**UNITEDSTATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K**

 

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

**For the fiscal year ended**

**August 31, 2008**

 

**or**

 

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

 

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**Commission File**

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

 

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** **

**AMERICAN CRYSTAL SUGAR COMPANY**

(Exact name of registrantas specified in its charter)

 

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

 

Securities registeredpursuant to Section 12(b) of the Act:

**NONE**

 

Securities registeredpursuant to Section 12(g) of the Act:

**NONE**

 

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

 

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

 

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Indicate by check mark whether the Registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the Registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes  x  No  o

 

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

 

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Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See definitions of “large accelerated filer,”“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of theExchange 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) |                              |

 

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

 

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As of November 14,2008, 2,839 shares of the Registrant’s Common Stock and 498,570 shares of theRegistrant’s Preferred Stock were outstanding. There is no established public market for the Registrant’s Common Stockor Preferred Stock.  Although there is alimited, private market for shares of the Registrant’s stock, the Registrantdoes not obtain information regarding the transfer price in transactionsbetween its members and therefore is unable to estimate the aggregate marketvalue of the Registrant’s shares held by non-affiliates.

 

**DOCUMENTSINCORPORATED BY REFERENCE**

# **NONE **

# ** **

 

 

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**PART I**

 

*This report contains forward-looking statements andinformation based upon assumptions by the American Crystal Sugar Company’smanagement, including assumptions about risks and uncertainties faced by theCompany.  These forward-lookingstatements can be identified by the use of forward-looking terminology such as “expects”,“believes”, “will” or similar verbs or expressions.  If any of management’s assumptions proveincorrect or should unanticipated circumstances arise, the Company’s actualresults could materially differ from those anticipated by such forward-lookingstatements.  The differences could becaused by a number of factors or combination of factors, including, but notlimited to, those factors influencing the Company and its business which aredescribed in this report in the “Risk Factors” section below.  Readers are urged to consider these factorswhen evaluating any forward-looking statement. The Company undertakes no obligation to update any forward-lookingstatements in this report to reflect future events or developments.*

 

**Item 1.    BUSINESS**

** **

**GENERAL**

 

The Company is a Minnesota agricultural cooperativecorporation owned by approximately 2,900 sugarbeet growers in the Minnesota andNorth Dakota portions of the Red River Valley. The Red River Valley is the largest sugarbeet growing area in the UnitedStates, forming a band approximately 35 miles wide on either side of the NorthDakota and Minnesota border and extending approximately 200 miles south fromthe border of the United States and Canada. The Company was organized in 1973 by sugarbeet growers to acquire thebusiness and assets of the American Crystal Sugar Company, then a publicly heldNew Jersey corporation in operation since 1899. The Company’s Board of Directors establishes sugarbeet acreage plantingrequirements in the Red River Valley (the Red River Valley Crop) each year basedon factory processing capacity, expected crop quality, government regulationsand other factors.  Based on the tons ofsugarbeets required to meet sugar production levels, the total authorized acresto be planted are allocated ratably to each preferred share held by themembers.  The Company processedsugarbeets from approximately 494,000 acres for the 2007 crop and expects toprocess sugarbeets from approximately 421,000 acres for the 2008 crop.  By owning and operating five sugarbeetprocessing facilities in the Red River Valley, the Company provides itsshareholders with the ability to process their sugarbeets into sugar andagri-products such as: molasses; sugarbeet pulp; and by-products of themolasses desugarization process, betaine and concentrated separated by-product(CSB).

 

The Company, through its wholly-owned subsidiary,Sidney Sugars Incorporated (Sidney Sugars), owns two sugarbeet processingfacilities.  At the Sidney, Montana,facility, the Company processed non-member sugarbeets from approximately 35,000acres for the 2007 crop and expects to process from approximately 15,000 acresfrom the 2008 crop.  The Torrington,Wyoming, facility has been leased on a long-term basis to another sugarproducer.

 

TheCompany, through its wholly-owned subsidiary, Crab Creek Sugar Company (CrabCreek), controls the long-term production of sugar at a sugarbeet processingfacility at Moses Lake, Washington. Neither Crab Creek nor the Company currently operates or intends tooperate the Moses Lake facility.

 

The Company is the controlling member of ProGoldLimited Liability Company (ProGold), which owns a corn wet-milling plant inWahpeton, North Dakota, that is currently being leased to Cargill, Incorporated(Cargill).  On November 6, 2007, ProGold entered intoan amended lease agreement with Cargill that superseded and replaced theprevious 10 year lease between ProGold and Cargill and provides that (1) Cargillwill pay ProGold average annual rental payments equal to $21,900,000, and (2) thatthe term of the lease be extended until December 31, 2017.

 

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On May 1, 2007, the Company acquired CIT CapitalUSA Inc.’s  50 percent ownership interestin Crystech, LLC (Crystech) resulting in the Company’s 100 percent ownership ofCrystech.  Crystech owned the molassesdesugarization facility adjacent to the Company’s processing facility inHillsboro, North Dakota.  Effective May 31,2007, Crystech was dissolved with all assets and liabilities transferred to theCompany.

 

The Company’s sugar marketing agent, United SugarsCorporation (United), is a cooperative owned by the Company, Minn-Dak FarmersCooperative and United States Sugar Corporation.  The Company’s agri-products are marketedthrough a marketing agent, Midwest Agri-Commodities Company (Midwest).  Midwest is a cooperative owned by theCompany, Minn-Dak Farmers Cooperative, Southern Minnesota Beet SugarCooperative and Michigan Sugar Company.

 

**OperatingSegments**

 

The Company has identifiedtwo reportable operating 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.  For financial information bysegment see Note 12 of “Notes to the Consolidated Financial Statements.”

 

**Principal Products Produced**

 

The Company is engagedprimarily in the production and marketing of sugar from sugarbeets.  Total sugar sales accounted for 87.2 percent,88.6 percent and 88.5 percent of the Company’s consolidated total revenues forthe years ended August 31, 2008, 2007 and 2006, respectively.  United Sugars Corporation, the Company’ssugar marketing agent, sells sugar primarily to industrial users such asconfectioners, breakfast cereal manufacturers and bakeries.  For the fiscal year ended August 31,2008, 88.9 percent (by weight) of the sugar was sold to industrial users.  The remaining portion is marketed by UnitedSugars Corporation to wholesalers and retailers under the “Crystal Sugar” andvarious private labels for household consumption.  With regard to brand name sales, the Companylicenses the use of the “Crystal” trademark to United Sugars Corporation.

 

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

 

The Company also sellsagri-products such as: molasses; sugarbeet pulp; betaine and concentratedseparated by-product (CSB), by-products of the molasses desugarization process;and sugarbeet seed.  Substantially all ofthe Company’s agri-products are marketed through Midwest Agri-CommoditiesCompany, a common marketing agency. Sugarbeet pulp is marketed to livestock feed mixers and livestockfeeders in the United States and foreign markets.  A large proportion of the Company’s pulpproduction is exported to Japan and Europe. The market for sugarbeet pulp is affected by the availability andquality of competitive feedstuffs and foreign exchange rates.  Sugarbeet molasses is marketed primarily toyeast manufacturers, livestock feed mixers and livestock feeders.  Total agri-product sales accounted for 9.9percent of the Company’s consolidated total revenues during fiscal 2008, ofwhich export agri-product sales accounted for 4.6 percent of suchrevenues.  Agri-products sales accountedfor 8.8 percent and 8.2 percent of the Company’s consolidated total revenues infiscal 2007 and fiscal 2006, respectively, while agri-product export sales accountedfor 3.5 percent and 3.8 percent of the Company’s total revenues in fiscal 2007and fiscal 2006, respectively.

 

There is no singlecustomer of United or Midwest attributable to the Company that accounts for 10percent or more of the revenues of the Company.

 

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The Company’s totalannual sugar and agri-product production is influenced by the amount and thequality of sugarbeets grown by its members and non-members, the processingcapacity of the Company’s plants, by its ability to store harvested sugarbeetsand by government programs and regulations.

 

**RawMaterials**

 

The Company purchases allof its Red River Valley sugarbeets from members under contract with theCompany.  All members were a party to afive-year contract with the Company covering the growing seasons of 2003through 2007.  In September 2007,the Board of Directors approved a new five year contract for the 2008 through2012 crop years which will automatically renew for additional five-year termsunless terminated by one of the parties at the end of the current term.  In addition, each member has an annualcontract with the Company specifying the number of acres the member isobligated to grow during that year.  Eachshare of Preferred Stock held by a member requires that member to grow one acreof sugarbeets, subject to the planting tolerance, for sale to the Company.  The Company’s Board of Directors has thediscretion to adjust the acreage that is required to be planted for each shareof Preferred Stock held by the members. The Company’sBoard of Directors set the planting tolerance for the 2008 crop year at .83acres per Preferred Share, with a planting tolerance of plus or minus .02 (.81minimum and .85 maximum).  Based oncurrent market conditions and processing capacity, the Company estimatesplanting tolerances for the 2009 crop year and beyond will be in the range of..75 to .85 acres per Preferred Share.  The Board of Directors and managementregularly review and determine the relationship between the ownership ofPreferred Stock and acreage planting.

 

The gross beet payment is the value of recovered sugarfrom the sugarbeets a member delivers plus the member’s share of agri-productrevenues, minus the member’s share of member business operating costs.  The following allowances, costs anddeductions, if applicable, are used to adjust the gross beet payment to arriveat the net beet payment: hauling program allowance and costs, pre-pile qualitypremium and costs, tare incentive premium/penalty program, late harvest programcosts and unit retains.  Members are paida hauling allowance based on the distance they must transport sugarbeets fordelivery to the Company and may also receive an allowance for early delivery ofsugarbeets prior to the commencement of the stockpiling of harvestedsugarbeets.  The costs of these programsare shared among members on the basis of the net tonnage of sugarbeetsdelivered by each member.

 

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

 

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

 

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

 

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

 

**Seasonality**

 

The period during whichthe Company’s plants are in operation to process sugarbeets into sugar andagri-products is referred to as the “campaign.” During the campaign, the Company’s factories operate twenty-four hoursper day, seven days per week.  In the RedRiver Valley, the campaign typically begins in September and continuesuntil the available supply of sugarbeets has been depleted, which generallyoccurs in May of the following year. Based on current processing capacity, an average campaign lastsapproximately 250 days, assuming normal crop yields.  At the Sidney, Montana factory, the campaignbegins in late September or early October. The 2008 campaign lasted 139 days while the 2009 campaign, due to areduction in acres planted by the non-member growers, is expected to lastapproximately 60 days.

 

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

 

**Sales Backlog**

 

The backlog of anyunfilled sales orders at August 31, 2008 and 2007, was not material to theCompany.

 

**Market and Competition**

 

Current United Statesgovernment statistics estimate total United States sugar consumption atapproximately 200 million hundredweight for the year beginning October 1,2007 and ending September 30, 2008. For the same period ending September 2007, total consumption wasapproximately 189 million hundredweight. Comparing the two years shows an increase in demand of approximately sixpercent.

 

The United States refinedsugar market has grown over the past twenty years, despite the demand lost tothe substitution of high fructose corn syrups for sugar in beverages andcertain food products.  Non-nutritivesweeteners such as aspartame have also been developed to substitute forsugar.  Corn sweeteners and non-nutritivesweeteners constitute a large portion of the overall sweetener market.  The Company believes that the United Statesmarket for sugar will reflect minimal increases or be relatively flat in thenear future.

 

The United States sugarindustry has been subject to industry consolidation.  Today, there are fewer than 10 sugar sellers,****with approximately 73 percent of United States sugar marketshare concentrated in the top three sellers. The Company’s sugar production and sales represent approximately 18percent of the total domestic market for refined sugar in 2007/2008.  The Company had the right to market, or tohave marketed on its behalf, approximately 35 million hundredweight of sugarfrom the 2007 crop.  Sugar sales byUnited Sugars Corporation, the Company’s marketing agent, representapproximately 28 percent of the United States sugar market.

 

United is currently thesecond largest marketer of sugar in the United States. Main competitors in thedomestic market are The American Sugar Refining Company; Imperial SugarCompany; Cargill, Incorporated; The Amalgamated Sugar Company LLC; MichiganSugar Company; and The Western 

 

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Sugar Cooperative.  Because sugar is a fungible commodity,competition in the United States sugar industry is primarily based upon price,customer service and reliability as a supplier.

 

## **Government Programs and Regulations**

## ** **

**Food, Conservation and Energy Actof 2008**

 

The Food, Conservation andEnergy Act of 2008 (the Farm Bill) enacted in May, 2008, contains severalprovisions related to the domestic sugar industry, aimed at achieving balanceand stability in the U.S. sugar market while minimizing the cost to the Federalgovernment.  The Farm Bill applies to the2008 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.

 

Under the Farm Bill, sugarprocessors can borrow funds on a non-recourse basis from the Commodity CreditCorporation (CCC), with repayment of such funds secured by sugar.  If the price of sugar drops below theforfeiture price, the processors can forfeit the sugar securing the loans tothe CCC in lieu of repayment.  Processorsmay also obtain CCC loans for “in-process” sugar or syrups at 80 percent of theloan rate.

 

The Farm Bill incorporatesgradual loan rate increases for raw and refined sugar.  For raw sugar, the loan rate will increasethree-quarters of a cent per pound, raw value, phased-in in quarter-cent incrementsover crop years 2009-2011.  Raw cane loanrates will remain at 18.00 cents/lb in 2008 then rise gradually to 18.75 centsby 2011, and they will remain 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.

 

The United States Departmentof Agriculture (USDA) has historically maintained raw and refined sugar pricesabove the forfeiture price without cost to the U.S. Treasury by regulating thesupply of sugar in the U.S. market through management of a tariff rate quotasystem.  Currently, forty exporting countriesretain guaranteed preferential access to the U.S. market under World TradeOrganization (WTO) and Free Trade Agreement (FTA) rules.  Mexico’s access has been unlimited since January 1,2008.  This Farm Bill sets a minimumoverall allotment quantity for U.S. producers at no less than 85% of domesticconsumption and provides a market balancing mechanism if there is an oversupplyin the domestic sugar market.  If theSecretary of Agriculture determines there is an oversupply of sugar, the newmarket balancing mechanism requires the Secretary to divert the excess sugarfrom sugar producers to ethanol producers while minimizing the cost to the U.STreasury.  Although the market balancingmechanism will provide sustainability to the sugar industry in the short term,there is no assurance that the sugar-to-ethanol program will be in place afterthe Farm Bill expires.

 

The marketing allotments andallocations set forth under the Farm Bill affect the sugar produced from the2008 crop through the 2012 crop.  On anannual basis, the marketing allotments and the corresponding allocation to theCompany will dictate the amount of sugar the Company can sell into the 

 

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domestic market.  The Company’smarketing allocation for the 2008 crop is currently set at approximately 35million hundredweight.  The Company’sallocation may reduce or increase the amount of sugar the Company can marketfor a given year, thus affecting the number of acres of sugarbeets required forprocessing to produce that amount of sugar.

 

### **North American Free TradeAgreement**

###  

The North American FreeTrade Agreement (NAFTA) governs sweetener trade between the United States andMexico.  Under the NAFTA, tariffs on over-quota imports of sugar from andexports of sugar to Mexico expired on January 1, 2008.  Importsof Mexican 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**.**

 

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

###  

Under the currentadministration, the United States government is pursuing an aggressive agendaon international trade.  It is seeking tonegotiate new free trade agreements with a number of countries and regions thatare major producers of sugar.  Theprimary agreements affecting sugar that are completed or are being negotiated,to the Company’s knowledge, include the Peru Free Trade Agreement, ColombianFree Trade Agreement, Panama Free Trade Agreement, as well as, agreements withthe Free Trade Area of the Americas, the Association of Southeast AsianNations, South Africa, Thailand, and others. The Company believes these agreements, if they reach fruition, couldnegatively impact the Company’s profitability. If increases in guaranteed access or reductions in sugar tariffs areincluded in these agreements, excess sugar from these regions could enter theU.S. market and put pressure on domestic sugar prices.

 

The Peru Free TradeAgreement 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 they have not been ratified by the U.S. Congress.  The Company does not know when these tradeagreements will be brought before Congress for a vote.

 

The Doha Round negotiationsof the WTO continue to be pursued by the U.S. Administration and some of itsinternational counterparts.  It isunclear at this time whether negotiations will be completed.  If the negotiations are completed, theoutcome of any negotiated arrangement could have significant adverseconsequences for the Company.

 

The U.S. sugar industry andthe Company, as an influential member of such industry, recognize the potentialnegative impact that could result if these agreements are entered into by theUnited States and are taking steps to attempt to positively influence theoutcome.  The Company and the sugarindustry intend to continue to focus significant attention on trade issues inthe future.

 

The impact of the varioustrade agreements on the Company cannot be assessed at this time due to theuncertainty concerning the terms of the agreements and whether they willultimately be implemented.  It ispossible, however, that the passage of various trade agreements could have amaterial adverse effect on the Company through a reduction in acreage that canbe planted by the Company’s shareholders and by the growers for Sidney SugarsIncorporated, and/or a reduction in sugar selling prices, and a correspondingreduction in the beet payment to the shareholders and the Company earnings.

 

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**Employees**

 

As of October 1, 2008, the Company had****1,361full-time employees, of which 1,111 were hourly and 250 were salaried.  The Company had 24 part-time employees.  In addition, the Company employs approximately811 hourly seasonal workers, approximately 453 during the sugarbeet harvest andapproximately 358 during the remainder of the sugarbeet processing campaign. ** **Duringthe sugarbeet harvest, the Company also contracts with third party agencies forapproximately another 1,300 additional workers.

 

Substantially all of the hourly employees at theCompany’s factories, including full-time and seasonal employees, arerepresented by the Bakery, Confectionery, Tobacco Workers and Grain Millers(BCTGM) AFL-CIO, and are covered by collective bargaining agreements expiring July 31,2011 for the Red River Valley factory employees and April 30, 2010 for theSidney, Montana, factory employees. Office, clerical and management employees are not unionized, except forcertain office employees at the Moorhead and Crookston, Minnesota, andHillsboro, North Dakota, factories who are covered by the collective bargainingagreement with the BCTGM.  The Companyconsiders its employee relations to be good.

 

### **EnvironmentalMatters**

###  

The Company is subject to extensive federal and stateenvironmental laws and regulations with respect to water and air quality, solidwaste disposal and odor and noise control. The Company conducts an ongoing compliance program designed to meetthese environmental laws and regulations. The Company believes that it is in substantial compliance withapplicable environmental laws and regulations. From time to time, however, the Company may be involved in investigationsor determinations regarding non-material matters that may arise.

 

The Company’s Crookston,East Grand Forks and Moorhead, Minnesota factories have experienced hydrogensulfide emissions from their water treatment ponds that have exceededpermissible limits.  On July 19,2007, the Company received a notice 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 and 2008 thatexceeded permissible limits.  A penaltyassessment is currently under consideration by the MPCA.  While it is likely that the Company may beassessed penalties and/or fines related to these occurrences, as of the date ofthis report none have been assessed.  Anypotential penalties and/or fines, while possibly significant, are not expectedto be material to the Company.

 

All of the Company’s factories contain various typesof highly volatile dust from sources such as sugar and sugarbeet pulppellets.  The Company as well as theOccupational Safety and Health Administration (OSHA) have been on heightenedawareness subsequent to a sugar dust explosion at a domestic refinery in2008.  The Company is evaluatingpotential exposure areas and increased remediation efforts to minimizerisk.  Significant levels of capitalexpenditures are expected but are not currently estimated.

 

The Company is alsoaddressing the following environmental matters:

 

·                  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.

 

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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.

 

Corrective actions have beentaken related to these occurrences. While the Company may be assessed penalties for these occurrences, as ofthe date of this report none have been assessed.   Any potential penalties assessed are notexpected to be material to the Company.

 

Capital expenditures arerequired to minimize environmental risk. The Company’s capital expenditure budget at the beginning of the currentfiscal year included approximately $7.7 million for environmental relatedprojects at the Company’s factory locations. During 2008, an additional $3.6 million was approved.  Expenditures during fiscal 2008 on theseprojects were approximately $3.0 million while total project-to-date spendingon these projects has been $6.3 million. Environmental related projects that were placed into service duringfiscal 2008 totaled approximately $5.6 million. The amount and timing of any additional capital expenditures that may berequired is not currently known.

 

## **Available Information**

## ** **

The Company’s corporate headquarters are located at101 North Third Street, Moorhead, Minnesota 56560, telephone number(218) 236-4400.  The Company’sfiscal year ends August 31.  TheCompany’s website is www.crystalsugar.com. The Company files annual, quarterly and periodic reports with the UnitedStates Securities and Exchange Commission (SEC).  These reports can be accessed by selecting “Links”on the Company’s website or electronic or paper copies can be obtained free ofcharge upon request.  In addition, theCompany’s reports may be read or copied at the SEC Public Reference Room at100 F. Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the PublicReference Room by calling the SEC at 1-800-SEC-0330.  The SEC maintains an Internet site at http://www.sec.govthat contains reports and other information filed electronically about theCompany.

 

**Item 1A.                 RISKFACTORS**

 

The risks described below together with all of theother information included in this Annual Report on Form 10-K should beconsidered carefully.  The risks anduncertainties described below and elsewhere in this Annual Report on Form 10-Kare not the only ones we face.  If any ofthe following risks actually occur, our business, financial condition orresults of operations would likely suffer. In that case, the beet payments made to our members may decrease, thevalue of our Preferred Stock could fall, and a member could lose all or part oftheir investment.

 

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

 

Our strategy involves, to a substantial degree,maximizing profitability by continuing to control operating expenses. Infurtherance of this strategy, we have engaged in ongoing, company-wideefficiency activities intended to increase productivity and reduce costs.  These activities have included 

 

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realigning and streamliningour operations and optimizing the efficiency of our production facilities.  We cannot assure you that our efforts willresult in our continued or increased profitability.

 

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

 

As directed by Section 404 of the Sarbanes-OxleyAct of 2002, the Securities and Exchange Commission adopted rules requiringus, as of August 31, 2008, to include a report of management on ourinternal control over financial reporting in our annual reports on Form 10-Kthat contains an assessment by management of the effectiveness of our internalcontrol over financial reporting.  Inaddition, the independent registered public accounting firm auditing ourfinancial statements will be required, as of August 31, 2010, to attest toand report on management’s assessment of the effectiveness of our internalcontrol over financial reporting. Management has conducted a rigorous review of our internal control overfinancial reporting in order to assure compliance with the Section 404requirements.  However, if ourindependent auditors interpret the Section 404 requirements and therelated rules and regulations differently from us or if our independentauditors are not satisfied with our internal control over financial reportingor with the level at which it is documented, operated or reviewed, they may,when required, decline to attest to management’s assessment or issue aqualified report.

 

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

 

The domestic sugar market is reactive to anyoversupply of refined sugar.  Manyfactors can lead to an oversupply of sugar. Excess supply may result in a decline in domestic sugar prices.  Lower sugar prices directly impactprofitability of selling refined sugar in the United States.  If the selling price of sugar decreases, ourrevenues will decrease which will result in a direct negative impact on ourprofitability.

 

Under the current terms of the NAFTA and othergovernment regulations, imports of sugar from Mexico may enter the U.S.market.  These imports could oversupplythe U.S. market and negatively affect the price of sugar.

