar drops belowthe forfeiture price, the processors can forfeit the sugar securing the loansto the CCC in lieu of repayment.  Processorsmay also obtain CCC loans for “in-process” sugar or syrups at 80 percent of theloan rate.

 

TheFarm Bill incorporates gradual loan rate increases for raw and refinedsugar.  For raw sugar, the loan rate willincrease three-quarters of a cent per pound, raw value, phased-in inquarter-cent increments over crop years 2009-2011.  Raw cane loan rates will remain at 18.00cents/lb in 2008 then rise gradually to 18.75 cents by 2011, and they willremain at 18.75 cents/lb for the 2012 crop year.  Refined beet sugar loan rates are set at22.90 cents/lb for the 2008 crop and thereafter are set at a rate equal to128.5 percent of the loan rate per pound for raw cane sugar for each of the2009 through 2012 crop years.

 

TheUnited States Department of Agriculture (USDA) has historically maintained rawand refined sugar prices above the forfeiture price without cost to the U.S.Treasury by regulating the supply of sugar in the U.S. market throughmanagement of a tariff rate quota system. This Farm Bill sets a minimum overall allotment quantity for U.S.producers at no less than 85% of domestic consumption and provides a marketbalancing mechanism if there is an oversupply in the domestic sugarmarket.  Currently, forty exportingcountries retain guaranteed preferential access to the U.S. market under WorldTrade Organization (WTO) and Free Trade Agreement (FTA) rules.  Mexico’s access has been unlimited as of January 1,2008.  If the Secretary of Agriculturedetermines there is an oversupply of sugar, the new market balancing mechanismrequires the Secretary to divert the excess sugar from sugar producers toethanol producers while minimizing the cost to the U.S Treasury.

 

Themarketing allotments and allocations set forth under the Farm Bill affect thesugar processed from the 2008 crop through the 2012 crop.  On an annual basis, the marketing allotments,and the corresponding allocation to the Company, will dictate the amount ofsugar the Company can sell into the domestic market.  As of July 10, 2008, the Company’s marketingallocation for the 2007 crop is set at approximately 35 millionhundredweight.  The Company’s allocationmay reduce or increase the amount of sugar the Company can market for a givenyear, thus affecting the number of acres of sugarbeets required for processingto produce that amount of sugar. Although the market balancing mechanism will provide sustainability inthe short term, there is no assurance that the sugar-to-ethanol program will bein place after the Farm Bill expires.

 

**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.  Imports ofMexican sugar could cause material harm to the United States sugarmarket.  The Company has no way to predict the extent to which Mexico willtake advantage of its export 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 primaryagreements affecting sugar that are completed or are being negotiated, to theCompany’s knowledge, include the Peru Free Trade Agreement, Colombian FreeTrade Agreement, Panama Free Trade Agreement, as well as, agreements with theFree Trade Area of the Americas, the Association of Southeast Asian Nations,South Africa, Thailand, and others.  TheCompany believes these agreements, if they reach fruition, could negativelyimpact the Company’s profitability.  Ifincreases in guaranteed access or reductions in sugar tariffs are included inthese agreements, excess sugar from these regions could enter the U.S. marketand put pressure on domestic sugar prices.

 

ThePeru Free Trade Agreement has been ratified by the U.S. Congress.  Negotiations have been completed on theU.S.-Colombian Free Trade Agreement and the U.S.-Panama Free Trade Agreementbut

 

16

----

 

they have not beenratified by the U.S. Congress.  TheCompany expects that these trade agreements may be brought before Congress fora vote in 2008.

 

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 whethernegotiations will be completed.  If thenegotiations are completed, the outcome of any negotiated arrangement couldhave significant adverse 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 and are taking steps to attempt topositively influence the outcome.  The Companyand the sugar industry intend to continue to focus significant attention ontrade issues in the future.

 

Theimpact of the various trade agreements on the Company cannot be assessed atthis time due to the uncertainty concerning the terms of the agreements andwhether they will ultimately be implemented. It is possible, however, that the passage of various trade agreementscould have a material adverse effect on the Company through a reduction inacreage that can be planted by the Company’s shareholders and by the growersfor Sidney Sugars Incorporated, and/or a reduction in sugar selling prices, anda corresponding reduction in the beet payment to the shareholders and theCompany earnings.

 

**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 capitalexpenditure budget at the beginning of the current fiscal year includedapproximately $6.2 million for environmental related projects at the Company’sfactory locations.  Expenditures duringthe nine months ended May 31, 2008 on these projects were approximately$1.6 million while total project-to-date spending on these projects has been$5.1 million.  Environmental relatedprojects that were placed into service during the nine months ended May 31,2008 totaled approximately $4.4 million. The amount and timing of any additional capital expenditures that may berequired is not currently known.

 

TheCompany is also addressing the following environmental matters:

 
| · |   | In  July 2007, the Company received Compliance Monitoring Survey-Letters of  Warning from the MPCA for the East Grand Forks and Moorhead, Minnesota  factories.                                                                   |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · |   | In  October 2007, the East Grand Forks, Minnesota factory failed a stack  emission performance test on its pellet cooler. A notice of non-compliance  was issued by the MPCA on December 4, 2007 related to this occurrence. |
| · |   | In  November 2007, the Moorhead, Minnesota factory failed a stack emission  performance test on its lime kiln. A notice of non-compliance was issued by  the MPCA on February 5, 2008 related to this occurrence.            |
| · |   | In  November 2007, the Company received a Compliance Monitoring  Survey-Letter of Warning from the MPCA for the Crookston Minnesota factory.                                                                                      |
| · |   | On  February 15, 2008, the Montana Department of Environmental Quality  (MDEQ) issued a notice of violation related to the retention of environmental  monitoring data at the Sidney, Montana factory.                            |

 

17

----

 

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.