 

The United States government has been engaged inregional and bilateral trade negotiations with countries that producesugar.  If the United States governmententers into bilateral trade agreements with sugar producing countries, theamount of sugar in the domestic sugar market could increase.  A change in the supply of sugar could putpressure on the price of sugar, which would impact our profitability.

 

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

###  

The nature and scope of future legislation andregulation affecting the sugar market and industry cannot be predicted.  The current price supports and marketprotections for sugar in place may not continue in their present forms.  If the price support programs were eliminatedin their entirety, or if certain protections the federal government providesfrom foreign competitors were materially reduced, the amount of sugar we cansell, the amount of sugarbeets we can process and the price for which we cansell our sugar may be impacted, which could reduce the profitability of ourbusiness.  If legislation or governmentprograms change, we may not be able to adopt strategies that would allow us tocompete effectively in a greatly changed domestic market for sugar and theadverse effects could negatively impact the desirability of growing sugarbeetsfor delivery to us for processing, our financial results, and our continuedviability.

 

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

 

Sugar is a fungible commodity with competition forsales volume based primarily upon customer service, price and reliability,though differences in proximity to various geographic markets within the UnitedStates result in differences in freight and shipping costs which in turngenerally affect pricing and competitiveness. The overall sweetener market, in addition to sugar, includes corn-basedsweeteners, such as regular and high fructose corn syrups, and non-nutritive,high-intensity sweeteners such as aspartame. Differences in functional properties and prices have tended to definethe use of these various sweeteners. Although the various sweeteners are not interchangeable in allapplication, the substitution of other sweeteners for sugar has occurred incertain products, such as soft drinks. We cannot predict the availability, development or potential use ofthese and other alternative sweeteners and their possible impact on us or ourmembers.  We believe that we possess theability to compete successfully with other producers of sugar in the UnitedStates.  In spite of this competitive advantage,substitute products could reduce the demand for sugar which could lower theprice of sugar, resulting in a change to our operations in the future.

 

On June 27, 2007, our Board of Directorsauthorized the planting of Roundup Ready® sugarbeets for the 2008 cropyear.  Sugar and agri-products producedfrom Roundup Ready® sugarbeets have received regulatory approval in most of thecountries in which we have direct or indirect sales of our products.  While the sale of sugar and agri-productsfrom Roundup Ready® sugarbeet seed has been approved in most markets, marketingrisks still exist.  United SugarsCorporation and Midwest Agri-Commodities, our sugar and agri-product marketingagents, respectively, feel they can successfully sell and distribute productsfrom Roundup Ready® sugarbeets with minimal affect on our revenue.  However, customers’ views on the use ofproducts from biotechnology derived crops such as Roundup Ready® sugarbeets maychange over time which could negatively impact our profitability.

 

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

 

The prices we pay for energyrelated products, such as natural gas, coal and coke, have been volatile andmay continue to be volatile.  We usesubstantial amounts of these products in our manufacturing process.  We believe that the prices for energy relatedproducts including natural gas, coal and coke will continue to be volatile andhigher than historical levels.  Higherenergy prices may also increase the costs of many goods and services weacquire.  These higher prices maymaterially increase our cost of production, thus impacting our financialresults.

 

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

 

The sugarbeet, as with mostother crops, is affected by many factors, including seed varieties and weatherconditions during the growing season. Additionally, the quantity of sugarbeets to be processed and weatherconditions during the processing season affect our ability to store sugarbeetsheld for processing.  Growing and storageconditions different from what we predict or expect may change the quantity andquality of sugarbeets available for processing and therefore may affect thequantity of the sugar we produce.

 

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

 

A significant increase inthe quantity or quality of sugarbeets harvested due to good weather conditionsor improved seed varieties could result in an unpredictably large quantity ofsugarbeets to be processed.  If we arerequired to process a larger than anticipated quantity of sugarbeets we may 

 

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experience increased per unit of sugar processing cost which in turnwould have an adverse financial consequence to us and our members.

 

In order to manage thequantity and quality of sugarbeets that are harvested or available forprocessing, our Grower Contract allows for a reduction in the number of acresto be planted at the beginning of a crop year or harvested at the end of a cropyear.

 

Adequate storage conditionsduring a processing campaign are critical to ensure that the quantity andquality of sugarbeets available for processing are maintained.  If we are not able to obtain or maintainadequate storage conditions, the sugarbeets stored for processing at a laterdate may deteriorate, resulting in increased production costs, and decreasedproduction which in turn would have an adverse financial consequence to us andour members.

 

Based on results of recentyield trials and crop results, we expect that new sugarbeet varieties,including Roundup Ready® varieties, may continue to result in increases in theaverage sugarbeet crop yields over the next five years.  As a result, we anticipate that there may continueto be a need to reduce the number of acres of sugarbeets that can be planted byeach shareholder in order to match the sugarbeet crop volume to our processingand marketing capacity.  This reduction,if necessary, would be accomplished by reducing the per share plantingtolerance by an amount that may be material. Assuming there are no changes in other variables, the increased yieldper acre expected to result from the continued use of the new sugarbeet varietieswould allow shareholders to deliver substantially the same number of tons ofsugarbeets to us from fewer acres. Individual shareholder profitability will continue to depend on thecircumstances unique to each shareholder.

 

On January 24, 2008, the Center for Food Safetyalong with other groups filed a lawsuit against the USDA regarding the decisionto deregulate Roundup Ready® sugarbeets, specifically whether a fullenvironmental impact study should have been completed.  The Plaintiffs have not asked the Court toprohibit planting of Roundup Ready® sugarbeets. However, if the Court restricts planting in 2009, conventional varietieswould need to be utilized which would have a negative impact on our cropyields.  Chemical manufacturers havesignificantly reduced planned production of conventional herbicides due to therapid increase in planting of Roundup Ready® sugarbeets.  Weed control for conventional varieties wouldbe difficult due to an inadequate supply of conventional herbicides.  While we are taking precautionary measures,the risk of Roundup Ready® sugarbeet restrictions still exists and the negativefinancial impact to us and our members could be significant.

 

If we are unable to managethe quantity and quality of sugarbeets available for processing, we couldexperience adverse financial consequences that would impact both us and ourmembers.

 

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

 

The prices growers receive from crops other thansugarbeets could impact their decisions as to which crop to plant and how muchto plant.  Higher prices and increasedprofitability for alternative crops could negatively impact the desirability ofgrowing sugarbeets for delivery to us for processing, our financial results,and our continued viability.

 

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

 

### We are subject to extensive federal and state environmental laws andregulations with respect to water and air quality and solid wastedisposal.  We conduct on-going programsdesigned to meet these 

 

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### environmental lawsand regulations.  Changes inenvironmental laws or regulations or complying with existing environmental lawsand regulations or enforcement action brought under such environmental laws andregulations might increase the cost of operating our facilities or result insignificant capital investment.  Any suchchanges or compliance costs could reduce our profitability.

###  

**Item 2.**                                        PROPERTY ANDPROCESSING FACILITIES

** **

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

 

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

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

 

Each of the processing factories includes the physicalfacilities and equipment necessary to process sugarbeets into sugar.  Each factory has space for sugarbeet storage,including ventilated storage sites.  TheRed River Valley factories also have cold storage facilities.  Each of the Red River Valley factories iscurrently operating at or near its capacity. The Sidney, Montana factory is currently operating at less than fullcapacity.  The Company owns molassesdesugarization (MDS) plants at its East Grand Forks and Hillsborofacilities.  The MDS plants processmolasses to extract additional sugar. The Company has sugar packaging facilities located at the Moorhead,Hillsboro, Crookston, East Grand Forks and Sidney factories.

 

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

 

ProGold owns a corn wet-milling plant in Wahpeton,North Dakota, which is currently being leased to Cargill.  The corn wet-milling plant is capable ofprocessing corn to produce corn sweeteners (including high fructose corn syrups)and various agri-products.  This propertyis used in the Company’s leasing segment. On November 6,2007, ProGold entered into an amended lease agreement with Cargill thatsuperseded and replaced the previous 10 year lease between ProGold and Cargilland provides that (1) Cargill will pay ProGold average annual rentalpayments equal to $21,900,000, and (2) that the term of the lease beextended until December 31, 2017.

 

The Company’s corporate office is located in a 30,000square foot, two-story office building in Moorhead, Minnesota.  The Company also has a 100,000 square footTechnical Services Center situated on approximately 200 acres in Moorhead,Minnesota.  The Company owns bothfacilities.  The Company also ownsnumerous sites as sugarbeet receiving and storage stations located within proximityof their factories.  Substantially allnon-current assets are mortgaged or pledged as collateral for its indebtednessto various financial institutions.

 

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** **

**Item 3.**                                        LEGALPROCEEDINGS

** **

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

 

Another sugar company has appealed to the NinthCircuit Court of Appeals a decision of the United States District Courtrelative to a determination and transfer of sugar marketing allocations made bythe USDA.  The outcome of any contested matter is nevercertain.  If this case isoverturned, it could result in the Company experiencing a reduction inmarketing allocations equal to the loss of approximately 15,000 acres in futurecrop years assuming no other related factors were to change.

 

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

** **

No matters were submitted to a vote of the Company’sshareholders during the quarter ended August 31, 2008.

 

# **PART II**

# ** **

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

** **

As of August 31, 2008, the Company had 2,839shares of the Common Stock and 498,570 shares of the Preferred Stock issued andoutstanding.  There is no establishedpublic market for the Company’s Common Stock or Preferred Stock, as such sharesmay be held only by farmer-producers who are eligible for membership in theCompany.  The Company’s shares are notlisted for trading on any exchange or quotation system.  Although transfers of the Company’s sharesmay occur only with the consent of the Board of the Directors, the Company doesnot obtain information regarding the transfer price in connection with suchtransfers.  As a result, the Company isnot able to provide information regarding the prices at which the Company’sshares have been transferred.

 

Because the number of acres of sugarbeets a member maygrow for sale to the Company is directly related to the number of shares ofPreferred Stock owned, a limited, private market for Preferred Stockexists.  It is not anticipated that ageneral public market for the Company’s shares of Common Stock or PreferredStock will develop due to the limitations on transfer and the variousmembership requirements which must be satisfied in order to acquire suchshares.

 

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

 

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information regarding thetransfer price, the Company does not possess verifiable information regardingthe transfer price involved in recent transfers of the Company’s PreferredStock.

 

**Item6.**                                        SELECTEDFINANCIAL DATA

** **

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

 
| ** **                                | ** ** | **Fiscal Year Ended August 31,  (In Thousands, except for ratios)**                                                                                                     | ** ** |
|-------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                | ** ** | **2008**                                                                                                                                                                                                        | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                      |       |                                                                                                                                                                                                            |       |   |   |   |   |   |   |   |   |
| Net Revenues                              |       | $                                                                                                                                                                                                               | 1,231,963  |   | $ | 1,222,170 |   | $ | 1,005,716 |   | $ | 965,474 |   | $ | 1,033,088 |   |
| Net Proceeds (1)                          |       | $                                                                                                                                                                                                               | 542,693    |   | $ | 601,392 |   | $ | 445,091 |   | $ | 373,260 |   | $ | 473,122 |   |
| Total Assets                              |       | $                                                                                                                                                                                                               | 813,299    |   | $ | 875,315 |   | $ | 839,997 |   | $ | 774,024 |   | $ | 822,155 |   |
| Long-Term Debt, Net of Current Maturities |       | $                                                                                                                                                                                                               | 157,801    |   | $ | 157,974 |   | $ | 200,037 |   | $ | 216,842 |   | $ | 250,086 |   |
| Members’ Investments                 |       | $                                                                                                                                                                                                               | 331,276    |   | $ | 333,885 |   | $ | 323,256 |   | $ | 315,698 |   | $ | 303,426 |   |
| Property and Equipment                    |       |                                                                                                                                                                                                            |       |   |   |   |   |   |   |   |   |
| Additions, net of retirements             |       | $                                                                                                                                                                                                               | 45,188     |   | $ | 63,032 |   | $ | 45,453 |   | $ | 42,595 |   | $ | 30,347 |   |
| Working Capital                           |       | $                                                                                                                                                                                                               | 57,775     |   | $ | 36,929 |   | $ | 58,214 |   | $ | 47,514 |   | $ | 58,673 |   |
| Ratio of Long-Term Debt to Equity (2)     |       | .48:1                                                                                                                                                                                                           |       | .47:1 |   | .62:1 |   | .69:1 |   | .82:1 |   |
|                                      |       |                                                                                                                                                                                                            |       |   |   |   |   |   |   |   |   |
|                                      |       | **Fiscal Year Ended August 31,  (In Thousands, except for Tons purchased per acre harvested  and Sugar content of sugarbeets)** |       |
| **Crop Data (3)**               | ** ** | **2008**                                                                                                                                                                                                        | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                      |       |                                                                                                                                                                                                            |       |   |   |   |   |   |   |   |   |
| Acres harvested                           |       | 529                                                                                                                                                                                                             |       | 509 |   | 507 |   | 526 |   | 537 |   |
| Tons purchased                            |       | 12,465                                                                                                                                                                                                          |       | 12,845 |   | 9,628 |   | 10,217 |   | 10,982 |   |
| Tons purchased per acre harvested         |       | 23.6                                                                                                                                                                                                            |       | 25.3 |   | 19.0 |   | 19.4 |   | 20.4 |   |
| Sugar Content of Sugarbeets               |       | 18.1                                                                                                                                                                                                            | %          | 18.2 | % | 18.0 | % | 17.8 | % | 18.5 | % |
| Sugar hundredweight                       |       |                                                                                                                                                                                                            |       |   |   |   |   |   |   |   |   |
| Produced                                  |       | 36,613                                                                                                                                                                                                          |       | 37,193 |   | 29,728 |   | 30,524 |   | 33,829 |   |
| Sold, including purchased sugar           |       | 36,879                                                                                                                                                                                                          |       | 35,236 |   | 29,691 |   | 31,509 |   | 33,835 |   |
| Purchased sugar sold                      |       | 179                                                                                                                                                                                                             |       | 7 |   | 45 |   | 523 |   | 36 |   |
| Agri-Products tons                        |       |                                                                                                                                                                                                            |       |   |   |   |   |   |   |   |   |
| Produced                                  |       | 849                                                                                                                                                                                                             |       | 930 |   | 717 |   | 732 |   | 876 |   |
| Sold                                      |       | 871                                                                                                                                                                                                             |       | 898 |   | 721 |   | 761 |   | 864 |   |

 

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

 

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

 

(3) Informationfor a fiscal year relates to the crop planted and harvested in the precedingcalendar year (i.e., information for the fiscal year ended August 31, 2008relates to the crop of 2007).  Crop datareflect the combined data of the Red River Valley crop and the Sidney crop.

 

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** **

**Item7.**                                        MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

** **

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

 

## **Liquidity and Capital Resources**

## ** **

Under the Company’sBylaws and Grower Contracts, payments for member delivered sugarbeets, theprincipal raw material used in producing the sugar and agri-products it sells,are subordinated to all member business expenses.  In addition, the beet payment made to membergrowers and non-member growers are paid in three payments over the course of ayear, and the payments are made net of any anticipated or declared unit retainfor the 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.

 

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

 

The Company has long-term debt availability withCoBank, ACB of****$185.0 million, of which$53.3 million in loans and $70.3 million in long-term letters of credit wereoutstanding as of August 31, 2008. The unused long-term line of credit as of August 31, 2008 was $61.4million.  In addition, the Company haslong-term debt outstanding, as of August 31, 2008, of $50 millionfrom a private placement of Senior Notes that occurred in September of1998; $4.3 million from a private placement of Senior Notes that occurred in January of2003; $70.4 million from ten separate issuances of Pollution Control andIndustrial Development Revenue Bonds; and a term loan with Bank of North Dakotaof $.8 million.

 

The Company also has a seasonal line of credit with aconsortium of lenders led by CoBank, ACB of $345 million, of which therewas no outstanding balance as of August 31, 2008, and a line of creditwith Wells Fargo Bank for $1 million, of which there was no outstandingbalance as of August 31, 2008.  TheCompany’s commercial paper program provides short-term borrowings of up to $325million of which approximately $15.3 million was outstanding as of August 31,2008.  The Company had $2.3 million ofshort-term letters of credit outstanding as of August 31, 2008.  The unused short-term line of credit as of August 31,2008 was $328.4 million.  Any borrowingsunder the commercial paper program along with outstanding short-term letters ofcredit will act to reduce the available credit under the CoBank, ACB seasonalline of credit by a commensurate amount.

 

The Company had outstandingcommitments totaling $4.3 million as of August 31, 2008 for equipment andconstruction contracts related to various capital and maintenance projects.

 

As of August 31, 2008,Midwest had outstanding short-term debt with CoBank, ACB of $3.2 million, ofwhich $1.8 million was guaranteed by the Company.

 

The net cash provided by operations was $82.5 millionfor the year ended August 31, 2008, as compared to $95.6 million for theprevious year.  This decrease of $13.1million was primarily due to changes in the amount due growers of $41.9million, accounts payable of $15.0, other liabilities of $16.4, unit retainswithheld of $12.4 million, and advances to related parties of $9.2 million,which were partially offset by the changes in inventories of $70.0 million andreceivables of $13.5 million.  Amounts 

 

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duegrowers changed primarily as the result of a lower grower payment for the 2007crop as compared to the 2006 crop.  The change in unitretains withheld was also due to the smaller Red River Valley crop this yearand a reduction in the amount withheld per ton from $3 per ton to $2 perton.  The change in inventories was dueprimarily to a decrease in the quantity of products and unprocessed sugarbeetinventories this year as compared to last year which resulted from the earlycampaign start-up last year.

 

The net cash used in investing activities was $41.9million for the year ended August 31, 2008, as compared to $64.3 millionfor the previous year.  The decrease of$22.4 million was primarily related to decreased purchases of property andequipment.

 

The net cash used in financing activities was $40.7million for the year ended August 31, 2008 as compared to $31.4 millionfor the previous year.  This increase of$9.3 million was primarily due to increased payments on short term debt of$29.4 million and increased unit retain payments of $1.3 million, partiallyoffset by decreased payments on long term debt of  $16.5 million and increased proceeds from theissuance of long term debt of $4.9 million.

 

The Company anticipates that the funds necessary forworking capital requirements and future capital expenditures will be derived from operations and unit retains along withshort-term and long-term borrowings.

 

The following tableprovides information regarding the Company’s contractual obligations as of August 31,2008:

 
| **(In Thousands)**           | ** ** | **Total** | ** ** | **Less than  One Year** | ** ** | **One to  Three Years** | ** ** | **Four to Five  Years** | ** ** | **After Five  Years** | ** ** |
|-----------------------------------|------------|-----------|------------|-----------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|----------------------------|------------|
| Long-Term Debt                    |       | $         | 178,792    |                              | $          | 20,991                            |       | $                                 | 62,161     |                       | $          | 6,330 |   | $ | 89,310 |   |
| Interest on Fixed Rate L-T Debt   |       | 67,030    |       | 7,177                             |       | 15,059                            |       | 7,598                             |       | 37,196                     |       |
| Purchase Obligations              |       | 23,964    |       | 12,416                            |       | 11,179                            |       | 257                               |       | 112                        |       |
| Operating Lease Obligations       |       | 14,518    |       | 1,599                             |       | 3,617                             |       | 2,106                             |       | 7,196                      |       |
| Other Long-Term Obligations(1)    |       | 40,931    |       | 4,220                             |       | 7,547                             |       | 4,190                             |       | 24,974                     |       |
| Pension Plan Contributions(2)     |       |      |       |                              |       |                              |       |                              |       |                       |       |
|                              |       |      |       |                              |       |                              |       |                              |       |                       |       |
| **Total Contractual Obligations** |       | $         | 325,235    |                              | $          | 46,403                            |       | $                                 | 99,563     |                       | $          | 20,481 |   | $ | 158,788 |   |

 

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(1) AccruedEmployee benefits of $1.9 million with corresponding offsetting assets andrequiring no future payments have been excluded from the amountspresented.  Other Long-Term Liabilitiesof $2.1 million, which relate to deferred revenue also requiring no futurepayments, have also been excluded from the table.

 

(2) The Companydoes not expect to make any contributions to the defined benefit pension plansduring the next fiscal year. Contributions for future years are not known at this time and thereforeare not included in the above table.  TheCompany expects to make contributions in the next fiscal year of approximately$116,000 related to Supplemental Executive Retirement Plans.  This amount is reflected in Other Long-TermObligations in the above table.

 

**CriticalAccounting Policies and Estimates**

 

Preparation of theCompany’s consolidated financial statements requires estimates and judgments tobe made that affect the amounts of assets, liabilities, revenues and expensesreported.  Such decisions include the selection of the appropriateaccounting principles to be applied and the assumptions on which to baseaccounting estimates.  Management continually evaluates these estimatesbased on historical experience and other assumptions we believe to bereasonable under the circumstances.

 

The difficulty inapplying these policies arises from the assumptions, estimates and judgmentsthat have to be made currently about matters that are inherently uncertain,such as future economic conditions, operating results and valuations as well asmanagement intentions.  As the difficulty 

 

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increases, the level of precision decreases, meaningthat actual results can and probably will be different from those currentlyestimated.

 

Estimates are consideredto be critical if they meet both of the following criteria: (1) theestimate requires assumptions about material matters that are uncertain at thetime the accounting estimates are made, and (2) other materially differentestimates could have been reasonably made or material changes in the estimatesare reasonably likely to occur from period to period.  The Company’s critical accounting estimatesinclude the following:

 

*InventoryValuation*

 

Sugar, pulp, molasses andother agri-product inventories are valued at estimated net realizablevalue.  The Company derives its estimatesfrom sales contracts, recent sales and evaluations of market conditions andtrends.  Changes in market conditions maycause management’s estimates to differ from actual results.

 

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

 

Property and equipment,and property and equipment held for lease are depreciated for financialreporting purposes principally using straight-line methods with estimateduseful lives ranging from 3 to 40 years. Economic circumstances or other factors may cause management’s estimatesof expected useful lives to differ from actual.

 

The Company reviews itsproperty and equipment, and property and equipment held for lease forimpairment whenever events indicate that the carrying amount of the asset maynot be recoverable.  An impairment lossis recorded when the sum of the future cash flows is less than the carryingamount of the asset.  An impairment lossis measured as the amount by which the carrying amount of the asset exceeds itsfair value.  Considerable managementjudgment is necessary to estimate future cash flows and may differ from actualresults.

 

*Intangible Assets and Amortization*

 

Intangible assets areamortized for financial reporting purposes principally using straight-linemethods based on the expected useful lives of the assets.  Economic circumstances or other factors maycause management’s estimates of expected useful lives to differ from actual.

 

*Pension Plan and OtherPost-Retirement Benefits*

 

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

 

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

 

The significant actuarialassumptions used in the determination of the actuarial present value ofaccumulated pension plan benefits for fiscal 2008 were as follows: *Valuation Funding Method* - Entry age normal, frozen initialliability; *Life Expectancy* – RP-2000 MortalityTable; *Retirement Age –*graded rates from 1percent retiring at age 55 to 100 percent retired by age 70*;  Investment Return -*8.00 percentcompounded annually for funding*;  Discount* Rate- 7.04 percentcompounded annually;  *Salary Scale* - 3.5 percent compounded annually (Plan Aonly).

 

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The significant actuarialassumptions used in the determination of the actuarial present value ofaccumulated post-retirement benefits for fiscal 2008 were as follows: *Healthcare Cost Trend* - a 9.0 percent annual rate ofincrease in the per capita cost of covered healthcare benefits for participantsunder age 65 was assumed for 2008.  Therate is assumed to decline to 5.0 percent over the next five years.  For participants age 65 and older, a 10.0percent annual rate of increase in the per capita cost of covered healthcarebenefits was assumed for 2008.  The rateis assumed to decline to 6.0 percent over the next five years*; Discount* Rate- 7.04 percent compounded annually.

 

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

 

*Self-Insurance*

 

The Company isself-insured for a portion of the risks related to workers’ compensation claimsand employees’ health insurance.  Theestimate of self-insurance liability is based upon known claims and an estimateof incurred but not reported (IBNR) claims. IBNR claims are estimated using historical claims lag informationreceived by a third party claims administrator. Actual events may differ from the assumptions used and may result inclaim payments differing from the current estimates.

 

## **Results of Operations**

## ** **

The Company’s operationalresults and the resulting beet payment to members and growers are substantiallydependent on market factors, including domestic prices for refined sugar.  These factors are continuously influenced bya wide variety of market forces, including domestic sugarbeet and caneproduction, weather conditions and United States’ farm and trade policy, whichthe Company is unable to predict.

 

In addition, highlyvariable weather conditions during the growing, harvesting and processingseasons, as well as diseases and insects, may materially affect the quality andquantity of sugarbeets available for purchase as well as the unit costs of rawmaterials and processing.

 

**Comparison of the Years Ended August 31, 2008and 2007**

 

Due to the large size of the 2007 Red River Valley crop, the Company,for the second consecutive year, commenced the harvest and processing of thecrop in August as compared to a typical start-up in September.  All the costs incurred prior to the beginningof the Company’s 2008 fiscal year that related to receiving and processing the2007 sugarbeet crop were deferred in fiscal 2007 and recognized in fiscal2008.  Similarly, the net realizablevalues of products produced prior to the beginning of the Company’s 2008 fiscalyear that related to the 2007 sugarbeet crop were deferred in fiscal 2007 and recognizedin fiscal 2008.

 

The harvest of the Red River Valley and Sidney sugarbeet crops grownduring 2007 and processed during fiscal 2008 produced a total of12.5 million tons of sugarbeets, or approximately 23.6 tons of sugarbeetsper acre from approximately 529,000 acres. This represents a decrease in total tons harvested of approximately 3.0percent compared to the 2006 crop.  Thesugar content of the 2007 crop is 18.1 percent as compared to the 18.2 percentsugar content of the 2006 crop.  The Companyproduced a total of approximately 36.6 million hundredweight of sugar fromthe 2007 crop, a decrease of approximately 1.6 percent compared to the 2006crop.  As of August 31, 2008, theCompany had approximately 192,000 hundredweight of sugar produced from the 2007crop that exceeded the marketing allocation limit for the time period of October 1,2007 to September 30, 2008.

 

19

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Revenue for the year ended August 31, 2008 was $1.2 billion, anincrease of $9.8 million from the year ended August 31, 2007.  The table below reflects the percentagechanges in product revenues, prices and volumes for the year ended August 31,2008, as compared to the year ended August 31, 2007.

 
| **Product** | ** ** | **Revenue** | ** ** | **Selling Price** | ** ** | **Volume** | ** ** |
|-------------|------------|-------------|------------|------------------------|------------|------------|------------|
| Sugar       |       | -0.9        | %          | -5.3                   | %          | 4.6        | %          |
| Pulp        |       | 4.5         | %          | 22.2                   | %          | -14.5      | %          |
| Molasses    |       | 28.6        | %          | 0.4                    | %          | 28.1       | %          |
| CSB         |       | 15.2        | %          | 5.7                    | %          | 9.0        | %          |
| Betaine     |       | 73.4        | %          | 10.0                   | %          | 57.7       | %          |

 

The substantial increase in the revenue and volume of betaine sold isprimarily due to increased availability of saleable product resulting from ahigher beginning inventory level as of September 1, 2007 as compared tothe inventory level as of September 1, 2006.

 

Rental revenue on theProGold operating lease was $24.2 million and $24.9 million for the years endedAugust 31, 2008 and 2007, respectively.

 

Cost of sales for the yearended August 31, 2008, exclusive of payments to members for sugarbeets,increased $54.8 million as compared to the year ended August 31,2007.  This increase was primarilyrelated to the following:

 

·                  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 decrease in the netrealizable value of product inventories for the year ended August 31, 2008was $5.8 million as compared to an increase of $40.4 million for the year endedAugust 31, 2007 resulting in a $46.2 million unfavorable change in thecost of sales between the two years as shown in the table below:

 

**Change in the Net Realizable Value of Product Inventories**

 
| ** **                                                              | ** ** | **For the Years Ended August 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                      |       | (150.6                                                     | )          | (156.4 | ) | 5.8 | (2) |
|                                                                    |       |                                                       |       |   |   |   |   |
| (Increase)/Decrease in the Net Realizable Value of  Product Inventories |       | $                                                          | 5.8        |   | $ | (40.4 | ) | $ | 46.2 |   |

 

----

(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 lower quantities of products as of August 31, 2008 ascompared to August 31, 2007.

 

·                  Animpairment loss of $11.9 million related to the property and equipment at theSidney, Montana facility was recognized in 2008 and included in cost of sales.

 

·                  Thecost recognized associated with the non-member sugarbeets decreased $4.4million for the year ended August 31, 2008, when compared to the sameperiod last year.  This decrease wasprimarily due to an 11.7 percent decrease in tons purchased.

 

20

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Selling, general andadministrative expenses increased $20.7 million for the year ended August 31,2008, as compared to the year ended August 31, 2007.  Selling expenses increased $22.6 millionprimarily due to the increase in the volumes of products sold and increasedtransportation rates resulting in increased shipping and handlingexpenses.  General and administrativeexpenses decreased $ 1.9 million due to general cost decreases.

 

Interest expense decreased$5.2 million for the year ended August 31, 2008, as compared to the yearended August 31, 2007.  Thisreflects a decrease in the average borrowing levels and lower average interestrates for both short-term and long-term debt.

 

Non-member businessactivities resulted in a loss of $4.8 million for the year ended August 31,2008, as compared to a gain of $2.3 million for the year ended August,2007.  The decrease was primarily relatedto the impairment loss for Sidney Sugars Incorporated partially offset byincreased income from the activities of ProGold.

 

Payments to members for sugarbeets, net of unitretains declared, decreased by $39.2 million from $563.4 million in 2007 to$524.2 million in 2008.  This decreasewas primarily due to lower sugar selling prices and fewer tons harvestedpartially offset by increased agri-product selling prices and a lower per tonunit retain withheld.

 

**Comparison of the Years Ended August 31, 2007and 2006**

 

Due to the large size of the 2006 Red River Valley crop, the Companyinstituted an eight percent reduction in the number of acres harvested by itsmembers, approximately 40,000 acres, in order to manage the quantity andquality of the sugarbeets available for processing during fiscal 2007.  Also due to the large size of the 2006 RedRiver Valley crop, the Company commenced the harvest and processing of the cropin August of 2006 as compared to a typical start-up in September.  All the costs incurred prior to the beginningof the Company’s 2007 fiscal year that related to receiving and processing the2006 sugarbeet crop were deferred in fiscal 2006 and recognized in fiscal2007.  Similarly, the net realizablevalues of products produced prior to the beginning of the Company’s 2007 fiscalyear that related to the 2006 sugarbeet crop were deferred in fiscal 2006 andrecognized in fiscal 2007.

 

The harvest of the sugarbeetcrop (Red River Valley crop and Sidney crop) grown during 2006 and processedduring fiscal 2007 produced a total of 12.8 million tons of sugarbeets, orapproximately 25.3 tons of sugarbeets per acre from approximately 507,000acres.  This represents an increase intotal tons harvested of approximately 33.4 percent compared to the 2005crop.  The sugar content of the 2006 cropwas 18.2 percent as compared to the 18.0 percent sugar content of the 2005crop.  The Company produced a total ofapproximately 37.2 million hundredweight of sugar from the 2006 crop, anincrease of approximately 25.1 percent compared to the 2005 crop.  The Company experienced higher salesvolumes for most of its products this fiscal year as compared to the previousfiscal year and the average selling prices for most of these products increaseddue to supply and demand factors.  NetProceeds from Member and Non-Member Business for fiscal 2007 were 35.1 percenthigher than in fiscal 2006.  Thisincrease is primarily the result of the increased size and quality of the cropharvested and processed in 2007.

 

Revenue for the year ended August 31,2007, was $1.2 billion, an increase of $216.5 million from 2006.  The table below reflects the percentagechanges in product revenues, prices and volumes for the year ended August 31,2007, as compared to the previous year.

 

21

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

 

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

 

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

 

Cost of sales for the yearended August 31, 2007, exclusive of payments to members for sugarbeets,increased $19.6 million as compared to fiscal 2006.  This increase was primarily related to thefollowing:

 

·                  Operating costs increased $41.5 millionprimarily as a result of harvesting 33.4 percent more sugarbeets and processing29.4 percent more sugarbeets during fiscal 2007 as compared to the previous year.  Improved factory slice efficiencies, lowercoal costs and reduced energy usage partially offset the impact of the volumeincreases.

 

·                  The costs associated with sugar purchased tomeet customer needs decreased by $1.7 million from 2006 due to the earliercampaign start-up and increased sugar production this year.

 

·                  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 year ended August 31, 2007was $40.4 million as compared to an increase of $21.0 million for the yearended August 31, 2006 resulting in a $19.4 million favorable change in thecost of sales between the two years as shown in the table below:

 

**Change in the Net Realizable Value of Product Inventories**

 
| ** **                                                              | ** ** | **For the Years Ended August 31** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|
| **(In Millions)**                                                  | ** ** | **2007**                                                   | ** ** | **2006** | ** ** | **Change** | ** ** |
| Beginning Product Inventories at Net Realizable  Value                  |       | $                                                          | 116.0      |   | $ | 95.0 |   | $ | 21.0 | (1) |
|                                                                    |       |                                                       |       |   |   |   |   |
| Ending Product Inventories at Net Realizable Value                      |       | (156.4                                                     | )          | (116.0 | ) | (40.4 | )(2) |
|                                                                    |       |                                                       |       |   |   |   |   |
| (Increase) Decrease in the Net Realizable Value of  Product Inventories |       | $                                                          | (40.4      | ) | $ | (21.0 | ) | $ | (19.4 | ) |

 

----

(1) The change is primarily due to a 21 percent increase in theper hundredweight net realizable value of sugar inventory as of August 31,2006 as compared to August 31, 2005.

 

(2) The change isprimarily due to a 47 percent increase in the hundredweight of sugar inventoryas of August 31, 2007 as compared to August 31, 2006 partially 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.

 

22

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Selling, general andadministrative expenses increased $35.6 million from 2006.  Selling expenses increased $34.3 millionprimarily due to an increase in the volume of sugar, pulp and molasses soldresulting in increased shipping and handling expenses.  General and Administrative expenses increased$1.3 million due to general cost increases.

 

Interest expense increased$1.2 million in 2007 as compared to the previous year.  This reflects an increased average borrowinglevel and a higher average interest rate for short-term debt partially offsetby a lower average balance and a lower average interest rate for long-termdebt.

 

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

 

Non-member businessactivities resulted in a gain of $2.3 million in 2007, as compared to a gain of$2.2 million in 2006.  The slightincrease was primarily due to increased earnings from the activities of ProGoldpartially offset by reduced income from Sidney Sugars.

 

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

 

## **2008 Crop and Estimated Fiscal Year 2009 Information**

## ** **

This discussion contains the Company’s currentestimate of the results to be obtained from the Company’s processing of the2008 sugarbeet crop.  This discussionincludes forward-looking statements regarding the quantity of sugar to beproduced from the 2008 sugarbeet crop. These forward-looking statements are based largely upon the Company’sexpectations and estimates of future events; as a result, they are subject to avariety of risks and uncertainties.  Theactual results experienced by the Company could differ materially from theforward-looking statements contained herein.

 

The harvest of the Red River Valley and the Sidneysugarbeet crops grown during 2008 is estimated to produce a total of10.7 million tons of sugarbeets, or approximately 25.3 tons of sugarbeetsper acre from approximately 423,000 acres. This represents a decrease in total tons harvested of approximately 14.1percent compared to the 2007 crop.  Thesugar content of the 2008 crop is estimated to be 17.6 percent as compared tothe 18.1 percent sugar content of the 2007 crop.  The Company expects to produce a total ofapproximately 30.2 million hundredweight of sugar from the 2008 crop, adecrease of approximately 17.5 percent compared to the 2007 crop.

 

**Item7A.**                               QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK

** **

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

 

The Company does notbelieve that it is subject to any material market risk exposure with respect tointerest rates, exchange rates, commodity prices, equity prices and othermarket changes that would require disclosure under this item.

 

**Item8.**                                        FINANCIALSTATEMENTS

** **

The consolidated financial statements of the Companyfor the fiscal years ended August 31, 2008, 2007 and 2006 have beenaudited by Eide Bailly LLP, an independent registered public 

 

23

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accounting firm.  Such consolidated financial statements havebeen included herein in reliance upon the report of Eide Bailly LLP.  The consolidated financial statements of theCompany are included in Appendix A to this annual report.

 

**Item 9.**             CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

** **

None

 

**Item 9A.**          CONTROLSAND PROCEDURES

** **

**Evaluation of DisclosureControls and Procedures**

 

The Company’s chiefexecutive officer and chief financial officer have reviewed and evaluated theeffectiveness of the Company’s disclosure controls and procedures (as definedin Rules 240.13a-15(e) and 15d-15(e) promulgated under theSecurities Exchange Act of 1934) as of August 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 Security and Exchange Commission’s rules andforms, including ensuring that such information is accumulated and communicatedto the Company’s management, including the chief executive officer and thechief financial officer, as appropriate to allow timely decisions regardingrequired disclosure.

 

**Management’s Report onInternal Control over Financial Reporting**

 

Management isresponsible for establishing and maintainingadequate internal control over financial reporting as defined in Rules 13a-15(f) and15d-15(f) under the Securities Exchange Act of 1934, as amended.  Our internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles.

 

All internal controlsystems, no matter how well designed, have inherent limitations. Therefore,even those systems determined to be effective can provide only reasonableassurance with respect to financial statement preparation andpresentation.  Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements.  Also, because ofchanges in conditions, the effectiveness of internal control may vary overtime.

 

Management assessed theeffectiveness of the Company’s internal control over financial reporting as of August 31,2008, using criteria set forth by the Committee of Sponsoring Organizations ofthe Treadway Commission (COSO) in *InternalControl-Integrated Framework*and concluded that the Companymaintained effective internal control over financial reporting as of August 31,2008 based on these criteria.

 

This annual report does notinclude an attestation report of the Company’s registered public accountingfirm regarding internal control over financial reporting.  Management’s report was not subject toattestation by the Company’s registered public accounting firm pursuant totemporary rules of the Securities and Exchange Commission that permit theCompany to provide only management’s report in this annual report.

 

24

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**Changes in InternalControl over Financial Reporting**

 

There were no changes in theCompany’s internal control over financial reporting that occurred during theCompany’s most recent fiscal quarter that may have materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

# **PART III**

# ** **

**Item 10.**                                 DIRECTORS, EXECUTIVEOFFICERS AND CORPORATE GOVERNANCE

** **

**Board of Directors**

 

The Board ofDirectors of the Company consists of three directors from each of the five RedRiver Valley factory districts. Directors must hold common stock of the Company or must berepresentatives of such shareholders belonging to the district they representand are elected by the members of that district.  In the case of a holder of common stock whois other than a natural person, a duly appointed or elected representative ofsuch shareholder may serve as a director. The directors were elected to serve three-year terms expiring in December ofthe years indicated in the table below. One director is elected each year from each Red River Valley factorydistrict.  A director cannot serve morethan four consecutive three-year terms.

 

The table belowlists certain information concerning current directors of the Company.

 
| **Name and Address**                                     | ** ** | **Age**    | ** ** | **Factory District** | ** ** | **Director  Since** | ** ** | **Term Expires  December** | ** ** |
|--------------------------------------------------------------------|------------|------------|------------|---------------------------|------------|---------------------|------------|---------------------------------|------------|
| ** **                                                         | ** ** | ** ** | ** ** | ** **                | ** ** | ** **          | ** ** | ** **                      | ** ** |
| Michael A. Astrup (Chairman) 

PO Box 219 

Dilworth, MN 56529     |       | 55         |       | Moorhead                  |       | 1996                |       | 2008                            |       |
| ** **                                                         | ** ** | ** ** | ** ** | ** **                | ** ** | ** **          | ** ** | ** **                      | ** ** |
| Neil C. Widner (Vice-Chairman) 

PO Box 47 

Stephen, MN 56757     |       | 57         |       | Drayton                   |       | 2000                |       | 2009                            |       |
| ** **                                                         | ** ** | ** ** | ** ** | ** **                | ** ** | ** **          | ** ** | ** **                      | ** ** |
| William Baldwin 

8244 144th Ave. NE 

St Thomas, ND 58276         |       | 62         |       | Drayton                   |       | 2004                |       | 2010                            |       |
| ** **                                                         | ** ** | ** ** | ** ** | ** **                | ** ** | ** **          | ** ** | ** **                      | ** ** |
| Richard Borgen 

1544 Co. Highway 39 

Perley, MN 56574            |       | 59         |       | Moorhead                  |       | 1997                |       | 2009                            |       |
| ** **                                                         | ** ** | ** ** | ** ** | ** **                | ** ** | ** **          | ** ** | ** **                      | ** ** |
| John Brainard 

204 6th St. W 

Ada, MN 56510                      |       | 48         |       | Hillsboro                 |       | 2005                |       | 2008                            |       |
| ** **                                                         | ** ** | ** ** | ** ** | ** **                | ** ** | ** **          | ** ** | ** **                      | ** ** |
| Brian R. Erickson 

824 James Ave. SE 

East Grand Forks, MN 56721 |       | 60         |       | East Grand Forks          |       | 2005                |       | 2008                            |       |
| ** **                                                         | ** ** | ** ** | ** ** | ** **                | ** ** | ** **          | ** ** | ** **                      | ** ** |
| Robert M. Green 

220 Park St. 

Saint Thomas, ND 58276            |       | 54         |       | Drayton                   |       | 2005                |       | 2008                            |       |

 

25

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| John F. Gudajtes 

15363 County Road 15 

Minto, ND 58261   |       | 59         |       | East Grand Forks |       | 2003       |       | 2009       |       |
|-------------------------------------------------------------|------------|------------|------------|------------------|------------|------------|------------|------------|------------|
| ** **                                                  | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Curtis E. Haugen 

45508 300th St. NW

Argyle, MN 56713     |       | 47         |       | East Grand Forks |       | 2001       |       | 2010       |       |
|                                                        |       |       |       |             |       |       |       |       |       |
| William Hejl

15560 28th St. SE

Amenia, ND 58004           |       | 53         |       | Moorhead         |       | 2007       |       | 2010       |       |
| ** **                                                  | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Curtis Knutson 

35545 290th St. SW 

Fisher, MN 56723      |       | 50         |       | Crookston        |       | 2007       |       | 2010       |       |
|                                                        |       |       |       |             |       |       |       |       |       |
| Francis L. Kritzberger

RR 1, Box 22

Hillsboro, ND 58045   |       | 63         |       | Hillsboro        |       | 1996       |       | 2009       |       |
|                                                        |       |       |       |             |       |       |       |       |       |
| Jeff D. McInnes 

16485 6th Street SE 

Hillsboro, ND 58045 |       | 51         |       | Hillsboro        |       | 2001       |       | 2010       |       |
| ** **                                                  | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Ronald E. Reitmeier 

30928 220th St. SW 

Fisher, MN 56723 |       | 63         |       | Crookston        |       | 1996       |       | 2008       |       |
|                                                        |       |       |       |             |       |       |       |       |       |
| Steve Williams 

515 Thompson Ave. 

Fisher, MN 56723       |       | 57         |       | Crookston        |       | 2006       |       | 2009       |       |

 

Below is the biographicalinformation on each Director.

 

**Michael A. Astrup.**  Mr. Astrup has been a director since1996 and has served as Chairman since 2007. Mr. Astrup has been a farmer since 1976, with his farmingoperations located near Dilworth, Minnesota. Mr. Astrup serves on the Board of Directors of United SugarsCorporation, the Board of Directors of Midwest Agri-Commodities Company, theBoard of Governors of ProGold Limited Liability Company and is a director ofthe American Sugarbeet Growers Association.

 

**Neil C. Widner. **Mr. Widner has been adirector since 2000 and has served as Vice-Chairman since 2007.  Mr. Widner has farmed near Stephen,Minnesota, since 1973.  Mr. Widnerserves on the Board of Directors of United Sugars Corporation, the Board ofGovernors of ProGold Limited Liability Company and as a director for theAmerican Sugarbeet Growers Association.

 

**William Baldwin. **Mr. Baldwin has been adirector since 2004.  Mr. Baldwin has been farming in theDrayton Factory District since 1966 and is the President of Baldwin FarmsIncorporated.  Mr. Baldwin is thepast President of the Red River Valley Sugarbeet Growers Association, served onthe American Sugarbeet Growers Executive Committee and is currently serving onthe Farm Service Agency, State Committee.

 

26

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

 

**John Brainard.**  Mr. Brainard has been a director since2005.  Mr. Brainard has been a sugarbeet grower since 1998.  Mr. Brainard is a past director of theMinnesota Farm Bureau and has served on the executive committee of the RedRiver Valley Sugarbeet Growers Association. Mr. Brainard currently serves as a director of the AmericanSugarbeet Growers Association.

 

**Brian R. Erickson.**  Mr. Erickson has been a director since2005.  Mr. Erickson has been a sugarbeet grower for over 20 years.  Mr. Erickson has served as a directorand Chairman of the East Grand Forks Economic Development and HousingAuthority.  Mr. Erickson currentlyserves on the Board of Directors of Midwest Agri-Commodities Company.

 

**Robert M. Green.**  Mr. Green has been a director since2005.  Mr. Green has been a sugarbeet grower since 1976.  Mr. Green served 12 years as a directorof the Red River Valley Sugarbeet Growers Association and is currently adirector of the Wells Fargo Bank in Grafton, ND.  Mr. Green serves as a directorfor the American Sugarbeet Growers Association.

 

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

 

**Curtis E. Haugen. **Mr. Haugen has been adirector since 2001.  Mr. Haugen hasbeen a farmer since 1981****and farms nearArgyle, Minnesota.  Mr. Haugenserves on the Board of Directors of United Sugars Corporation and is serving asa director and President of the Farmer’s Union Oil Company, Oslo, Minnesota.

 

**William A. Hejl.**  Mr. Hejl was elected as a director in2007.  Mr. Hejl has farmed nearAmenia, North Dakota since 1987.  Mr. Hejl currently serves as a directorof the American Sugarbeet Growers Association and is a manager of the Rush RiverWater Resource District.  Mr. Hejlalso served as President of the Red River Valley Sugarbeet Growers Associationand as President of the World Association of Beet and Cane Growers.