 

**Liquidity and Capital Resources**

 

Underthe Company’s Bylaws and Member Grower Contracts, payments for member-deliveredsugarbeets, the principal raw material used in producing the sugar andagri-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 May 31, 2008.  The unused long-term line of credit as of May 31,2008, was $50.0 million.  In addition,the Company had long-term debt outstanding, as of May 31, 2008, of$50 million from a private placement of Senior Notes that occurred in September of1998; $5.0 million from a private placement of Senior Notes that occurred in January of2003; $66.8 million from ten separate issuances of Pollution Control andIndustrial Development Revenue Bonds; and a term loan with Bank of North Dakotaof $ .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 a $50 Millionoutstanding balance as of May 31, 2008 and a line of credit with WellsFargo Bank for $1 million, against which there was no outstanding balanceas of May 31, 2008.  The Company’scommercial paper program provides short-term borrowings of up to $325 millionof which approximately $102.9 million was outstanding as of May 31,2008.  The Company had $2.1 million ofshort-term letters of credit outstanding as of May 31, 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 May 31, 2008, was $236.0 million.  In addition, the Company had an outstandingnon-recourse loan with the CCC, as of May 31, 2008, of $57.2 million,against which 2.5 million hundredweight of sugar was pledged as collateral.

 

TheCompany had outstanding purchase commitments totaling $9.5 million as of May 31,2008, for equipment and construction contracts related to various capital andmaintenance projects.

 

Theliquidity changes that have occurred in the Company’s financial statements fromAugust 31, 2007, to May 31, 2008, were primarily due to normalbusiness seasonality.  The first ninemonths of the Company’s fiscal year includes: the completion of the sugarbeetharvest; the processing campaign; the final payments to growers for sugarbeetsdelivered from the previous year’s crop; and the initial payments to growersfor sugarbeets delivered from the current year’s crop.

 

Thenet cash used by operations was $124.7 million for the nine months ended May 31,2008, as compared to $125.2 million for the nine months ended May 31,2007.  This decrease in the use of cashof $ .5 million was primarily the result of reduced cash usages due to changesin inventories of $75.5 million and changes in accounts receivable of $17.8million partially offset by changes in the amounts due growers of $66.5million, changes in accounts payable of $18.8 million and changes in otherliabilities of $6.0 million. Amounts due growers changed primarily as theresult of a lower estimated grower payment for the 2007 crop as compared to the2006 crop.  Increased payments ofaccounts payable this year was 

 

18

----

 

primarilydue to a higher liability balance as of August 31, 2007 as compared to theprevious year resulting from increased maintenance and project activitiesduring the later part of fiscal 2007. The change in inventories was due primarily to a higher beginning sugarinventory value this fiscal year as compared to the previous year along with thedecrease in the per hundredweight net realizable value and hundredweight ofsugar inventory as of May 31, 2008 as compared to May 31, 2007.

 

Thenet cash used in investing activities was $24.3 million for the nine monthsended May 31, 2008, as compared to $37.1 million for the nine months endedMay 31, 2007.  The decrease of $12.8million was primarily related to decreased purchases of property and equipmentof $8.3 million.

 

Thenet cash provided by financing activities was $153.2 million for the ninemonths ended May 31, 2008, as compared to $162.3 million for the ninemonths ended May 31, 2007.  Thisdecrease of $9.1 million was primarily due to decreased proceeds fromshort-term debt of $31.0 million and increased payments of Unit Retains andEquity Retention of $1.3 million, partially offset by additional proceeds fromlong-term debt of $7.4 million and decreased payments on long-term debt of$15.8 million

 

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 and Qualitative 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 May 31, 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.

 

## **PART II. OTHERINFORMATION**

 
| **Item 1.  Legal Proceedings** |
|-------------------------------------|

 

Fromtime to time and in the ordinary course of its business, the Company is namedas a defendant in legal proceedings related to various issues, including worker’scompensation claims, tort 

 

19

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

 

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 1A.  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.

 
| **Item 2.  Unregistered Sales of Equity Securities and  Use of Proceeds.** |
|---------------------------------------------------------------------------------|

 

None

 
| **Item 3.  Defaults Upon Senior Securities** |
|---------------------------------------------------|

 

None

 
| **Item  4.   Submission of Matters to a Vote of Security Holders** |
|-------------------------------------------------------------------------|

 

None.

 
| **Item 5.  Other Information.** |
|--------------------------------------|

 

None.

 

20

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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                                             |

 

21

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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                  |

 

22

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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 the Securities and Exchange Act of 1934, as amended,  has been granted with |
|---------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------|
| respect to designated  portions of this document. |
|                                              |   |                                                                                                                         |
| ++                                                |   | A management contract  or compensatory plan required to be filed with this report.                                           |

 

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SIGNATURES

 

**Pursuant to the requirement ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned thereunto duly authorized.**

 

 
|   | **AMERICAN CRYSTAL SUGAR COMPANY** |
|--------|------------------------------------|
|   | **(Registrant)**                   |

 

 
| **Date:** | **July 15, 2008** | ** **                   | **/s/ Teresa Warne** |
|-----------|------------------------|------------------------------|----------------------|
|      |                   | **Teresa Warne**             |
|      |                   | **Corporate Controller,**    |
|      |                   | **Chief Accounting Officer** |
|      |                   | **Duly  Authorized Officer** |

 

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