 

**Curtis Knutson.**  Mr. Knutson was elected as a director in2007.  Mr. Knutson has farmed near Fisher, Minnesota for 36 years.  Mr. Knutson currently serves on the PolkCounty Extension Board.

 

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

 

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

 

**Ronald E. Reitmeier.**  Mr. Reitmeier has been a director since1996, and has been a farmer since 1968.  Mr. Reitmeieris the President of R&J Crop Production Inc.  Mr. Reitmeier has served as a member ofthe Board of Directors of PKM Electric Co-op of Warren, Minnesota, for 19 yearsand as its Chairman of the Board since 2004. Mr. Reitmeier previously served on the Fisher, Minnesota, SchoolBoard for 18 years, as President of the Polk County Farmers Union and Chairmanof the Minnesota Farmers Union Executive Committee of County Chairpersons.

 

27

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**Steve Williams. **Mr. Williams has beena director since 2006.  Mr. Williamshas farmed near Fisher, Minnesota since 1987. Mr. Williams serves on the Board of Directors of the AmericanSugarbeet Growers Association and served as its President from 2006 to2008.  Mr. Williams is also adirector of the Sugar Association, the Halstad Cooperative Telephone Company,and the Eldred Farmers Elevator.  Mr. Williamsserved as a director of the Red River Valley Sugarbeet Growers Association from1998 to 2007, and served as its Chairman from 2003 to 2007.

 

**AuditCommittee and Audit Committee Financial Expert**

 

The Audit Committeeassists the Board of Directors in fulfilling its oversight responsibilitiesrelating to the Company’s financial reporting and controls, the annualindependent audit of the Company’s consolidated financial statements and thelegal compliance and ethics programs as established by management and the Boardof Directors.  The Audit Committeeselects the independent public accountants, approves the fees and the scope andprocedural plans of the audits of the Company’s consolidated financialstatements.  The Audit Committeeadministers the Company’s employee complaint program and handles, on behalf ofthe full Board of Directors, any issues that arise under the Company’s Code ofEthics.  The Audit Committee has acharter that is available from the Company upon request.

 

As of August 31,2008, the Board of Directors of the Company has determined that there is noaudit committee financial expert serving on the Audit Committee.  The Company is a cooperative formed inaccordance with the Minnesota cooperative law of the State of Minnesota.  In accordance with the Minnesota cooperativelaw, the Amended and Restated Articles of Incorporation of the Company and theAmended and Restated Bylaws of the Company, the Board of Directors must becomposed of members of the Company (the holders of common stock).  Membership in the Company is limited toagricultural producers who are actively involved in the production ofsugarbeets.  Based on the state lawrequirements for both membership and board service, the Company is unable torecruit outside of its membership to elect to its Board of Directors and itsaudit committee an individual that possesses the attributes of an “auditcommittee financial expert” as defined by the SEC.  Todate, the Company has been unable to recruit from its membership an individualto serve on the Board of Directors that possesses the attributes of an “auditcommittee financial expert.”

 

The Audit Committee hasreviewed and discussed with management and Eide Bailly LLP our auditedconsolidated financials statements contained in our Annual Report on Form 10-Kfor the fiscal year ended August 31, 2008. The Audit Committee alsodiscussed with Eide Bailly LLP the matters required to be discussed pursuant toSAS No. 61 (Codification of Statements of Auditing Standards, AU Section 380),which includes, among other items, matters related to the conduct of the auditof our consolidated financial statements.

 

The Audit Committee hasreceived and reviewed the written disclosures and the letter from Eide BaillyLLP required by the applicable requirements of the Public Company AccountingOversight Board regarding Eide Bailly LLP’s communications with the AuditCommittee concerning its independence from the Company and has discussed withEide Bailly LLP its independence from the Company.

 

Based on the review anddiscussions referred to above, the Audit Committee recommended to the Boardthat the audited financial statements be included in our Annual Report on Form 10-Kfor our fiscal year ended August 31, 2008 for filing with the Commission.

 

On August 31, 2008,the members of the Audit Committee were John Brainard (Committee Chair), BrianR. Erickson, Robert M. Green, William A. Hejl, Curtis E. Haugen and Ronald E. Reitmeier.

 

**Company Officers**

 

The table below lists theofficers of the Company for the fiscal year covered by this report, none ofwhom owns any shares of Common Stock or Preferred Stock.  Officers are elected annually by the Board ofDirectors.

 
| **Name**           | ** ** | **Age** | ** ** | **Position**                                                                                      | ** ** |
|--------------------|------------|---------|------------|---------------------------------------------------------------------------------------------------|------------|
| David A. Berg      |       | 54      |       | President and Chief  Executive Officer                                                            |       |
| James J. Horvath   |       | 63      |       | President and Chief  Executive Officer (retired)                                                  |       |
| Thomas S. Astrup   |       | 40      |       | Vice President-Finance  and Chief Financial Officer                                               |       |
| Joseph J. Talley   |       | 48      |       | Chief Operating Officer                                                                           |       |
| Brian F. Ingulsrud |       | 45      |       | Vice  President-Administration                                                                    |       |
| Teresa A. Warne    |       | 38      |       | Corporate Controller,  Chief Accounting Officer, Assistant Secretary and Assistant Treasurer |       |
| Daniel C. Mott     |       | 49      |       | Secretary                                                                                         |       |

 

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| Samuel S. M. Wai   |   | 54 |   | Treasurer and Assistant  Secretary                                                                        |   |
|--------------------|--------|----|--------|-----------------------------------------------------------------------------------------------------------|--------|
| Mark L. Lembke     |   | 52 |   | Finance Administration  Manager, Assistant Secretary and Assistant Treasurer                         |   |
| David L. Malmskog  |   | 51 |   | Director - Economic  Analysis and Business Development, Assistant Secretary and Assistant  Treasurer |   |
| Ronald K. Peterson |   | 53 |   | Accounting &  Systems Manager, Assistant Secretary and Assistant Treasurer                  |   |
| Lisa M. Maloy.     |   | 44 |   | Treasury Operations  Manager and Assistant Secretary                                                      |   |

 

**David A. Berg.**  Mr. Berg was named the Company’sPresident in March 2007 and assumed the role as the Company’s ChiefExecutive Officer in October 2007.  Mr. Bergserved as the Company’s Vice President-Operations and Chief Operations Officerfrom January 2004 to March 2007. Mr. Berg was the Company’s Vice President-Agriculture during theperiod December 2000 to January 2004 and the Company’s VicePresident-Administration during the period from October 1998 to December 2000.  Mr. Berg currently serves on the Boardsof Directors of United Sugars Corporation, Midwest Agri-Commodities Company andSidney Sugars Incorporated.

 

**James J. Horvath.**  Mr. Horvath served as the Company’sPresident and Chief Executive Officer from May 1998 until March 2007.  Mr. Horvath continued to serve as theCompany’s Chief Executive Officer until his retirement in October 2007.

 

**Thomas S. Astrup**.  Mr. Astrup was named the Company’s VicePresident-Finance and Chief Financial Officer in May 2007.  Mr. Astrup was named the Chief OperatingOfficer and Chief Financial Officer of Sidney Sugars Incorporated in May 2007.  Mr. Astrup served as the Company’s VicePresident-Agriculture from 2004 to 2007. Mr. Astrup was the Company’s Vice President-Administration from2000 to 2004 and the Company’s Corporate Controller, Assistant Treasurer andAssistant Secretary from 1999 to 2000.  Mr. Astrupcurrently serves on the Board of Directors for Sidney Sugars Incorporated andon the ProGold Limited Liability Company Board of Governors.

 

**Joseph J. Talley.**  Mr. Talley was named the Company’s ChiefOperating Officer in May 2007.  Mr. Talleywas named as the Chairman of the Board and Chief Executive Officer of SidneySugars Incorporated in May 2007.  Mr. Talleyserved as the Company’s Vice President-Finance and Chief Financial Officer ofthe Company from 2003 to 2007.  Mr. Talleywas the Company’s Vice President-Finance from 1998 to 2003.  Mr. Talley also served as ChiefOperating Officer of Sidney Sugars Incorporated from 2002 to 2007.  He currently serves on the Board of Governorsfor ProGold Limited Liability Company.

 

**Brian F. Ingulsrud.**  Mr. Ingulsrud was named the Company’sVice President-Administration in February 2004.  From 2000 to 2004, he served as the Company’sCorporate Controller, Assistant Secretary and Assistant Treasurer.

 

**Teresa A. Warne. **Ms. Warne was namedthe Company’s Corporate Controller, Chief Accounting Officer, AssistantTreasurer and Assistant Secretary in March 2008.  Prior to joining the Company, Ms. Warnewas the Director of Accounting with Caribou Coffee Company at its corporateheadquarters in Brooklyn Center Minnesota from 2006 to 2008.  Ms. Warne previously was employed withNorthwest Airlines where she held various financial positions from 1999 to2006.

 

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

 

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**Samuel S. M. Wai.**  Mr. Wai was named the Company’sTreasurer and Assistant Secretary in 1999. Mr. Wai also serves as Treasurer of the American Crystal SugarPolitical Action Committee and on the Board of Directors of the Institute ofCooperative Financial Officers.

 

**Mark L. Lembke.**  Mr. Lembke was named the Company’sAssistant Secretary and Assistant Treasurer in 1996 and also currently servesas the Company’s Finance Administration Manager.

 

**Ronald K. Peterson.**  Mr. Peterson was named the Company’sAssistant Secretary and Assistant Treasurer in 1993 and also currently servesas the Company’s Accounting and Systems Manager.

 

**David L. Malmskog.**  Mr. Malmskog was named the Company’sAssistant Secretary and Assistant Treasurer in 1998 and also currently servesas the Company’s Director-Economic Analysis and Business Development.

 

**Lisa M. Maloy.**Ms. Maloywas named the Company’s Assistant Secretary in 2002 and also currently servesas the Company’s Treasury Operations Manager.

 

**Code ofEthics**

 

The Company hasadopted a code of ethics that applies to its principal executive officer,principal financial officer, principal accounting officer or controller as wellas all employees and Directors of the Company. The Company will provide at no charge a copy of the code of ethics toany person who requests a copy by sending a written request to the Company’sheadquarters, attention of the Chief Executive Officer of the Company.

 

**Item 11.         EXECUTIVE COMPENSATION**

 

**Compensation Discussion andAnalysis**

 

**Overview**

 

This compensation discussionand analysis addresses the compensation paid to the individuals who served asour Chief Executive Officer, President , Chief Financial Officer, ChiefOperating Officer and Vice President of Administration for fiscal year 2008,all of whom are identified on the Summary Compensation Table immediatelyfollowing this report (“Named Executive Officers”).  Immediately following this compensationdiscussion and analysis is the Compensation Committee Report of the Board ofDirectors (the “Committee Report”). Members of the Compensation Committee were in their role for fiscal year2008.

 

**Purpose and Philosophy**

 

We believe that strongleadership is a key component of success. To be successful, we must be able to attract, retain and motivateleaders with the skills necessary to excel in an integrated cooperativeenvironment and understand key business and technical matters related to thediverse business influences that result from growers and owners, marketingpartnerships and activities, technical manufacturing processes, and governmentpolicy.  Our goal is to provide acompetitive compensation package to our Named Executive Officers combiningtotal direct compensation, retirement income and other benefits.

 

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

 

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We believe the market inwhich we compete for executive talent consists of companies with similarcharacteristics to the Company, for example, manufacturing companies withsimilar revenues in similar geographies. We further believe that the market also includes privately ownedbusinesses in general and exclusively as it relates to long-term incentivecompensation because of the structure and nature of our business.  Therefore, we have compared our compensationversus compensation data points for these types of companies (our market).

 

In 2007, our management, onbehalf of the Compensation Committee and Board of Directors, retained TowersPerrin, an outside compensation consultant (“Compensation Consultant”), toprepare market-based compensation data comparing compensation information forour Named Executive Officers with that of executive officers in our market. ****This analysis used marketdata from published national survey sources, including************Towers Perrin and Watson Wyatt.  In addition, pay data from the proxymaterials from a group of comparative companies was referenced.  This group of companies, together with thesurvey sources, was intended to represent the market in which we believe wecompete for executive talent and includes:****

 

·                  Actuant Corporation

·                  Ameron International Corp.

·                  Arctic Cat Inc.

·                  Barnes Group Inc.

·                  Brady Corporation

·                  Constar International Inc.

·                  Donaldson Company, Inc.

·                  Gardner Denver, Inc.

·                  Graco Inc.

·                  Herman Miller, Inc.

·                  IDEX Corporation

·                  Imperial Sugar Company

·                  JLG Industries, Inc.

·                  Magellan Midstream Partners, L.P.

·                  Milacron Inc.

·                  Mine Safety Appliances Co

·                  Minn-Dak Farmers Cooperative

·                  MSC Industrial Direct Co.

·                  OMNOVA Solutions Inc.

·                  Packaging Corporation of America

·                  Rayonier Inc.

·                  Schweitzer-Mauduit International, Inc.

·                  Stewart & StevensonServices, Inc.

·                  Sybron Dental Specialties

·                  The Toro Company

·                  Thomas & Betts Corporation

 

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

 

Our base salary midpoint forour President and Chief Executive Officer is projected to represent less thanthe median of the market and total direct compensation is projected to be nearthe lower quartile of the market. Currently, we generally target our other Named Executive Officers’ basesalary midpoint near the median of the market and total direct compensationnear the lower quartile of our market. The Compensation Committee determined that total direct compensation asestablished was appropriate and reflects the compensation principles outlinedin this report.

 

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

 

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**Process**

 

The Compensation Committeeof the Board of Directors is responsible for annually reviewing andrecommending to the Board of Directors the base salary and performanceobjectives for the incentive compensation (both short-term and long-term) ofthe President and Chief Executive Officer, as well as the performanceobjectives for long-term incentive compensation for all Named ExecutiveOfficers.  Board action onrecommendations is taken by a vote of all of the directors, none of whom aremembers of management.  Decisions onexecutive compensation made by the Compensation Committee, the Board or thePresident and Chief Executive Officer have been guided by our compensationphilosophy discussed above.

 

Our President and ChiefExecutive Officer sets base salary and the annual performance objectives forthe short-term incentive compensation for the other Named ExecutiveOfficers.  The prospective base salaryand annual performance objectives for the other Named Executive Officers arereviewed with the Board of Directors prior to being finalized by the Presidentand Chief Executive Officer.

 

On March 21, 2007, ourBoard of Directors elected David Berg as President and determined his basesalary for the remainder of fiscal year 2007. Prior to this election, James Horvath served as our Chief ExecutiveOfficer, until he retired, on October 18, 2007.  Upon Mr. Horvath’s retirement, Mr. Bergcontinued as President and assumed the position of Chief Executive Officer atwhich time his base salary increased to reflect his new responsibilities asPresident and Chief Executive Officer as determined by the Board of Directorsat the time of his election.  Inconnection with his election, Mr. Berg was given responsibility forreviewing and determining the base salaries for the other Named ExecutiveOfficers.

 

**Elements of Compensation**

 

The elements of compensationpaid to our Named Executive Officers for 2008 are as follows:

 

·                  Base salary

 

·                  Short-term cash incentive compensation

 

·                  Long-term incentive compensation

 

·                  Retirement and other benefits

 

·                  Perquisites

 

·                  Severance for our President and ChiefExecutive Officer

 

Each of the above are more completely described below.

 

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**Base Salary**

 

The objective of the levelof base salary paid to our Named Executive Officers is to reflect individualroles and responsibilities, performance, reporting structure, and internal payrelationships with respect to market competitiveness.  All established base salaries for fiscal year2008 for our Named Executive Officers were in accordance with our compensationphilosophy described earlier in this report.

 

The base salary for ourChief Executive Officer, Mr. Horvath, was approved by the Board ofDirectors on September 27, 2006.  Atthe same time, the Chief Executive Officer determined the initial base salariesfor the other Named Executive Officers for the first part of fiscal year2007.  Mr. Horvath’s salary remainedthe same during fiscal year 2008 until his retirement.  After Mr. Berg was named President in March of2007, he re-positioned the other Named Executive Officers and determined theirbase salaries for the remainder of 2007 and for the fiscal year 2008.

 

The fiscal year 2008 basesalary of our President and Chief Executive Officer, Mr. Berg, was set bythe Board of Directors in March 2007 based on the comparable market dataprovided by our Compensation Consultant. For the portion of fiscal year 2008 that Mr. Horvath served asChief Executive Officer, his salary remained the same as it was in 2007.

 

**Short-Term Cash Incentive Compensation**

 

Our short-term cashincentive compensation is designed to reward the Named Executive Officers for theirindividual performance and our financial performance for the most recentlycompleted fiscal year.  Short-term cashincentive compensation is paid in cash following the close of the fiscal year.

 

Short-term cash incentivecompensation provides an annual cash incentive opportunity, expressed as apercent of base salary, for our Named Executive Officers who meet performanceobjectives.  For fiscal year 2008, ourPresident and Chief Executive Officer had an opportunity to receive anadditional 45% of his base salary, and the other Named Executive Officers hadan opportunity to receive an additional 35% of their base salary, by meeting “target”performance levels.  Actual awards aredetermined based on the different performance levels achieved by the Named ExecutiveOfficers.  The potential for short-termcash incentive compensation ranges from 0% for unsatisfactory performance to amaximum of 90% for outstanding performance for the Chief Executive Officer.  The potential for short-term cash incentivecompensation ranges from 0% for unsatisfactory performance to a maximum of 70%for outstanding performance for our other Named Executive Officers.

 

The President and ChiefExecutive Officer’s performance objectives were weighted with 50% of thepotential award based on our overall financial performance and 50% of thepotential award based on the President and Chief Executive Officer’s individualperformance objectives as established by the Board of Directors.  For the other Named Executive Officers,annual performance objectives were determined by the President and ChiefExecutive Officer at the beginning of fiscal year 2008, with 40% based on ouroverall financial performance and 60% based on the achievement of individualperformance objectives, including personal effectiveness.  Our overall financial performance objectivesare based on the final gross beet payment for the fiscal year and total on-farmprofits.  Total on farm profits are equalto total gross beet payment minus the product of Total Harvested Acres multipliedby On-Farm Costs per Acre.  On-Farm Costper Acre is based on the Red River Valley Report from the Minnesota and NorthDakota Farm Business Management Education Program.

 

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

 

·                  Trade and policy leadership

 

·                  Cost and revenue management

 

·                  Agricultural gold standards

 

·                  Beet storage excellence

 

·                  Balanced and maximized slice and recovery

 

·                  Maintenance excellence

 

·                  Product quality

 

·                  Safety

 

·                  Training

 

·                  Technology and automation

 

Each Named Executive Officer, based on his area ofresponsibility, is tasked with objectives based on our strategies.  Mr. Horvath had no performanceobjectives for fiscal year 2008 due to his anticipated retirement.  As indicated above, Mr. Berg’s performanceobjectives for fiscal year 2008 were set by the Board of Directors.  The performance objectives for fiscal year2008 for our other Named Executive Officers were set by Mr. Berg at thebeginning of fiscal year 2008.

 

The Board of Directors ratedthe President and Chief Executive Officer at the end of the fiscal year withrespect to his achievement of his performance objectives, and his short-termcash incentive compensation for fiscal year 2008 is based on this rating.  The President and Chief Executive Officerrated the other Named Executive Officers with respect to their individualachievement of their performance objectives and each of them received ashort-term cash incentive compensation award based on that rating.

 

**Long-Term Incentive Compensation**

 

Long-term incentivecompensation provides an incentive opportunity, expressed as a percent of basesalary, for our Named Executive Officers as a group who meet performanceobjectives.  For fiscal year 2008, ourPresident and Chief Executive Officer had an opportunity to receive anadditional 40% of his base salary and the other Named Executive Officers had anopportunity to receive an additional 20% of their base salary assuming targetperformance levels.  Actual awards aredetermined based on the performance level achieved by the Named ExecutiveOfficers as a group.  The potential forlong-term incentive compensation ranges from 0% for unsatisfactory performanceto a maximum of 80% for outstanding performance for the President and ChiefExecutive Officer.  The potential forlong-term incentive compensation ranges from 0% for unsatisfactory performanceto a maximum of 40% for outstanding performance for our other Named ExecutiveOfficers.  Unlike our short-term cashincentive compensation, long-term incentive compensation awards are based onthe performance level of our Named Executive Officers as a group.  Forty-five percent (45%) of the performanceobjectives were based on the fiscal year’s actual on-farm profits as comparedto historical profit levels while the other 55% was based on an assessment madeby the Board of Directors regarding achievement of specific long-termperformance objectives as established by the Board of Directors.

 

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

 

Under the 2005 Plan, along-term incentive award may be granted to a Named Executive Officer in theform of contract rights, cash, or in a combination of both cash and contractrights (incentive awards).  The value ofany contract rights granted is determined by our Board of Directors.  To date, all incentive awards granted havebeen in the form of contract rights. Incentive awards vest over a three-year period, with the first vestingoccurring one year after the grant. Vested incentive awards may be redeemed at the discretion of the NamedExecutive Officer and must be redeemed upon certain other events causing atermination of employment.  Redemptionsare in the form of cash payments that may be deferred by the Named ExecutiveOfficer.  Named Executive Officersreceive a profit per acre payment for vested contract rights based on the averageprofit per acre paid to our shareholders. Profit per acre payments are made to the Named Executive Officers in thesame manner as our shareholders receive their crop payments.  Profit per acre payments can be taken in cashor deferred until a later date.  TheBoard of Directors retains the discretion to determine the amount of anyincentive awards to be made available to the Named Executive Officers withrespect to a given fiscal year.

 

OnSeptember 24, 2008, 282.15 contract rights were granted to Named ExecutiveOfficers with respect to performance for the fiscal year ended August 31,2008 at a value of $1,750 per contract right. Correspondingly, the redemption value of the contract rights previouslygranted to the Named Executive Officers under the 1999 and 2005 Plans weredecreased from $2,100 to $1,750 per contract right.  Effective as of August 31, 2008, therewere a total of 1,220.68 contract rights issued and outstanding to the NamedExecutive Officers under the 1999 and 2005 Plans, of which 616.68 were vested.

 

**Retirement and other benefits**

 

Retirement benefits are animportant tool in achieving overall compensation objectives because theyprovide a financial security component and promote retention.  Our Named Executive Officers participate inour retirement plans like any other employee. In addition, we provide a Supplemental Executive Retirement Plan (SERP)for our Named Executive Officers, which is a non-qualified defined contributionand defined benefit plan designed to replace benefits executives would havereceived if not for limits imposed by Code Section 401(a)(17) and402(g).  The Named Executive Officers mayelect to defer a portion of base salary by regular payroll deductions, and mayalso defer 100% of all short-term incentive compensation and long-termincentive compensation awards or payments related to any such awards.  All long term incentive deferrals are held ina long term incentive plan trust, all other deferrals are held in a SERP trust.  Both have two investment options and aresubject to the claims of our creditors. The pension component of the SERP is “unfunded” with all amounts to bepaid from our general assets, to the extent available, when due.

 

Our Named Executive Officersparticipate in our fully insured long-term disability program for all nonunionemployees to provide income protection in the event of permanentdisability.  The long-term disabilityplan is part of the core benefits we provide. The long-term disability plan provides a benefit equal to 60% of base paywith a maximum monthly benefit of $10,000. The Named Executive Officers pay tax on the value of the long-termdisability premium, and as a result if they become 

 

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disabled their benefit will not be taxable.  Other nonunion employees are not taxed on thevalue of their long-term disability premium; therefore if they become disabledtheir benefit will be taxable.  For theNamed Executive Officers, we began imputing the value of the premium to providea tax-free benefit to partially offset the impact of receiving a disabilitybenefit less than 60% of base pay because of the $10,000 monthly benefitlimitation.

 

**Perquisites**

 

Our Compensation Committeeand the Board of Directors believe perquisites should be modest, reasonable interms of cost, aligned with business needs and comparative to other salariedemployees.  Named Executive Officers mayreceive some or all of the following perquisites while employed: car allowance,cell phone, minimum of 4 weeks annual vacation accrual, reimbursement forincome tax preparation and executive physicals. Additionally, the President and Chief Executive Officer is provided witha country club membership.   Theabove-described perquisites cease upon retirement or separation of service withus.

 

**Severance**

 

If Mr. Horvath had beenterminated without cause prior to his retirement he would have been entitled toreceive a post-termination severance payment equal to three years of his basesalary in effect on the date of such termination.  All such rights terminated upon hisretirement in October 2007.

 

If we terminate Mr. Bergwithout cause he is entitled to receive a post-termination severance paymentequal to two years of his base salary in effect on the date oftermination.  There are no compensatoryplans or arrangements providing for payments to any of the other NamedExecutive Officers in conjunction with any termination of employment with us,including without limitation resignation, severance, retirement or constructivetermination of employment by the Company. Furthermore, there are no such plans or arrangements providing forpayments to any of the Named Executive Officers in conjunction with a change ofcontrol or change in such Named Executive Officer’s responsibilities.

 

**Employment Agreements**

 

Prior to his retirement, wehad an employment agreement with Mr. Horvath.  The agreement provided that Mr. Horvathserved as an “at will” employee at the pleasure of the Board of Directors.  The agreement also included a three-yearnon-compete/non-solicitation agreement with Mr. Horvath, granted the Boardof Directors the authority to establish Mr. Horvath’s base salary eachyear, and provided that he could participate in other benefit plans offered toemployees.

 

On September 28, 2005, Mr. Horvath’soriginal employment agreement was amended. Prior to this amendment, the employment agreement contained certainprovisions that were a disincentive to Mr. Horvath continuing hisemployment with us beyond September 30, 2005 and other provisions thatrequired amendment as a result of recent changes in the tax laws.  The amendment:  (1) eliminated the disincentive to Mr. Horvathto continue his employment with us; (2) changed certain vacation accrualsso that Mr. Horvath accrued additional vacation days; and (3) madecertain other changes required to comply with the recent changes to the taxlaws.

 

The present value, as of August 31,2008, of providing medical and dental coverage to Mr. Horvath per theemployment agreement was approximately $91,000. The present value of the supplemental pension benefits provided per theemployment agreement and the present value of the 

 

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SERP were approximately $1.8million and $1.6 million, respectively, as of January 2008.  Mr. Horvath elected to receive a lumpsum payout of the supplemental pension benefits provided under the employmentagreement and the benefits provided by the SERP.  The lump sum payouts occurred in January 2008.

 

We entered into an employmentagreement with Mr. Berg effective March 21, 2007.  The agreement provides that Mr. Bergshall serve as an “at will” employee at the pleasure of the Board ofDirectors.  The agreement also includes atwo-year non-compete/non-solicitation agreement with Mr. Berg.  Mr. Berg will receive a gross basesalary for serving as President with this base salary to increase at the time Mr. Bergassumes the position of President and Chief Executive Officer.  Thereafter, the agreement grants the Board ofDirectors the authority to establish Mr. Berg’s base salary each year, andalso provides that he may participate in other benefit plans offered to allemployees.

 

**Compensation Committee Report**

 

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

 

Members of the Compensation Committee:

 

Jeff D. McInnes, Chairman

John Brainard

Brian R. Erickson

John F. Gudajtes

Curtis E. Haugen

Steve Williams

 

**Summary Compensation Table**

 

The followingtable summarizes the compensation of the Named Executive Officers for thefiscal years ended August 31, 2008 and 2007.  The Named Executive Officers are the Company’sChief Executive Officer, Chief Financial Officer and the three other mosthighly compensated executive officers of the Company.

 

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**2008 SUMMARY COMPENSATION TABLE**

 
| **Name and  Principal Position**     | ** ** | **Year** | ** ** | **Salary (1)** | ** ** | **Non-Equity Short-  Term Incentive  Plan  Compensation (1)** | ** ** | **Non-Equity Long-  Term Incentive  Plan  Compensation  (1),(2)** | ** ** | **Non-Equity Long-  Term Incentive  Plan  Compensation   (1),(3)** | ** ** | **Change in Pension  Value and  Nonqualified  Deferred  Compensation  (NQDC) Earnings  (4)** | ** ** | **All Other  Compensation (5)** | ** ** | **Total** | ** ** |
|------------------------------------------------|------------|----------|------------|---------------------|------------|------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-----------|------------|
| David A. Berg - President                      |       | 2008     |       | $                   | 401,169    |                                                                         | $          | 256,662                                                                     |       | $                                                                                 | 151,381    |                                                                                                             | $          | 59,076                                    |       | $         | 52,415     |   | $ | 26,052 |   | $ | 946,755 |   |
| and Chief Executive Officer                    |       | 2007     |       | $                   | 278,308    |                                                                         | $          | 147,744                                                                     |       | $                                                                                 | 141,049    |                                                                                                             | $          | 69,123                                    |       | $         | 60,817     |   | $ | 24,705 |   | $ | 721,746 |   |
|                                           |       |     |       |                |       |                                                                         |       |                                                                        |       |                                                                              |       |                                                                                                             |       |                                      |       |      |       |
| James J. Horvath -                             |       | 2008     |       | $                   | 229,837    |                                                                         | —     |                                                                        | $          | (104,046                                                                          | )          | $                                                                                                                | 205,980    |                                      | $          | 476,041   |       | $ | 33,437 |   | $ | 841,249 |   |
| Chief Executive Officer,  Retired              |       | 2007     |       | $                   | 509,308    |                                                                         | $          | 388,616                                                                     |       | $                                                                                 | 523,210    |                                                                                                             | $          | 263,156                                   |       | $         | 441,113    |   | $ | 48,738 |   | $ | 2,174,141 |   |
|                                           |       |     |       |                |       |                                                                         |       |                                                                        |       |                                                                              |       |                                                                                                             |       |                                      |       |      |       |
| Thomas S. Astrup - Vice                        |       | 2008     |       | $                   | 239,400    |                                                                         | $          | 114,792                                                                     |       | $                                                                                 | 5,756      |                                                                                                             | $          | 44,693                                    |       | $         | 6,513      |   | $ | 15,463 |   | $ | 426,617 |   |
| President-Finance and Chief  Financial Officer |       | 2007     |       | $                   | 227,769    |                                                                         | $          | 123,058                                                                     |       | $                                                                                 | 113,271    |                                                                                                             | $          | 50,872                                    |       | $         | 23,052     |   | $ | 13,693 |   | $ | 551,715 |   |
|                                           |       |     |       |                |       |                                                                         |       |                                                                        |       |                                                                              |       |                                                                                                             |       |                                      |       |      |       |
| Joseph J. Talley - Chief                       |       | 2008     |       | $                   | 302,800    |                                                                         | $          | 173,970                                                                     |       | $                                                                                 | 72,446     |                                                                                                             | $          | 27,814                                    |       | $         | 34,002     |   | $ | 26,957 |   | $ | 637,989 |   |
| Operating Officer                              |       | 2007     |       | $                   | 267,308    |                                                                         | $          | 123,917                                                                     |       | $                                                                                 | 117,372    |                                                                                                             | $          | 24,599                                    |       | $         | 47,562     |   | $ | 24,762 |   | $ | 605,520 |   |
|                                           |       |     |       |                |       |                                                                         |       |                                                                        |       |                                                                              |       |                                                                                                             |       |                                      |       |      |       |
| Brian F. Ingulsrud - Vice                      |       | 2008     |       | $                   | 218,400    |                                                                         | $          | 104,723                                                                     |       | $                                                                                 | 39,738     |                                                                                                             | $          | 10,665                                    |       | $         | 11,963     |   | $ | 14,445 |   | $ | 399,934 |   |
| President-Administration                       |       | 2007     |       | $                   | 200,769    |                                                                         | $          | 108,956                                                                     |       | $                                                                                 | 81,703     |                                                                                                             | $          | 6,585                                     |       | $         | 28,455     |   | $ | 13,925 |   | $ | 440,393 |   |

 

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

 

(2)          Represents the stated value of contract rights that were earned in thefiscal year, which was the year performance targets were achieved.  Amounts also reflect the change in value ofthe contract rights granted to the executives in prior years.  At August 31, 2008, the Board ofDirectors decreased the value of previously granted contract rights from $2,100to $1,750.  Contract rights vest equallyover a three year period.  For furtherinformation regarding the Long-Term Incentive Plan, see “CompensationDiscussion and Analysis” within this Form 10-K.

 

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

 

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

 

**Change in Pension Value and Nonqualified Deferred Compensation Earnings**

 
| **Name and  Principal Position**                               | ** ** | **Pension (A)** | ** ** | **SERP-(Pension)  (A)** | ** ** | **Special  Employment  Agreement (A)** | ** ** | **Preferential  Interest on Non-  Qualified  Deferred  Compensation (B)** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------------------|------------|----------------------|------------|-------------------------|------------|---------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|-----------|------------|
| David A. Berg -  President and Chief  Executive Officer                  |       | $                    | 24,010     |                    | $          | 24,241                                      |       | N/A                                                                                      |       | $         | 4,164      |   | $ | 52,415 |   |
|                                                                     |       |                 |       |                    |       |                                        |       |                                                                                     |       |      |       |
| James J. Horvath - Chief  Executive  Officer, Retired                    |       | $                    | 86,127     |                    | $          | 311,440                                     |       | $                                                                                        | 50,670     |      | $          | 27,804 |   | $ | 476,041 |   |
|                                                                     |       |                 |       |                    |       |                                        |       |                                                                                     |       |      |       |
| Thomas S. Astrup - Vice  President-  Finance and Chief Financial Officer |       | $                    | 1,544      |                    | $          | 3,898                                       |       | N/A                                                                                      |       | $         | 1,071      |   | $ | 6,513 |   |
|                                                                     |       |                 |       |                    |       |                                        |       |                                                                                     |       |      |       |
| Joseph J. Talley -  Chief Operating  Officer                             |       | $                    | 9,078      |                    | $          | 10,080                                      |       | N/A                                                                                      |       | $         | 14,844     |   | $ | 34,002 |   |
|                                                                     |       |                 |       |                    |       |                                        |       |                                                                                     |       |      |       |
| Brian F. Ingulsrud -  Vice President-  Administration                    |       | $                    | 6,640      |                    | $          | 5,174                                       |       | N/A                                                                                      |       | $         | 149        |   | $ | 11,963 |   |
|                                                                          |            |                      |            |                         |            |                                             |            |                                                                                          |            |           |            |  |  |  |  |  |

 

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(A) Represents thechange in the present value of the accumulated benefits provided by the plan oragreement. 

 

(B) Interest isconsidered to be preferential if the rate paid to the executive exceeds 120% ofthe applicable long-term federal rate under the Interal Revenue Code. Amountsreported reflect only the interest that exceeds 120% of the applicablelong-term federal rate.

 

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

 

38

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**Grants ofPlan-Based Awards**

 

The following tablediscloses the grants of plan-based awards to each of the Company’s NamedExecutive Officers for the current year related to the 2005 Long-Term IncentivePlan (LTIP).  The amounts of these awardsthat were expensed are shown in the Summary Compensation Table.  The table below also discloses the estimatedfuture payouts related to contract rights under the 2005 LTIP, Short-TermIncentive Plan (STIP) and the Profit-Per-Acre (PPA) payment under the 2005LTIP.  Mr. Horvath received nogrants or awards due to his retirement.

 

**Grants of Plan-Based Awards Table**

 
| ** **                                                                  | ** ** | ** **          | ** ** | ** **           | ** ** | ** **         | ** ** | **Estimated Future Payouts Under  Non-  Equity Incentive Plan Awards - LTIP -  Contract Rights (1)** | ** ** | **Estimated Future Payouts Under Non-  Equity Incentive Plan - STIP (2)** | ** ** | **Estimated Future Payouts Under Non-  Equity Incentive Plan Awards - PPA (3)** | ** ** |
|-----------------------------------------------------------------------------|------------|---------------------|------------|----------------------|------------|--------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------|------------|
| **Name and Principal  Position**                                  | ** ** | **Grant Date** | ** ** | **Action Date** | ** ** | **Units  Granted** | ** ** | **Threshold**                                                                                                                                               | ** ** | **Target**                                                                                                             | ** ** | **Maximum**                                                                                                                       | ** ** | **Threshold** | ** ** | **Target** | ** ** | **Maximum** | ** ** | **Threshold** | ** ** | **Target** | ** ** | **Maximum** | ** ** |
| David A. Berg -   President and Chief   Executive Officer                   |       | 8/31/2008           |       | 9/24/2008            |       | 139.71             |       |                                                                                                                                                        |       | $                                                                                                                      | 244,493    |                                                                                                                              |       |   | $ | 0 |   | $ | 186,840 |   | $ | 373,680 |   |   |   | $ | 37,467 |   |   |   |
|                                                                        |       |                |       |                 |       |               |       |                                                                                                                                                        |       |                                                                                                                   |       |                                                                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Thomas S. Astrup -   Vice President-  Finance and Chief   Financial Officer |       | 8/31/2008           |       | 9/24/2008            |       | 44.83              |       |                                                                                                                                                        |       | $                                                                                                                      | 78,453     |                                                                                                                              |       |   | $ | 0 |   | $ | 83,790 |   | $ | 167,580 |   |   |   | $ | 12,023 |   |   |   |
|                                                                        |       |                |       |                 |       |               |       |                                                                                                                                                        |       |                                                                                                                   |       |                                                                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Joseph J. Talley -   Chief Operating   Officer                              |       | 8/31/2008           |       | 9/24/2008            |       | 56.71              |       |                                                                                                                                                        |       | $                                                                                                                      | 99,243     |                                                                                                                              |       |   | $ | 0 |   | $ | 105,980 |   | $ | 211,960 |   |   |   | $ | 15,208 |   |   |   |
|                                                                        |       |                |       |                 |       |               |       |                                                                                                                                                        |       |                                                                                                                   |       |                                                                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Brian F. Ingulsrud -   Vice President-  Administration                      |       | 8/31/2008           |       | 9/24/2008            |       | 40.90              |       |                                                                                                                                                        |       | $                                                                                                                      | 71,575     |                                                                                                                              |       |   | $ | 0 |   | $ | 76,440 |   | $ | 152,880 |   |   |   | $ | 10,969 |   |   |   |

 

----

(1)         The “Target” amounts represent contract rights at the 8/31/2008 statedvalue of $1,750 per contract right. These rights vest to the executive over three years.  Theoretically, the minimum received for thesecontract rights could be $0 and there is no maximum.

 

(2)         The amounts indicated represent future potential payments under theShort-Term Incentive Plan (STIP) based on the executives’ salary as of August 31,2008.

 

(3)         The “Target” amount represents future Profit Per Acre (PPA) annualpayments that will be paid to executives upon vesting and assuming a similarbeet payment and on-farm costs to that experienced in fiscal year 2008.  PPA payments are only paid on vested contractrights.  Theoretically the minimumpayment could be $0 and there is no maximum.

 

39

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**Pension Benefits**

 

The table belowreflects information for the Named Executive Officers pertaining to the Company’sPension Plan, Supplemental Executive Retirement Plan and Special EmploymentAgreements.

 
| **Name and Principal Position**                          | ** ** | **Plan Name**                            | ** ** | **Number of  Years Credited  Service** | ** ** | **Present Value of  Accumulated Benefit (1)** | ** ** | **Payments During Last  Fiscal Year** | ** ** |
|-------------------------------------------------------------------------|------------|-----------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| David A. Berg -  President and Chief   Executive Officer                |       | Retirement Plan A For   Employees of ACSC (2) |       | 21                                               |       | $                                                                 | 299,380    |                                                 | —     |   |
|                                                                    |       |                                          |       |                                             |       |                                                              |       |                                                 |       |
|                                                                    |       | Supplemental Executive   Retirement Plan (2)  |       | 21                                               |       | $                                                                 | 187,611    |                                                 | —     |   |
|                                                                    |       |                                          |       |                                             |       |                                                              |       |                                                 |       |
| James J. Horvath -  Chief Executive   Officer, Retired                  |       | Retirement Plan A For   Employees of ACSC (2) |       | 22                                               |       | $                                                                 | 635,717    |                                                 | $          | 43,175 |   |
|                                                                    |       |                                          |       |                                             |       |                                                              |       |                                                 |       |
|                                                                    |       | Supplemental Executive   Retirement Plan (2)  |       | 22                                               |       | —                                                            |       | $                                                    | 1,825,421  |   |
|                                                                    |       |                                          |       |                                             |       |                                                              |       |                                                 |       |
|                                                                    |       | Mr. Horvath Employment   Agreement (2)        |       | 30                                               |       | —                                                            |       | $                                                    | 1,605,772  |   |
|                                                                    |       |                                          |       |                                             |       |                                                              |       |                                                 |       |
| Thomas S. Astrup - Vice President-

Finance and Chief Financial Officer |       | Retirement Plan A For   Employees of ACSC (2) |       | 14                                               |       | $                                                                 | 68,186     |                                                 | —     |   |
|                                                                    |       |                                          |       |                                             |       |                                                              |       |                                                 |       |
|                                                                    |       | Supplemental Executive   Retirement Plan (2)  |       | 14                                               |       | $                                                                 | 21,335     |                                                 | —     |   |
|                                                                    |       |                                          |       |                                             |       |                                                              |       |                                                 |       |
| Joseph J. Talley - Chief Operating 

Officer                            |       | Retirement Plan A For   Employees of ACSC (2) |       | 14                                               |       | $                                                                 | 132,014    |                                                 | —     |   |
|                                                                    |       |                                          |       |                                             |       |                                                              |       |                                                 |       |
|                                                                    |       | Supplemental Executive   Retirement Plan (2)  |       | 14                                               |       | $                                                                 | 92,215     |                                                 | —     |   |
|                                                                    |       |                                          |       |                                             |       |                                                              |       |                                                 |       |
| Brian F. Ingulsrud - Vice President-

Administration                    |       | Retirement Plan A For   Employees of ACSC (2) |       | 17                                               |       | $                                                                 | 117,744    |                                                 | —     |   |
|                                                                    |       |                                          |       |                                             |       |                                                              |       |                                                 |       |
|                                                                    |       | Supplemental Executive   Retirement Plan (2)  |       | 17                                               |       | $                                                                 | 7,362      |                                                 | —     |   |

 

----

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

 

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

 

40

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**Non-Qualified Deferred Compensation**

 

The table below reflectsinformation for the Named Executive Officers pertaining to non-qualifieddeferred compensation.  All non-qualifieddeferred compensation listed below is subject to claims of the Company’s creditors.

 
| **Name and  Principal Position**                                 | ** ** | **Executive  Contributions in  Last Fiscal Year (1)** | ** ** | **Registrant  Contributions in  Last Fiscal Year (2)** | ** ** | **Aggregate Earnings  in Last Fiscal Year  (3)** | ** ** | **Aggregate  Withdrawals/  Distributions (4)** | ** ** | **Aggregate Balance  at Last Fiscal Year  End** | ** ** |
|----------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|----------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| David A. Berg -  President   and Chief Executive Oficer                    |       | —                                                                    |       | $                                                                          | 6,500      |                                                                 | $          | (26,319                                             | )          | —                                                              |       | $ | 519,457 |   |
|                                                                       |       |                                                                      |       |                                                                       |       |                                                                 |       |                                                |       |                                                                |       |
| James J. Horvath  - Chief   Executive Officer, Retired                     |       | $                                                                         | 1,661,273  |                                                                       | $          | 24,738                                                               |       | $                                                   | 92,243     |                                                                | $          | (3,856,773 | ) | — |   |
|                                                                       |       |                                                                      |       |                                                                       |       |                                                                 |       |                                                |       |                                                                |       |
| Thomas S. Astrup  - Vice   President-Finance and   Chief Financial Officer |       | —                                                                    |       | $                                                                          | 5,288      |                                                                 | $          | 3,048                                               |       | —                                                              |       | $ | 55,465 |   |
|                                                                       |       |                                                                      |       |                                                                       |       |                                                                 |       |                                                |       |                                                                |       |
| Joseph J. Talley  - Chief   Operating Officer                              |       | $                                                                         | 218,332    |                                                                       | $          | 8,287                                                                |       | $                                                   | 51,097     |                                                                | —     |   | $ | 803,524 |   |
|                                                                       |       |                                                                      |       |                                                                       |       |                                                                 |       |                                                |       |                                                                |       |
| Brian F.  Ingulsrud - Vice   President-Administration                      |       | —                                                                    |       | $                                                                          | 3,767      |                                                                 | $          | 604                                                 |       | —                                                              |       | $ | 8,553 |   |
|                                                                            |            |                                                                           |            |                                                                            |            |                                                                      |            |                                                     |            |                                                                     |            |  |  |  |  |  |

 

----

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

 

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

 

(3)          Preferential interest included here as well as in the NQDC column of theSummary Compensation Table are as follows: Mr. Horvath - $27,804, Mr. Berg- $4,164, Mr. Astrup - $1,071, Mr. Talley - $14,844, and Mr. Ingulsrud- $149.  Executives have the option ofinvesting funds in an S&P 500 index fund or in a money market fundguaranteeing interest at prime as of January 2 of each calendar year.  The 2008 and 2007 calendar year rates were7.25% and 8.25%, respectively.

 

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

 

**Potential Payments upon Termination or Change-In-Control**

 

Prior to his retirement, Mr. Horvath’s employmentagreement contained termination and change of control payments.  As of the filing of this report, Mr. Horvath’sretirement has become effective and such termination and change of controlpayments are no longer applicable.

 

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

 

If Mr. Berg isterminated without cause he will be eligible for severance pay equal to twotimes his then current base salary.  Thepresent value of Mr. Berg’s Supplemental Executive Retirement Plan wasapproximately $188,000 as of August 31, 2008.

 

41

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**Compensation of Directors**

 

The Board of Directorsmeets monthly.  For fiscal year 2008, theCompany provided its directors with compensation consisting of (i) apayment of $575 per month, (ii) a per diem payment of $250 increasing to$300 effective March 1, 2008, for each day spent on Company activities,including board meetings and other Company functions, and (iii) reimbursementof expenses associated with director responsibilities.  The Chairman of the Board of Directorsreceived payments of $1,075 per month increasing to $2,075 effective March 1,2008; the Chairman also received a per diem in the amount of $250 increasing to$300 effective March 1, 2008, for each day spent on Companyactivities.  The monthly compensationpaid to directors and the Chairman increases by $25 per month each fiscal year.

 

Under the terms ofthe Board of Directors Deferred Compensation Plan, members of the Board ofDirectors can elect to defer receipt of their monthly and per diemcompensation.  This is an annualirrevocable election made prior to January 1 of each calendar year thefees are to be paid.  The amounts are deferred until the earliestof the board member’s withdrawal from the Board of Directors, the board member’sdeath or attainment of age 65. Two payment options are available at the election of theparticipant.  Payments can be received ina single lump sum or in equal installments over a period of up to ten years.  The Board of Directors, at its discretion,can elect to distribute the remaining balance at any time.  Interest is earned on the amounts deferredbased on the five year Treasury bond rate. Currently, there is one member who has elected to participate in thisplan.  The amount deferred, as of August 31,2008, was approximately $92,000.

 

The table belowreflects director compensation for the year ended August 31, 2008.

 

42

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| **Name**                                            | ** ** | **Fees Earned (1)** | ** ** | **Non-Equity  Incentive Plan  Compensation** | ** ** | **Change in Pension  Value and NQDC  Earnings** | ** ** | **All Other  Compensation** | ** ** | **Total** | ** ** |
|-----------------------------------------------------|------------|-------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------------------------|------------|----------------------------------|------------|-----------|------------|
| Michael A. Astrup,  Director, Chairman of the Board |       | $                             | 35,100     |                                              | N/A        |                                                                | N/A        |                             | N/A        |      | $          | 35,100 |   |
|                                                |       |                          |       |                                              |       |                                                                |       |                             |       |      |       |
| Neil Widner, Director,  Vice-Chairman of the Board  |       | $                             | 28,150     |                                              | N/A        |                                                                | N/A        |                             | N/A        |      | $          | 28,150 |   |
|                                                |       |                          |       |                                              |       |                                                                |       |                             |       |      |       |
| William Baldwin, Director                           |       | $                             | 23,650     |                                              | N/A        |                                                                | N/A        |                             | N/A        |      | $          | 23,650 |   |
|                                                |       |                          |       |                                              |       |                                                                |       |                             |       |      |       |
| Rick Borgen, Director                               |       | $                             | 11,850     |                                              | N/A        |                                                                | N/A        |                             | N/A        |      | $          | 11,850 |   |
|                                                |       |                          |       |                                              |       |                                                                |       |                             |       |      |       |
| John Brainard, Director                             |       | $                             | 25,475     |                                              | N/A        |                                                                | N/A        |                             | N/A        |      | $          | 25,475 |   |
|                                                |       |                          |       |                                              |       |                                                                |       |                             |       |      |       |
| Brian Erickson, Director                            |       | $                             | 24,950     |                                              | N/A        |                                                                | N/A        |                             | N/A        |      | $          | 24,950 |   |
|                                                |       |                          |       |                                              |       |                                                                |       |                             |       |      |       |
| Robert Green, Director                              |       | $                             | 24,900     |                                              | N/A        |                                                                | N/A        |                             | N/A        |      | $          | 24,900 |   |
|                                                |       |                          |       |                                              |       |                                                                |       |                             |       |      |       |
| John Gudajtes, Director                             |       | $                             | 22,950     |                                              | N/A        |                                                                | N/A        |                             | N/A        |      | $          | 22,950 |   |
|                                                |       |                          |       |                                              |       |                                                                |       |                             |       |      |       |
| Curtis Haugen, Director                             |       | $                             | 15,100     |                                              | N/A        |                                                                | N/A        |                             | N/A        |      | $          | 15,100 |   |
|                                                |       |                          |       |                                              |       |                                                                |       |                             |       |      |       |
| William Hejl, Director (3)                          |       | $                             | 28,325     |                                              | N/A        |                                                                | N/A        |                             | N/A        |      | $          | 28,325 |   |
|                                                |       |                          |       |                                              |       |                                                                |       |                             |       |      |       |
| Curtis Knutson, Director (3)                        |       | $                             | 15,775     |                                              | N/A        |                                                                | N/A        |                             | N/A        |      | $          | 15,775 |   |
|                                                |       |                          |       |                                              |       |                                                                |       |                             |       |      |       |
| David J. Kragnes (2)                                |       | $                             | 38,400     |                                              | N/A        |                                                                | N/A        |                             | N/A        |      | $          | 38,400 |   |
|                                                |       |                          |       |                                              |       |                                                                |       |                             |       |      |       |
| Francis Kritzberger, Director                       |       | $                             | 15,300     |                                              | N/A        |                                                                | N/A        |                             | N/A        |      | $          | 15,300 |   |
|                                                |       |                          |       |                                              |       |                                                                |       |                             |       |      |       |
| Jeff McInnes, Director                              |       | $                             | 21,375     |                                              | N/A        |                                                                | N/A        |                             | N/A        |      | $          | 21,375 |   |
|                                                |       |                          |       |                                              |       |                                                                |       |                             |       |      |       |
| Ronald Reitmeier, Director                          |       | $                             | 13,900     |                                              | N/A        |                                                                | N/A        |                             | N/A        |      | $          | 13,900 |   |
|                                                |       |                          |       |                                              |       |                                                                |       |                             |       |      |       |
| Jim Ross, Director (2)                              |       | $                             | 6,650      |                                              | N/A        |                                                                | N/A        |                             | N/A        |      | $          | 6,650 |   |
|                                                |       |                          |       |                                              |       |                                                                |       |                             |       |      |       |
| Steve Williams, Director                            |       | $                             | 34,725     |                                              | N/A        |                                                                | N/A        |                             | N/A        |      | $          | 34,725 |   |

 

----

(1)         Consists of fees of $575 per month to Directors and $1,075 increasing to$2,075 effective March 1, 2008, to the Chairman of the Board.  The Chairman and Directors also receive a perdiem fee of $250 increasing to $300 effective March 1, 2008, for each dayspent on Company activities.

 

(2)         Term expired in December of 2007.

 

(3)         Term began in December of 2007.

 

**Item 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

** **

Under state law and the Company’s Bylaws, each memberof the cooperative is entitled to one vote, regardless of the number of sharesthe member holds.  The Common Stock ofthe Company is voting stock and each member of the Company holds one share ofCommon Stock.  The Preferred Stock of theCompany is non-voting stock.  The Company’sstock can only be held by individuals who are sugarbeet growers.  None of the officers or executives of theCompany hold stock of the Company.  Asmembers of the cooperative, each director owns one share of Common Stock and isentitled to one vote.  As a group, thedirectors generally own approximately 2 to 3 percent of the outstandingPreferred Stock.

 

43

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** **

**Item 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

** **

Each of the Company’s directors is also a sugarbeetfarmer and a shareholder member or representative of a shareholder member ofthe Company.  By virtue of their statusas such members of the Company, each director or the member he represents sellssugarbeets to the Company and receives payments for those sugarbeets.  Such payments for sugarbeets may exceed$120,000.  Such payments, however, arereceived by the directors or the entities they represent on exactly the samebasis as payments received by other members of the Company for the delivery oftheir sugarbeets.  Except for thesugarbeet sales described in the preceding sentences, none of the directors orexecutive officers of the Company have engaged in any other transactions withthe Company involving amounts in excess of $120,000.

 

**Item 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES**

** **

The following table presents fees for professionalaudit services rendered by Eide Bailly LLP for the audits of the Company’s andconsolidated companies’ annual financial statements for the years ended August 31,2008 and 2007 and fees for other services rendered by Eide Bailly LLP duringthose periods.

 
| **(In Thousands)** | ** ** | **2008** | ** ** | **2007** | ** ** |
|-------------------------|------------|----------|------------|----------|------------|
| Audit Fees              |       | $        | 133        |     | $          | 128 |   |
| Audit-Related Fees      |       | 24       |       | 41       |       |
| Tax Fees                |       | 51       |       | 52       |       |
| All Other Fees          |       | —   |       | —   |       |
| Total                   |       | $        | 208        |     | $          | 221 |   |

 

**Audit Fees.**  The Audit Fees set forth above include theaggregate fees billed by Eide Bailly LLP to the Company for audit servicesrelated to the audit of the Company’s and consolidated companies’ annualfinancial statements and review of the statements included in the Company’squarterly reports on Form 10-Q for fiscal 2008 and fiscal 2007.

 

**Audit-Related Fees.**  The Audit-Related Fees set forth aboveinclude the aggregate fees billed byEide Bailly LLP to the Company and consolidated companies for assurance andrelated services provided by Eide Bailly LLP related to the performance of theaudit or review of the Company’s financial statements for fiscal 2008 andfiscal 2007.  These services includedBenefit Plan audits.

 

**Tax Fees.**  The Tax Fees set forth above include theaggregate fees billed by Eide Bailly LLPto the Company and consolidatedcompanies for professional services rendered by Eide Bailly for taxcompliance, tax advice and tax planning for fiscal 2008 and fiscal 2007.  Theseservices include tax return preparation, tax planning and tax research.

 

**All Other Fees.**  The All Other Fees set forth above includethe aggregate fees billed by Eide Bailly LLP to the Company and consolidated companies forprofessional services provided by Eide Bailly LLP to the Company and consolidated companies.  There were no other fees paid to Eide BaillyLLP for fiscal 2008 or fiscal 2007.

 

The Company’s Audit Committeepre-approves all professional services provided by Eide Bailly LLP to theCompany.  The Audit Committee approved all****of the services and the fees billed for such services to theCompany that are included above.  TheAudit Committee makes its decisions on the approval of services with dueconsideration given to maintaining the independence of the principalaccountant.  None of the hours expended on the audit of the 2008 financial statements wereattributed to work performed by persons who were not employed full time on apermanent basis by Eide Bailly LLP.

 

44

----

 

# **PART III**

# ** **

**Item15.    EXHIBITS AND FINANCIAL STATEMENTSCHEDULES**

** **

(a)           Documentsfiled as part of this report

 

1.             ConsolidatedFinancial Statements

Report of Independent Registered Public AccountingFirm

Consolidated Statements of Operations for the YearsEnded August 31, 2008, 2007 and 2006

Consolidated Balance Sheets as of August 31, 2008and 2007

Consolidated Statements of Changes in Members’Investments and Comprehensive Income for the Years Ended August 31, 2008,2007 and 2006

Consolidated Statements of Cash Flows for the YearsEnded August 31, 2008, 2007 and 2006

Notes to the Consolidated Financial Statements

 

2.             FinancialStatement Schedules

None

 

3.             Theexhibits to this Annual Report on Form 10-K are listed in the Exhibit Index onpages E-1 to E-4 of this report

 

(b)           Exhibits

 

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

 

45

----

** **

**SIGNATURES**

** **

Pursuant to the requirements of Section 13 or 15of the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized, on November 26, 2008.

 
|     | AMERICAN CRYSTAL  SUGAR COMPANY |
|----------|---------------------------------|
| * * | By:                             | /s/ DAVID A. BERG |
| * * |                            | *President and Chief Executive Officer* |
| * * |                            | * * |
| * * | Dated: November 26, 2008   |

 

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

 
| **Signature**               | ** ** | **Title**                                   | ** ** | **Date**                |
|-----------------------------|------------|---------------------------------------------|------------|-------------------------|
| ** **                  | ** ** | ** **                                  | ** ** | ** **              |
| /s/ DAVID A.  BERG          |       | President and  Chief Executive Officer      |       | November 26,  2008 |
|                        |       | (Principal  Executive Officer)              |       |                    |
|                        |       |                                        |       |                    |
| /s/ THOMAS S.  ASTRUP       |       | Vice  President-Finance and Chief Financial |       | November 26,  2008 |
|                        |       | Officer  (Principal Financial Officer)      |       |                    |
|                        |       |                                        |       |                    |
| /s/ TERESA A.  WARNE        |       | Corporate  Controller                       |       | November 26,  2008 |
|                        |       | (Principal  Accounting Officer)             |       |                    |
|                        |       |                                        |       |                    |
| /s/ MICHAEL A.  ASTRUP      |       | Director  (Chairman)                        |       | November 26,  2008 |
|                        |       |                                        |       |                    |
| /s/ NEIL C.  WIDNER         |       | Director  (Vice-Chairman)                   |       | November 26,  2008 |
|                        |       |                                        |       |                    |
| /s/ WILLIAM  BALDWIN        |       | Director                                    |       | November 26,  2008 |
|                        |       |                                        |       |                    |
| /s/ RICHARD  BORGEN         |       | Director                                    |       | November 26,  2008 |
|                        |       |                                        |       |                    |
| /s/ JOHN  BRAINARD          |       | Director                                    |       | November 26,  2008 |
|                        |       |                                        |       |                    |
| /s/ BRIAN R.  ERICKSON      |       | Director                                    |       | November 26,  2008 |
|                        |       |                                        |       |                    |
| /s/ ROBERT M.  GREEN        |       | Director                                    |       | November 26,  2008 |
|                        |       |                                        |       |                    |
| /s/ JOHN F.  GUDAJTES       |       | Director                                    |       | November 26,  2008 |
|                        |       |                                        |       |                    |
| /s/ CURTIS E.  HAUGEN       |       | Director                                    |       | November 26,  2008 |
|                        |       |                                        |       |                    |
| /s/ WILLIAM HEJL            |       | Director                                    |       | November 26,  2008 |
|                        |       |                                        |       |                    |
| /s/ CURTIS  KNUTSON         |       | Director                                    |       | November 26,  2008 |
|                        |       |                                        |       |                    |
| /s/ FRANCIS L.  KRITZBERGER |       | Director                                    |       | November 26,  2008 |
|                        |       |                                        |       |                    |
| /s/ JEFF D.  MCINNES        |       | Director                                    |       | November 26,  2008 |
|                        |       |                                        |       |                    |
| /s/ RONALD E.  REITMEIER    |       | Director                                    |       | November 26,  2008 |
|                        |       |                                        |       |                    |
| /s/ STEVE  WILLIAMS         |       | Director                                    |       | November 26,  2008 |

** **

**46**

----

** **

**APPENDIX A**

** **

**INDEX TO THE CONSOLIDATEDFINANCIAL STATEMENTS**

 
| **AMERICAN  CRYSTAL SUGAR COMPANY**                                                                                                                |   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| CONSOLIDATED FINANCIAL STATEMENTS:                                                                                                                 |   |   |
| Report  of Independent Registered Public Accounting Firm                                                                                           |   | A-2    |
| Consolidated Statements of  Operations for the Years Ended August 31, 2008, 2007 and 2006                                                     |   | A-3    |
| Consolidated  Balance Sheets as of August 31, 2008 and 2007                                                                                   |   | A-4    |
| Consolidated Statements of Changes in Members’  Investments and Comprehensive Income for the Years Ended August 31,  2008, 2007 and 2006 |   | A-6    |
| Consolidated Statements of Cash Flows for the Years  Ended August 31, 2008, 2007 and 2006                                                     |   | A-7    |
| Notes to the Consolidated Financial Statements                                                                                                     |   | A-8    |

 

A-1

----

** **

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

** **

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

Moorhead, Minnesota

 

We have audited the accompanying consolidated balance sheets of **American Crystal Sugar Company****andSubsidiaries**as of August 31, 2008 and 2007, and the relatedconsolidated statements of operations, changes in members’ investments andcomprehensive income, and cash flows for the years ended August 31, 2008,2007, and 2006.  These consolidatedfinancial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these consolidated financial statements based on our audits.

 

Weconducted our audits in accordance with standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  The Company isnot required to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting.  Ouraudits included consideration of internal controls over financial reporting asa basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such anopinion.  An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation.  Webelieve that our audits provide a reasonable basis for our opinion.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of **AmericanCrystal Sugar Company and Subsidiaries** as of August 31, 2008and 2007, and the results of their operations and their cash flows for theyears ended August 31, 2008, 2007, and 2006, in conformity with accountingprinciples generally accepted in the United States of America.

 

 

/s/ EIDE BAILLY LLP

 

Sioux Falls, SouthDakota

October 10, 2008

 

A-2

----

 

**American Crystal Sugar Company**

**ConsolidatedStatements of Operations**

**For the Years Ended August 31**

**(In Thousands)**

** **
| ** **                                                      | ** ** | **2008**    | ** **    | **2007** | ** ** | **2006**  | ** ** |
|-----------------------------------------------------------------|------------|-------------|---------------|----------|------------|-----------|------------|
| **Net Revenue**                                                 | ** ** | **$**       | **1,231,963** |     | $          | 1,222,170 |       | $ | 1,005,716 |   |
|                                                            |       |        |          |     |       |      |       |
| **Cost of Sales**                                               | ** ** | **403,142** |          | 348,382  |       | 328,767   |       |
|                                                            |       |        |          |     |       |      |       |
| **Gross Proceeds**                                              | ** ** | **828,821** |          | 873,788  |       | 676,949   |       |
|                                                            |       |        |          |     |       |      |       |
| **Selling, General and Administrative Expenses**                | ** ** | **267,539** |          | 246,835  |       | 211,188   |       |
|                                                            |       |        |          |     |       |      |       |
| **Operating Proceeds**                                          | ** ** | **561,282** |          | 626,953  |       | 465,761   |       |
|                                                            |       |        |          |     |       |      |       |
| **Other Income (Expense):**                                     |       |        |          |     |       |      |       |
| Interest Income                                                 | ** ** | **740**     |          | 781      |       | 397       |       |
| Interest Expense, Net                                           | ** ** | **(15,084** | **)**         | (20,281  | )          | (19,096   | )          |
| Other, Net                                                      | ** ** | **1,252**   |          | 878      |       | 4,283     |       |
|                                                            |       |        |          |     |       |      |       |
| **Total Other Expense**                                         | ** ** | **(13,092** | **)**         | (18,622  | )          | (14,416   | )          |
|                                                            |       |        |          |     |       |      |       |
| **Proceeds Before Minority Interest and Income Tax  Expense**   | ** ** | **548,190** |          | 608,331  |       | 451,345   |       |
|                                                            |       |        |          |     |       |      |       |
| **Minority Interest**                                           | ** ** | **(6,896**  | **)**         | (5,636   | )          | (4,567    | )          |
|                                                            |       |        |          |     |       |      |       |
| **Income Tax (Expense)/Benefit**                                | ** ** | **1,399**   |          | (1,303   | )          | (1,687    | )          |
|                                                            |       |        |          |     |       |      |       |
| **Net Proceeds Resulting from Member and Non-Member  Business** | ** ** | **$**       | **542,693**   |     | $          | 601,392   |       | $ | 445,091 |   |
|                                                            |       |        |          |     |       |      |       |
| **Distributions of Net Proceeds:**                              |       |        |          |     |       |      |       |
| Credited/(Charged) to Members’ Investments:                |       |        |          |     |       |      |       |
| Non-Member Business Income/(Loss)                               | ** ** | **$**       | **(4,787**    | **)**    | $          | 2,286     |       | $ | 2,246 |   |
| Unit Retains Declared to Members                                | ** ** | **23,260**  |          | 35,705   |       | 26,417    |       |
| Net Credit to Members’ Investments                         | ** ** | **18,473**  |          | 37,991   |       | 28,663    |       |
| Payments to Members for Sugarbeets,                             |       |        |          |     |       |      |       |
| Net of Unit Retains Declared                                    | ** ** | **524,220** |          | 563,401  |       | 416,428   |       |
| **Total**                                                       | ** ** | **$**       | **542,693**   |     | $          | 601,392   |       | $ | 445,091 |   |

 

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

 

A-3

----

 

**American Crystal Sugar Company**

**ConsolidatedBalance Sheets**

**August 31**

**(In Thousands)**

** **

**Assets**

 
| ** **                                    | ** ** | **2008**     | ** **  | **2007** | ** ** |
|-----------------------------------------------|------------|--------------|-------------|----------|------------|
| **Current Assets:**                           |       |         |        |     |       |
| Cash and Cash Equivalents                     | ** ** | **$**        | **128**     |     | $          | 222 |   |
| Receivables:                                  |       |         |        |     |       |
| Trade                                         | ** ** | **66,149**   |        | 77,010   |       |
| Members                                       | ** ** | **2,535**    |        | 2,746    |       |
| Other                                         | ** ** | **2,767**    |        | 5,532    |       |
| Advances to Related Parties                   | ** ** | **20,391**   |        | 7,796    |       |
| Inventories                                   | ** ** | **188,328**  |        | 216,563  |       |
| Prepaid Expenses                              | ** ** | **1,163**    |        | 1,204    |       |
|                                          |       |         |        |     |       |
| **Total Current Assets**                      | ** ** | **281,461**  |        | 311,073  |       |
|                                          |       |         |        |     |       |
| **Property and Equipment:**                   |       |         |        |     |       |
| Land and Land Improvements                    | ** ** | **60,110**   |        | 57,738   |       |
| Buildings                                     | ** ** | **112,170**  |        | 109,123  |       |
| Equipment                                     | ** ** | **877,113**  |        | 846,467  |       |
| Construction in Progress                      | ** ** | **5,322**    |        | 23,513   |       |
| Less Accumulated Depreciation                 | ** ** | **(703,134** | **)**       | (672,896 | )          |
|                                          |       |         |        |     |       |
| **Net Property and Equipment**                | ** ** | **351,581**  |        | 363,945  |       |
|                                          |       |         |        |     |       |
| **Net Property and Equipment Held for Lease** | ** ** | **120,001**  |        | 129,795  |       |
|                                          |       |         |        |     |       |
| **Other Assets:**                             |       |         |        |     |       |
| Investments in CoBank, ACB                    | ** ** | **9,946**    |        | 11,627   |       |
| Investments in Marketing Cooperatives         | ** ** | **4,152**    |        | 5,659    |       |
| Pension Asset                                 | ** ** | **35,101**   |        | 37,400   |       |
| Other Assets                                  | ** ** | **11,057**   |        | 15,816   |       |
|                                          |       |         |        |     |       |
| **Total Other Assets**                        | ** ** | **60,256**   |        | 70,502   |       |
|                                          |       |         |        |     |       |
| **Total Assets**                              | ** ** | **$**        | **813,299** |     | $          | 875,315 |   |

 

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

 

A-4

----

 

**American Crystal Sugar Company**

**Consolidated Balance Sheets**

**August 31**

**(In Thousands)**

** **

**Liabilities and Members’Investments**

 
| ** **                                                  | ** ** | **2008**    | ** **  | **2007** | ** ** |
|-------------------------------------------------------------|------------|-------------|-------------|----------|------------|
| **Current Liabilities:**                                    |       |        |        |     |       |
| Short-Term Debt                                             | ** ** | **$**       | **15,297**  |     | $          | 24,980 |   |
| Current Maturities of Long-Term Debt                        | ** ** | **20,991**  |        | 31,227   |       |
| Accounts Payable                                            | ** ** | **35,836**  |        | 38,998   |       |
| Advances Due to Related Parties                             | ** ** | **3,343**   |        | 2,874    |       |
| Other Current Liabilities                                   | ** ** | **27,286**  |        | 32,805   |       |
| Amounts Due Growers                                         | ** ** | **120,933** |        | 143,260  |       |
|                                                        |       |        |        |     |       |
| **Total Current Liabilities**                               | ** ** | **223,686** |        | 274,144  |       |
|                                                        |       |        |        |     |       |
| **Long-Term Debt, Net of Current Maturities**               | ** ** | **157,801** |        | 157,974  |       |
|                                                        |       |        |        |     |       |
| **Accrued Employee Benefits**                               | ** ** | **33,805**  |        | 39,337   |       |
|                                                        |       |        |        |     |       |
| **Other Liabilities**                                       | ** ** | **6,892**   |        | 8,240    |       |
|                                                        |       |        |        |     |       |
| **Total Liabilities**                                       | ** ** | **422,184** |        | 479,695  |       |
|                                                        |       |        |        |     |       |
| **Commitments and Contingencies**                           |       |        |        |     |       |
|                                                        |       |        |        |     |       |
| **Minority Interest in ProGold Limited Liability  Company** | ** ** | **59,839**  |        | 61,735   |       |
|                                                        |       |        |        |     |       |
| **Members’ Investments:**                              |       |        |        |     |       |
| Preferred Stock                                             | ** ** | **38,275**  |        | 38,275   |       |
| Common Stock                                                | ** ** | **28**      |        | 29       |       |
| Additional Paid-In Capital                                  | ** ** | **152,261** |        | 152,261  |       |
| Unit Retains                                                | ** ** | **174,506** |        | 170,363  |       |
| Equity Retention                                            | ** ** | **1,155**   |        | 2,687    |       |
| Accumulated Other Comprehensive Income (Loss)               | ** ** | **(8,984**  | **)**       | (8,552   | )          |
| Retained Earnings (Accumulated Deficit)                     | ** ** | **(25,965** | **)**       | (21,178  | )          |
|                                                        |       |        |        |     |       |
| **Total Members’ Investments**                         | ** ** | **331,276** |        | 333,885  |       |
|                                                        |       |        |        |     |       |
| **Total Liabilities and Members’ Investments**         | ** ** | **$**       | **813,299** |     | $          | 875,315 |   |

 

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

 

A-5

----

 

**AmericanCrystal Sugar Company**

**Consolidated Statements ofChanges in Members’ Investments and Comprehensive Income**

**For the Years Ended August 31**

**(In Thousands)**

 
| ** **                                                | ** ** | ** **    | ** ** | ** ** | ** ** | ** **     | ** ** | ** **  | ** **  | ** **    | ** ** | **Accumulated**        | ** ** | **Retained**     | ** ** | ** **  | ** ** | ** **             | ** ** |
|-----------------------------------------------------------|------------|---------------|------------|------------|------------|----------------|------------|-------------|-------------|---------------|------------|------------------------|------------|------------------|------------|-------------|------------|------------------------|------------|
| ** **                                                | ** ** | ** **    | ** ** | ** ** | ** ** | **Additional** | ** ** | ** **  | ** **  | ** **    | ** ** | **Other**              | ** ** | **Earnings**     | ** ** | ** **  | ** ** | **Annual**             | ** ** |
| ** **                                                | ** ** | **Preferred** | ** ** | **Common** | ** ** | **Paid-In**    | ** ** | **Unit**    | ** **  | **Equity**    | ** ** | **Comprehensive**      | ** ** | **(Accumulated** | ** ** | ** **  | ** ** | **Comprehensive**      | ** ** |
| ** **                                                | ** ** | **Stock**     | ** ** | **Stock**  | ** ** | **Capital**    | ** ** | **Retains** | ** **  | **Retention** | ** ** | **Income (Loss)** | ** ** | **Deficit)**     | ** ** | **Total**   | ** ** | **Income (Loss)** | ** ** |
| **Balance, August 31, 2005**                         |       | 38,275        |       | 29         |       | 152,261        |       | 148,972     |        | 2,703         |       | (832                   | )          | (25,710          | )          | 315,698     |       |                   |       |
| Non-Member Business Income                                |       | —        |       | —     |       | —         |       | —      |        | —        |       | —                 |       | 2,246            |       | 2,246       |       | $                      | 2,246      |   |
| Pension Minimum Liability Adjustment                      |       | —        |       | —     |       | —         |       | —      |        | —        |       | 332                    |       | —           |       | 332         |       | 332                    |       |
| Unit Retains Withheld from Members                        |       | —        |       | —     |       | —         |       | 26,417      |        | —        |       | —                 |       | —           |       | 26,417      |       | —                 |       |
| Payments of Unit Retains and Equity Retention to  Members |       | —        |       | —     |       | —         |       | (21,428     | )           | (9            | )          | —                 |       | —           |       | (21,437     | )          | —                 |       |
| Stock Issued, Net                                         |       | —        |       | —     |       | —         |       | —      |        | —        |       | —                 |       | —           |       | —      |       | —                 |       |
| ** **                                                | ** ** | ** **    | ** ** | ** ** | ** ** | ** **     | ** ** | ** **  | ** **  | ** **    | ** ** | ** **             | ** ** | ** **       | ** ** | ** **  | ** ** | ** **             | ** ** |
| **Balance, August 31, 2006**                         |       | 38,275        |       | 29         |       | 152,261        |       | 153,961     |        | 2,694         |       | (500                   | )          | (23,464          | )          | 323,256     |       | $                      | 2,578      |   |
| Non-Member Business Income                                |       | —        |       | —     |       | —         |       | —      |        | —        |       | —                 |       | 2,286            |       | 2,286       |       | $                      | 2,286      |   |
| Pension Minimum Liability Adjustment                      |       | —        |       | —     |       | —         |       | —      |        | —        |       | 500                    |       | —           |       | 500         |       | 500                    |       |
| SFAS 158 Unrecognized Prior Service Costs                 |       | —        |       | —     |       | —         |       | —      |        | —        |       | (5,266                 | )          | —           |       | (5,266      | )          | (5,266                 | )          |
| SFAS 158 Unrecognized Gain/(Loss)                         |       | —        |       | —     |       | —         |       | —      |        | —        |       | (3,317                 | )          | —           |       | (3,317      | )          | (3,317                 | )          |
| Forward Contract Foreign Currency Gain                    |       | —        |       | —     |       | —         |       | —      |        | —        |       | 31                     |       | —           |       | 31          |       | 31                     |       |
| Unit Retains Withheld from Members                        |       | —        |       | —     |       | —         |       | 35,705      |        | —        |       | —                 |       | —           |       | 35,705      |       | —                 |       |
| Payments of Unit Retains and Equity Retention to  Members |       | —        |       | —     |       | —         |       | (19,303     | )           | (7            | )          | —                 |       | —           |       | (19,310     | )          | —                 |       |
| Stock Issued, Net                                         |       | —        |       | —     |       | —         |       | —      |        | —        |       | —                 |       | —           |       | —      |       | —                 |       |
|                                                      |       |          |       |       |       |           |       |        |        |          |       |                   |       |             |       |        |       |                   |       |
| **Balance, August 31, 2007**                         |       | 38,275        |       | 29         |       | 152,261        |       | 170,363     |        | 2,687         |       | (8,552                 | )          | (21,178          | )          | 333,885     |       | $                      | (5,766     | ) |
| Non-Member Business Loss                                  | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **—**             | ** ** | **(4,787**       | **)**      | **(4,787**  | **)**      | **$**                  | **(4,787** | **)** |
| SFAS 158 Unrecognized Prior Service Costs                 | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **1,317**              | ** ** | **—**       | ** ** | **1,317**   | ** ** | **1,317**              | ** ** |
| SFAS 158 Unrecognized Gain/(Loss)                         | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **(224**               | **)**      | **—**       | ** ** | **(224**    | **)**      | **(224**               | **)**      |
| OCI of Equity Method Investees                            | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **(1,491**             | **)**      | **—**       | ** ** | **(1,491**  | **)**      | **(1,491**             | **)**      |
| Forward Contract Foreign Currency Loss                    | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **(34**                | **)**      | **—**       | ** ** | **(34**     | **)**      | **(34**                | **)**      |
| Unit Retains Withheld from Members                        | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **23,260**  | ** **  | **—**    | ** ** | **—**             | ** ** | **—**       | ** ** | **23,260**  | ** ** | **—**             | ** ** |
| Payments of Unit Retains and Equity Retention to  Members | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **(19,117** | **)**       | **(1,532**    | **)**      | **—**             | ** ** | **—**       | ** ** | **(20,649** | **)**      | **—**             | ** ** |
| Stock Issued, Net                                         | ** ** | **—**    | ** ** | **(1**     | **)**      | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **—**             | ** ** | **—**       | ** ** | **(1**      | **)**      | **—**             | ** ** |
| ** **                                                | ** ** | ** **    | ** ** | ** ** | ** ** | ** **     | ** ** | ** **  | ** **  | ** **    | ** ** | ** **             | ** ** | ** **       | ** ** | ** **  | ** ** | ** **             | ** ** |
| **Balance, August 31, 2008**                         | ** ** | **$**         | **38,275** | ** ** | **$**      | **28**         | ** ** | **$**       | **152,261** | ** **    | **$**      | **174,506**            | ** ** | **$**            | **1,155**  | ** **  | **$**      | **(8,984**             | **)**      | **$** | **(25,965** | **)** | **$** | **331,276** | ** ** | **$** | **(5,219** | **)** |
|                                                           |            |               |            |            |            |                |            |             |             |               |            |                        |            |                  |            |             |            |                        |            |  |  |  |  |  |  |  |  |  |

 

The Accompanying Notes are an Integral Part ofThese Consolidated Financial Statements.

 

A-6

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**AmericanCrystal Sugar Company**

**Consolidated Statements of Cash Flows**

**For theYears Ended August 31**

**(InThousands)**

 
| ** **                                                            | ** ** | **2008**     | ** **  | **2007** | ** ** | **2006** | ** ** |
|-----------------------------------------------------------------------|------------|--------------|-------------|----------|------------|----------|------------|
| **Cash Provided By (Used In) Operating Activities:**                  |       |         |        |     |       |     |       |
| Net Proceeds Resulting from Member and Non-Member  Business           | ** ** | **$**        | **542,693** |     | $          | 601,392  |       | $ | 445,091 |   |
| Payments To/Due Members for Sugarbeets, Net of Unit  Retains Declared | ** ** | **(524,220** | **)**       | (563,401 | )          | (416,428 | )          |
| Add (Deduct) Non-Cash Items:                                          |       |         |        |     |       |     |       |
| Depreciation and Amortization                                         | ** ** | **58,197**   |        | 57,481   |       | 56,753   |       |
| Impairment Loss                                                       | ** ** | **11,867**   |        | —   |       | —   |       |
| Income/(Loss) from Equity Method Investees                            | ** ** | **221**      |        | (333     | )          | (537     | )          |
| Loss on the Disposition of Property and Equipment                     | ** ** | **504**      |        | 995      |       | 835      |       |
| Non-Cash Portion of Patronage Dividend from CoBank,  ACB              | ** ** | **(121**     | **)**       | (182     | )          | (218     | )          |
| Deferred Gain Recognition                                             | ** ** | **(197**     | **)**       | (197     | )          | (197     | )          |
| Minority Interest in ProGold Limited Liability  Company               | ** ** | **(1,896**   | **)**       | 5,636    |       | 4,567    |       |
| Changes in Assets and Liabilities:                                    |       |         |        |     |       |     |       |
| Receivables                                                           | ** ** | **13,837**   |        | 373      |       | (38,736  | )          |
| Inventories                                                           | ** ** | **28,235**   |        | (41,802  | )          | (52,134  | )          |
| Prepaid Expenses                                                      | ** ** | **7**        |        | 3,251    |       | 1,192    |       |
| Non-Current Pension Asset                                             | ** ** | **(113**     | **)**       | (3,757   | )          | (1,636   | )          |
| Advances To/Due to Related Parties                                    | ** ** | **(12,126**  | **)**       | (2,916   | )          | 9,373    |       |
| Accounts Payable                                                      | ** ** | **(3,162**   | **)**       | 11,878   |       | (45      | )          |
| Other Liabilities                                                     | ** ** | **(8,894**   | **)**       | 7,541    |       | 7,183    |       |
| Amounts Due Growers                                                   | ** ** | **(22,327**  | **)**       | 19,612   |       | 90,214   |       |
| **Net Cash Provided By Operating Activities**                         | ** ** | **82,505**   |        | 95,571   |       | 105,277  |       |
|                                                                  |       |         |        |     |       |     |       |
| **Cash Provided By (Used In) Investing Activities:**                  |       |         |        |     |       |     |       |
| Purchases of Property and Equipment                                   | ** ** | **(44,391**  | **)**       | (63,256  | )          | (46,154  | )          |
| Purchases of Property and Equipment Held for Lease                    | ** ** | **(1,358**   | **)**       | (859     | )          | (382     | )          |
| Proceeds from the Sale of Property and Equipment                      | ** ** | **57**       |        | 88       |       | 248      |       |
| Investments in Crystech, LLC                                          | ** ** | **—**   |        | (1,539   | )          | 1,044    |       |
| Equity Distribution from CoBank, ACB                                  | ** ** | **1,802**    |        | 1,693    |       | 3,796    |       |
| Investments in Marketing Cooperatives                                 | ** ** | **(8**       | **)**       | (186     | )          | 62       |       |
| Changes in Other Assets                                               | ** ** | **2,041**    |        | (207     | )          | (271     | )          |
| **Net Cash (Used In) Investing Activities**                           | ** ** | **(41,857**  | **)**       | (64,266  | )          | (41,657  | )          |
|                                                                  |       |         |        |     |       |     |       |
| **Cash Provided By (Used In) Financing Activities:**                  |       |         |        |     |       |     |       |
| Net Proceeds from (Payments on) Short-Term Debt                       | ** ** | **(9,683**   | **)**       | 19,680   |       | (25,385  | )          |
| Proceeds from Issuance of Long-Term Debt                              | ** ** | **25,818**   |        | 20,897   |       | 24,674   |       |
| Changes in Common Stock                                               | ** ** | **(1**       | **)**       | —   |       | —   |       |
| Long-Term Debt Repayment                                              | ** ** | **(36,227**  | **)**       | (52,695  | )          | (41,464  | )          |
| Payment of Unit Retains and Equity Retention                          | ** ** | **(20,649**  | **)**       | (19,310  | )          | (21,437  | )          |
| **Net Cash (Used In) Financing Activities**                           | ** ** | **(40,742**  | **)**       | (31,428  | )          | (63,612  | )          |
| **Increase (Decrease) In Cash and Cash Equivalents**                  | ** ** | **(94**      | **)**       | (123     | )          | 8        |       |
| **Cash and Cash Equivalents, Beginning of Year**                      | ** ** | **222**      |        | 345      |       | 337      |       |
|                                                                  |       |         |        |     |       |     |       |
| **Cash and Cash Equivalents, End of Year**                            | ** ** | **$**        | **128**     |     | $          | 222      |       | $ | 345 |   |

 

The Accompanying Notesare an Integral Part of These Consolidated Financial Statements.

 

A-7

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** **

**American Crystal Sugar Company**

**Notes to the Consolidated Financial Statements**

 

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

 

*Organization*

 

American Crystal SugarCompany (the Company) is a Minnesota agricultural cooperative corporation whichprocesses and markets sugar as well as sugarbeet pulp, molasses, concentratedseparated by-product (CSB), betaine (collectively, agri-products) and sugarbeetseed.  Business done with itsshareholders (members) constitutes “patronage business” as defined by theInternal Revenue Code, and the net proceeds therefrom are credited to members’investments in the form of unit retains or distributed to members in the formof payments for sugarbeets.  Members arepaid the net amounts realized from the current year’s production less memberoperating costs determined in conformity with accounting principles generallyaccepted in the United States of America.

 

*Basis of Presentation*

 

The Company’sconsolidated financial statements are comprised of American Crystal SugarCompany, 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.

 

On May 1, 2007, theCompany acquired CIT Capital USA Inc.’s 50 percent ownership interest in Crystech, LLC (Crystech) resulting inthe Company’s 100 percent ownership of Crystech.  Due to the Company’s resulting controllingownership interest in Crystech, effective May 1, 2007, the Company beganto include Crystech in its consolidated financial statements.  Effective May 31, 2007, Crystech wasdissolved with all assets and liabilities transferred to the Company.

 

All materialinter-company transactions have been eliminated.

 

*Revenue Recognition*

 

Revenue from the sale ofsugar, agri-products and seed is recorded when the product is delivered to thecustomer.  Operating lease revenue isrecognized as earned ratably over the term of the lease.

 

*Operating Lease*

 

ProGold owns a corn wetmilling facility which it leases under an operating lease.  On November 6, 2007, ProGold enteredinto an amended operating lease agreement with Cargill, Incorporated thatsuperseded and replaced the previous ten year lease agreement.  Payments are to be received monthly under thelease, which runs through December 31, 2017.  The operating lease revenue is recognized asearned ratably over the term of the lease and to the extent that amountsreceived exceed amounts earned, deferred revenue is recorded.  Expenses (including depreciation andinterest) are charged against such revenue as incurred.  The lease contains provisions for extensionor modification of the lease terms at the end of the lease period.  The lease also contains provisions forincreased payments to be received during the lease period related to the plant’scapital additions.

 

*Cash and Cash Equivalents*

 

The Company considers allhighly liquid investments with a maturity of three months or less whenpurchased to be cash equivalents.  TheCompany places its temporary cash investments with high credit qualityfinancial institutions.  At times, suchinvestments may be in excess of the applicable insurance limit.

 

A-8

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*Accounts Receivable and CreditPolicies*

 

The Company grantscredit, individually and through its marketing cooperatives, to its customers,which are primarily companies in the food processing industry locatedthroughout the United States.

 

Tradereceivables are uncollateralized customer obligations due under normal tradeterms requiring payment within 15 to 90 days from the invoice date.  The receivables are non-interestbearing.  Trade receivables are stated atthe amount billed to the customer. Payments of trade receivables are allocated to the specific invoicesidentified on the customer’s remittance advice or, if unspecified, are appliedto the earliest unpaid invoices.

 

Ongoingcredit evaluations of customers’ financial condition are performed and theCompany maintains a reserve for potential credit losses.  The carrying amount of trade receivables isreduced by a valuation allowance that reflects the Company’s best estimate ofthe amounts that will not be collected.

 

*Inventories*

 

Sugar, pulp, molasses andother agri-products inventories are valued at estimated net realizablevalue.  Maintenance parts and suppliesand sugarbeet seed inventories are valued at the lower of average cost ormarket.  Sugarbeets are valued at theprojected gross per-ton beet payment related to that year’s crop.

 

*Net Property and Equipment*

 

Property and equipmentare recorded at cost less impairment under FAS No. 144.  See Note 4 to the consolidated financialstatements.  Indirect costs andconstruction period interest are capitalized as a component of the cost ofqualified assets.  Property and equipmentare depreciated for financial reporting purposes principally usingstraight-line methods with estimated useful lives ranging from 3 to 33 years.

 

*Net Property and Equipment Held for Lease*

 

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

 

*Impairmentof Long Lived Assets*

 

The Company reviews itslong lived assets for impairment whenever events indicate that the carryingamount of the asset may not be recoverable. An impairment loss is recorded when the sum of the future cash flows isless than the carrying amount of the asset. An impairment loss is measured as the amount by which the carryingamount of the asset exceeds its fair value. An impairment loss of approximately$11.9 million was recognized in 2008. See Note 4 to the consolidated financial statements.  The fair value of assets is a significantestimate and it is at least reasonably possible that a change in the estimatecould occur in the near term.

 

*Related Parties*

 

The followingorganizations are considered related parties for financial reporting purposes:United Sugars Corporation (United) and Midwest Agri-Commodities Company(Midwest).

 

*Investments*

 

Investments in CoBank,ACB are stated at cost plus unredeemed patronage refunds received in the formof capital stock.  Investments inmarketing cooperatives are accounted for using the equity

 

A-9

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method.  Investments in Crystech, prior to itsdissolution (see note 7), were accounted for using the equity method.

 

*Members’ Investments*

 

Preferred and CommonStock - The ownership of common and preferred stock is restricted to a “farmoperator” as defined by the bylaws of the Company.  Each shareholder may own only one share ofcommon stock and is entitled to one vote in the affairs of the Company.  Each shareholder is required to grow aspecified number of acres of sugarbeets in proportion to the shares ofpreferred stock owned.  The preferredshares are non-voting.  All transfers ofstock must be approved by the Company’s Board of Directors and any shareholderdesiring to sell stock must first offer it to the Company for repurchase at itspar value.  The Company has neverexercised this repurchase option for preferred stock.  The Company’s articles of incorporation donot allow dividends to be paid on either the common or preferred stock.

 

Unit Retains - The bylawsauthorize the Company’s Board of Directors to require additional direct capitalinvestments by members in the form of a variable unit retain per ton of up to amaximum of 10 percent of the weighted average gross per ton beet payment.  All refunds and retirements of unit retainsmust be approved by the Board of Directors.

 

Equity Retention – ThePayment-In-Kind (PIK) Certificate Purchase Agreement authorizes the Company torequire additional direct capital investments by members participating in thePIK program. The amount of the equity contribution is calculated perhundredweight of PIK certificates and is approximately equivalent (on aCompany-wide average basis) to the unit retain declared by the Company on thecorresponding year’s sugarbeet crop.  Allrefunds and retirements of equity retains must be approved by the Board ofDirectors.

 

Accumulated OtherComprehensive Income (Loss) - Accumulated Other Comprehensive Income (Loss)represents the cumulative net increase (decrease) in equity related to therecording of the over-funded or under-funded status of defined benefitpostretirement plans, the Company’s portion of the other comprehensiveincome(loss) of equity method investees and the gain or loss related to foreigncurrency forward contracts.  Consistentwith the Company’s treatment of income taxes related to member-source incomeand expenses, accumulated other comprehensive income (loss) does not includeany adjustment for income taxes.  Foryears prior to August 31, 2007, Accumulated Other Comprehensive Income(Loss) represented the cumulative net increase (decrease) in equity related tothe recording of the minimum pension liability adjustment.

 

Retained Earnings(Accumulated Deficit) - Retained earnings represents the cumulative net income(loss) resulting from non-member business and, for years prior to 1996, thedifference between member income as determined for financial reporting purposesand for federal income tax reporting purposes.

 

*Interest Expense, Net*

 

The Company earnspatronage dividends from CoBank, ACB based on the Company’s share of the netincome earned by CoBank, ACB.  Thesepatronage dividends are applied against interest expense.

 

*Income Taxes*

 

The Company is anon-exempt cooperative for federal income tax purposes.  As such, the Company is subject to corporateincome taxes on its net income from non-member sources.  The provision for income taxes relates to theresults of operations from non-member business, state income taxes and certainother permanent differences between financial and income tax reporting. TheCompany

 

A-10

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also has varioustemporary differences between financial and income tax reporting, most notableof which is depreciation.

 

Deferred tax assets, lessany applicable valuation allowance, and deferred tax liabilities are includedin the financial statements at currently enacted income tax rates applicable tothe period in which the deferred tax assets and liabilities are expected to berealized or settled.

 

*Accounting Estimates*

 

The preparation of thefinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities atthe date of the financial statements and the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from those estimates.

 

*Business Risk*

 

The financial results ofthe Company’s operations may be directly and materially affected by manyfactors, including prevailing prices of sugar and agri-products, the Company’sability to market its sugar competitively, the weather, government programs andregulations, and operating costs.

 

*Concentration and Sources ofLabor*

 

Substantially all of the hourly employees at theCompany’s factories, including full-time and seasonal employees, arerepresented by the Bakery, Confectionery, Tobacco Workers and Grain Millers(BCTGM) AFL-CIO, and are covered by collective bargaining agreements expiring July 31,2011 for the Red River Valley factory employees and April 30, 2010 for theSidney, Montana, factory employees. Office, clerical and management employees are not unionized, except forcertain office employees at the Moorhead and Crookston, Minnesota, andHillsboro, North Dakota, factories who are covered by the collective bargainingagreement with the BCTGM.

 

*Shipping and Handling Costs*

 

The costs incurred forthe shipping and handling of products sold are classified in the consolidatedfinancial statements as a selling expense on the Consolidated Statements ofOperations. Shipping and handling costs were $185.8 million, $166.0 million and$130.9 million for the years ended August 31, 2008, 2007 and 2006,respectively.

 

*Deferred Costs and Product Values*

 

All costs incurred priorto the end of the Company’s fiscal year that relate to receiving and processingthe subsequent year’s sugarbeet crop are deferred.  Similarly, the net realizable values ofproducts produced prior to the end of the Company’s fiscal year that relate tothe subsequent year’s sugarbeet crop are deferred.  The net result of these deferred costs andproduct values are recorded in the Company’s consolidated balance sheet in “OtherCurrent Liabilities.”  There were no deferredcosts and product values as of August 31, 2008.  Deferred costs and product values were $4.1million and $2.9 million as of August 31, 2007 and 2006, respectively.

 

*Recently Issued AccountingPronouncements*

 

The Financial Accounting Standards Board (FASB) hasissued Statement No. 157, *Fair Value Measurements*(SFAS157).  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

 

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fiscal 2009.  Relative to SFAS157, the FASB issued FASB Staff Positions (FSP) 157-1 and 157-2. FSP 157-1amends SFAS 157 to exclude SFAS No. 13, *Accountingfor Leases*, and its related interpretive accounting pronouncementsthat address leasing transactions, while FSP 157-2 delays the effective date ofthe application of SFAS 157 for the Company to the first quarter of fiscal 2010for all non-financial assets and non-financial liabilities that are recognizedor disclosed 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.

 

The FASB has issued Statement No. 158, *Employers’ Accounting for Defined Benefit Pension and OtherPostretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and132(R)*.  This statementrequires the Company to recognize the over-funded or under-funded status of adefined benefit postretirement plan as an asset or liability in its statementof financial position and to recognize changes in that funded status in theyear in which the changes occur through comprehensive income.  This requirement became effective and wasadopted by the Company as of August 31, 2007.  This statement also will require the Companyto measure the funded status of a plan as of the date of its year-end statementof financial position.  This requirementbecomes effective for the Company as of August 31, 2009.

 

The FASB has issued Statement No. 160, *Noncontrolling Interests in Consolidated Financial Statements – anamendment 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.

 

The FASB has issued Statement No. 161, *Disclosures about Derivative Instruments and Hedging Activities—anamendment 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.

 

The FASB has issued statement No. 162, *The Hierarchy of Generally Accepted Accounting Principles*.  This statement identifies the sources ofaccounting principles and the framework for selecting the principles to be usedin the preparation of financial statements of nongovernmental entities that arepresented in conformity with generally accepted accounting principles (GAAP) inthe United States (the GAAP hierarchy). This statement is effective 60 days following the SEC’s approval of thePublic Company 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.

 

The FASB has issued statement No. 141R, *Business Combinations.* This statement replaces FASB Statement No. 141, *Business Combinations. *This Statement retains thefundamental requirements in Statement No. 141 that the acquisition methodof accounting (which Statement No. 141 called the *purchase method*) be used for all businesscombinations and for an acquirer to be identified for each businesscombination.  This Statement defines theacquirer as the entity that obtains control of one or more businesses in thebusiness combination and establishes the acquisition date as the date that theacquirer achieves control.  This statement becomeseffective for the Company in fiscal 2010. The Company does not expect that the adoption of this statement willhave a material effect on the Company’s financial statements.

 

A-12

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TheFASB has issued FASB Staff Position (FSP) FAS 133-1 and FIN 45-4, *Disclosuresabout Credit Derivatives and Certain Guarantees: An Amendment of FASB StatementNo. 133 and FASB Interpretation No. 45; and Clarification of theEffective Date of FASB Statement No. 161.*  This FSP amends FASB Statement No. 133, *Accounting for Derivative Instruments and HedgingActivities,*to require disclosures by sellers of credit derivatives,including credit derivatives embedded in a hybrid instrument.  This FSP also amends FASB Interpretation No. 45,*Guarantor’s Accounting and DisclosureRequirements for Guarantees, Including Indirect Guarantees of Indebtedness ofOthers,*to require an additional disclosure about the current statusof the payment/performance risk of a guarantee. Further, this FSP clarifies the Board’s intent about the effective dateof FASB Statement No. 161, *Disclosuresabout Derivative Instruments and Hedging Activities*.  This FSP becomes effective for the Company on November 30,2008.  The Company does not expect thatthe adoption of this FSP will have a material effect on the Company’s financialstatements.

 

TheFASB has issued FSP FAS 142-3, *Determination of the Useful Lifeof Intangible Assets. *This FSP amendsthe factors that should be considered in developing renewal or extensionassumptions used to determine the useful life of a recognized intangible assetunder FASB Statement No. 142, *Goodwilland Other Intangible Assets*. The intent of this FSP is to improve the consistency between the usefullife of a recognized intangible asset under Statement No. 142 and theperiod of expected cash flows used to measure the fair value of the asset underFASB Statement No. 141 (revised 2007), *BusinessCombinations,*and other U.S. generally accepted accountingprinciples (GAAP).  This FSP becomes effective for theCompany in Fiscal 2010.  The Company doesnot expect that the adoption of this FSP will have a material effect on theCompany’s financial statements.

 

**(2) RECEIVABLES:**

 

There was no singlecustomer attributable to the Company that accounted for 10 percent or more ofthe Company’s total receivables as of August 31, 2008 or August 31,2007 or that accounted for 10 percent or more of the revenues of the Companyfor the years ended August 31, 2008, 2007 or 2006.

 

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

 

The majorcomponents of inventories as of August 31, 2008 and 2007 are as follows:

 
| **(In Thousands)**                                                | ** ** | **2008**   | ** **  | **2007** | ** ** |
|------------------------------------------------------------------------|------------|------------|-------------|----------|------------|
| Refined Sugar, Pulp, Molasses, Other Agri-Products  and Sugarbeet Seed | ** ** | **$**      | **151,741** |     | $          | 178,078 |   |
| Unprocessed Sugarbeets                                                 | ** ** | **—** |        | 9,231    |       |
| Maintenance Parts and Supplies                                         | ** ** | **36,587** |        | 29,254   |       |
| Total Inventories                                                      | ** ** | **$**      | **188,328** |     | $          | 216,563 |   |

 

**(4) NETPROPERTY AND EQUIPMENT:**

 

Indirect costscapitalized were $1.2 million, $1.2 million and $1.1 million in 2008, 2007 and2006, respectively.  Construction periodinterest capitalized was $ .9 million, $1.1 million and $ .8 million in 2008,2007 and 2006, respectively. Depreciation expense was $44.4 million, $43.6million and $42.9 million in 2008, 2007 and 2006, respectively. The Company hadoutstanding commitments totaling $4.3 million as of August 31, 2008, forequipment and construction contracts related to various capital projects.

 

In 2008, an impairment loss of $11.9 million relatedto property and equipment at the Sidney, Montana facility was recognized.  The impairment loss is reflected in the Costof Sales on the

 

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Consolidated Statements of Operations. The property and equipment at the Sidney, Montana facility is used inthe sugar segment.

 

Sidney Sugars contracts with sugarbeet growers in theSidney, Montana area.  The sugarbeetgrowers are not owners of Sidney Sugars and therefore have no requirement togrow sugarbeets on an annual basis.  Dueto the high alternative crop prices compared to contracted sugarbeet prices,many growers are choosing to grow alternative crops.  During fiscal year 2008, Sidney Sugarsrenewed the grower contract for one year covering the 2008 crop (fiscal 2009)due to uncertainty in the industry. Total harvested acres declined from approximately 35,000 acres for the2007 crop (fiscal 2008) to approximately 15,000 acres for the 2008 crop (fiscal2009).  For fiscal year 2009, SidneySugars is projecting a pre-tax net loss and negative cash flows.  Sidney Sugars recently reached agreement on atwo year contract for the 2009 and 2010 crops (fiscal 2010 and 2011) with thegrowers.  Acreage contracting with theindividual growers is currently in progress.   There is great uncertainty regarding the number of acres that willactually be contracted for future crops.

 

Based on undiscounted cash flows, the Company does notbelieve that the entire carrying amount of the property and equipment at theSidney, Montana facility is recoverable. The fair value of the property and equipment to be held and used wasdetermined based on numerous scenarios which were weighted according to theirrespective probability of occurring. These scenarios are based on judgments regarding anticipated cash flows,future expected loss experience, current economic conditions and otherfactors.  Based on this analysis, thefair value of the property and equipment was determined to be approximately$4.3 million compared to a carrying value of approximately $16.2 millionresulting in an impairment loss of $11.9 million.  The fair value of assets is a significantestimate and it is at least reasonably possible that a change in the estimatecould occur in the near term.

 

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

 

ProGold owns a cornwet-milling facility that it leases under an operating lease which runs throughDecember 31, 2017.  Under the terms of the operating lease,the lessee manages all aspects of the operations of the ProGold corn wet-millingfacility.

 

Net Property and Equipment Held for Lease are statedat cost, net of accumulated depreciation. Depreciation expense was $11.1million for each of the years ended August 31, 2008, 2007 and 2006.  The components of Net Property and EquipmentHeld for Lease as of August 31, 2008 and 2007 are shown below:

 
| **(In Thousands)**                   | ** ** | **2008**     | ** **  | **2007** | ** ** |
|-------------------------------------------|------------|--------------|-------------|----------|------------|
| Land and Land Improvements                | ** ** | **$**        | **7,937**   |     | $          | 7,937 |   |
| Buildings                                 | ** ** | **41,201**   |        | 41,193   |       |
| Equipment                                 | ** ** | **202,326**  |        | 201,243  |       |
| Construction in Progress                  | ** ** | **451**      |        | 245      |       |
| Less Accumulated Depreciation             | ** ** | **(131,914** | **)**       | (120,823 | )          |
|                                      |       |         |        |     |       |
| Net Property and Equipment Held for Lease | ** ** | **$**        | **120,001** |     | $          | 129,795 |   |

 

A-14

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

 
| **Fiscal year ending August 31, (In Thousands)** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------|------------|------------|------------|
| 2009                                                                           |       | $          | 22,833     |   |
| 2010                                                                           |       | 21,500     |       |
| 2011                                                                           |       | 21,500     |       |
| 2012                                                                           |       | 21,500     |       |
| 2013                                                                           |       | 21,500     |       |
| Thereafter                                                                     |       | 93,167     |       |
|                                                                           |       |       |       |
| Total                                                                          |       | $          | 202,000    |   |

 

**(6) ****INVESTMENTS IN MARKETINGCOOPERATIVES:**

 

The Company has a 66percent ownership interest and a 33 1/3 percent voting interest in United.  The investment is accounted for using theequity method.  Substantially all sugarproducts produced are sold by United as an agent for the Company.  The amount of sales and related costs to berecognized by each owner of United is allocated based on its pro rata share ofsugar production for the year.  Theowners provide United with cash advances on an ongoing basis for operating andmarketing expenses incurred by United. The Company had outstanding advances to United of $20.0 million and $7.6million as of August 31, 2008 and 2007, respectively.  The Company provides administrative servicesfor United and is reimbursed for costs incurred.  The Company was reimbursed $1.0 million, $1.2million and $1.2 million for services provided during 2008, 2007 and 2006,respectively.

 

The Company has a 55percent ownership interest and a 25 percent voting interest in Midwest.  The investment is accounted for using theequity method.  Substantially allsugarbeet pulp, molasses and other agri-products produced are sold by Midwestas an agent for the Company.  The amountof sales and related costs to be recognized by each owner of Midwest isallocated based on its pro rata share of production for each product for theyear.  The owners provide Midwest withcash advances on an ongoing basis for operating and marketing expenses incurredby Midwest.  The Company had outstandingadvances from Midwest of $3.3 million and $2.9 million as of August 31,2008 and 2007, respectively.  The Companyprovides administrative services for Midwest and is reimbursed for costsincurred.  The Company was reimbursed$141,000, $129,000 and $121,000 for services provided during 2008, 2007 and2006, respectively.  The owners ofMidwest are guarantors of the short-term line of credit Midwest has withCoBank, ACB.  As of August 31, 2008,Midwest had outstanding short-term debt with CoBank, ACB of $3.2 million, ofwhich $1.8 million was guaranteed by the Company.

 

TheCompany has performed a complete analysis of the conditions set forth in FIN 46(R) andhas determined that its investments in United and Midwest do not meet thecriteria of Variable Interest Entities and therefore such entities are notconsolidated in the Company’s Consolidated Financial Statements.

 

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

 

On May 1, 2007, theCompany acquired CIT Capital USA Inc.’s 50 percent ownership interest inCrystech for $1.5 million.  Thisacquisition resulted in the Company’s 100 percent ownership of Crystech.  Due to the Company’s resulting controllingownership interest in Crystech, effective May 1, 2007, the Company beganto include Crystech in its consolidated financial statements.  Effective May 31, 2007, Crystech wasdissolved with all assets and liabilities transferred to the Company.  As a result of the dissolution, the Companyeliminated its investment of $17.6 million in Crystech, recorded the value ofthe buildings and equipment acquired of $2.7 million and $10.6 million,respectively, and settled an inter-company payable of $4.3 million.

 

A-15

----

 

Crystech was a special purpose entity that operated amolasses desugarization facility at the Company’s Hillsboro, North Dakota,sugar factory together with certain sugar processing equipment located at theHillsboro, North Dakota, and Moorhead, Minnesota, sugar factories.  Prior to May 31, 2007, the Companycontrolled 50 percent of Crystech and accounted for its investment using theequity method.

 

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

 

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

 

On a cumulative basis,the Company received an annual allocation of Crystech’s net income equal to 7.5percent of the initial value of the Preferred Equity contribution by theCompany.  Following is summary financialinformation for Crystech:

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

 

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

 

The long-term debtoutstanding as of August 31, 2008 and 2007 is summarized below:

 
| **(In Thousands)**                                                                                                                                                                                                                                 | ** ** | **2008**    | ** **  | **2007** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|-------------|----------|------------|
| Term Loans from CoBank, ACB, due in varying amounts  through 2011, interest at fixed rates of 4.17% to 7.22%, with senior lien on  substantially all non-current assets                                                                                 | ** ** | **$**       | **53,293**  |     | $          | 82,543 |   |
| Term Loans from Insurance Companies, due in varying  amounts from 2010 through 2028, interest at fixed rates of 4.78% to 7.42%,  with senior lien on substantially all non-current assets                                                               | ** ** | **54,286**  |        | 57,143   |       |
| Pollution Control and Industrial Development Revenue  Bonds, due in varying amounts through 2021, interest at fixed rates of 5.0%  to 5.40% and varying rates of 2.71% to 2.86% as of August 31, 2008,  substantially secured by letters of credit | ** ** | **70,413**  |        | 47,915   |       |
| Term Loan from the Bank of North Dakota, due in  equal amounts through 2009, interest at a fixed rate of 3.30%, unsecured                                                                                                                               | ** ** | **800**     |        | 1,600    |       |
| Total Long-Term Debt                                                                                                                                                                                                                                    | ** ** | **178,792** |        | 189,201  |       |
| Less Current Maturities                                                                                                                                                                                                                                 | ** ** | **(20,991** | **)**       | (31,227  | )          |
| Long-Term Debt, Net of Current Maturities                                                                                                                                                                                                               | ** ** | **$**       | **157,801** |     | $          | 157,974 |   |

 

A-16

----

 

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

 
| **(In Thousands)** | ** ** | ** ** | ** ** |
|-------------------------|------------|------------|------------|
| 2009                    |       | $          | 20,991     |   |
| 2010                    |       | $          | 18,789     |   |
| 2011                    |       | $          | 10,022     |   |
| 2012                    |       | $          | 33,412     |   |
| 2013                    |       | $          | 6,030      |   |

 

The Company has a long-term debt line of credit withCoBank, ACB of $185.0 million, of which $53.3 million in loans and $70.3million in long-term letters of credit were outstanding as of August 31,2008.  The unused long-term line ofcredit as of August 31, 2008 was $61.4 million.

 

 The short-termdebt outstanding as of August 31, 2008 and 2007 is summarized below:

 
| **(In Thousands)**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Commercial Paper, at a fixed interest rate of 2.85%,  due 9/2/08 | ** ** | **$**    | **15,297** |     | $          | 24,980 |   |
|                                                                  |            |          |            |          |            |  |  |

 

During the year ended August 31, 2008, theCompany borrowed from CoBank, ACB, the Commodity Credit Corporation (CCC) andissued commercial paper to meet its short-term borrowing requirements.  As of August 31, 2008, the Company hadavailable short-term lines of credit totaling $346.0 million, of which $15.3million in commercial paper and $2.3 million in short-term letters of creditwere outstanding.  The unused short-termline of credit as of August 31, 2008 was $328.4 million.

 

Maximum borrowings, average borrowing levels andaverage interest rates for short-term debt for the years ended August 31,2008 and 2007, follow:

 
| **(In Thousands, Except Interest Rates)** | ** ** | **2008** | ** **  | **2007** | ** ** |
|---------------------------------------------------------------|------------|----------|-------------|----------|------------|
| Maximum Borrowings                                            | ** ** | **$**    | **288,355** |     | $          | 298,456 |   |
| Average Borrowing Levels                                      | ** ** | **$**    | **156,444** |     | $          | 167,532 |   |
| Average Interest Rates                                        | ** ** | **4.27** | **%**       | 5.71     | %          |

 

The terms of the loan agreements contain prepaymentpenalties along with certain covenants related to, among other matters, the:level of working capital; ratio of term liabilities to members’ investments;current ratio; level of term debt to net funds generated; and investment inCoBank, ACB stock in amounts prescribed by the bank.  Substantially all non-current assets arepledged to the senior lenders to provide security to support the Company’sseasonal and long-term financing.  As of August 31,2008, the Company was in compliance with the terms of the loan agreements.

 

Interest paid, net of amounts capitalized, was $15.2million, $20.7 million and $19.6 million for the years ended August 31,2008, 2007 and 2006, respectively.

 

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

 

The Company is party to operating leases for suchitems as rail cars, computer hardware and vehicles.  Cargill, Incorporated has assumedresponsibility for the payments on a rail car lease for the duration of thatlease.  Operating lease expense was $ .9million, $ 2.6 million and $ 2.1 million for years ended August 31, 2008,2007 and 2006, respectively.  Futureminimum payments under these obligations are as follows:

 

A-17

----

 
| **Fiscal year ending August 31, (In Thousands)** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------|------------|------------|------------|
| 2009                                                                           |       | $          | 1,599      |   |
| 2010                                                                           |       | 1,373      |       |
| 2011                                                                           |       | 1,172      |       |
| 2012                                                                           |       | 1,072      |       |
| 2013                                                                           |       | 1,053      |       |
| Thereafter                                                                     |       | 8,249      |       |
| Total                                                                          |       | $          | 14,518     |   |

 

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

 

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

 

Substantially all employees who meet eligibility requirementsof age, date of hire and length of service are covered by a Company-sponsoredretirement plan.  As of August 31,2008, the pension plans were funded as required by the funding standards setforth by the Employee Retirement Income Security Act (ERISA).  The Company also has non-qualifiedsupplemental executive retirement plans for certain employees.

 

Employees of the Company who are not members of acollective bargaining unit and who are newly hired, or rehired, and employeeswho transfer from a union position to a nonunion position on or after September 1,2007 are not eligible for participation in the defined benefit pensionplan.  These employees participate in adefined contribution plan as described later in this note.

 

The following schedule reflectsthe percentage of pension plan assets by asset class as of the latestmeasurement date, May 31, 2008:

** **

**Percentage of Pension Plan Assets by Asset Class as of May 31, 2008**

 
| **Asset Class** | ** ** | **Target Range** | ** ** | **Actual Allocation** | ** ** |
|----------------------|------------|-----------------------|------------|----------------------------|------------|
| Large U.S. Stocks    |       | 20.0%-40.0%           |       | 28.4%                 |       |
| Small U.S. Stocks    |       | 17.5%-27.5%           |       | 23.4%                      |       |
| Non-U.S. Stocks      |       | 17.5%-27.5%           |       | 26.6%                      |       |
| U.S. Bonds           |       | 15.0%-35.0%           |       | 21.5%                      |       |
| Cash                 |       | 0.0%-5.0%             |       | 0.1%                       |       |

 

The Investment Committee has theresponsibility of managing the operations and administration of AmericanCrystal Sugar Company’s retirement plans and trust.  The Investment Committee has an investmentpolicy for the pension plan assets that establishes target asset allocations asshown above.  The Investment Committee iscommitted to diversification to reduce the risk of large losses.  To that end, the Investment Committee hasadopted policies requiring that each asset class will be diversified and equityexposure will be limited to 85% of the total portfolio value. The stated goalis for each component of the plan to earn a rate of return greater than itscorresponding benchmark.  Progress of theplan against its return objectives will be measured over a full market cycle.

 

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

 

A-18

----

 

The development of the discountrate was based on a bond matching model whereby a hypothetical portfolio ofbonds with an “AA” or better rating by a nationally recognized debt ratingagency was constructed to match the expected benefit payments under the Company’spension plans through the year 2037.  Thereinvestment rate for benefit cash flow occurring after 2037 was discountedback to the year 2037 at a rate consistent with the yields on long-termzero-coupon bonds. The resulting present value was treated as additionalbenefit cash flow for the year 2037 and consistently applied as any otherbenefit cash flow during the bond matching process.

 

The Company has a medical plan and a Medicaresupplement plan which are available to union retirees and certain non-unionretirees.  The costs of these plans areshared by the Company and plan participants.  TheCompany’s post-retirement plan for certain non-union employees currentlycoordinates with Medicare’s medical coverage and provides tiered prescriptiondrug coverage.  The Company hasdetermined that this plan is actuarially equivalent to Medicare Part D andtherefore qualifies for the Federal subsidy provision in the MedicarePrescription Drug, Improvement, and Modernization Act of 2003.  This provision allows the Company to receivea subsidy of 28 percent of the dollars spent providing prescription drugcoverage beginning in calendar year 2006.

 

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

 
| ** **              | ** ** | **Expected Benefit Payments** | ** ** |
|-------------------------|------------|-----------------------------------------|------------|
| **(In Thousands)** | ** ** | **Pension**                             | ** ** | **Post-Retirement** | ** ** |
| 2009                    |       | $                                       | 5,077      |   | $ | 720 |   |
| 2010                    |       | 5,525                                   |       | 964 |   |
| 2011                    |       | 6,064                                   |       | 1,243 |   |
| 2012                    |       | 6,610                                   |       | 1,563 |   |
| 2013                    |       | 7,267                                   |       | 1,829 |   |
| 2014-2018               |       | 49,679                                  |       | 12,613 |   |
| Total                   |       | $                                       | 80,222     |   | $ | 18,932 |   |

 

The Company does not expectto make any contributions to the defined benefit pension plans during the nextfiscal year.  The Company expects to makecontributions in the next fiscal year of approximately $116,000 related toSupplemental Executive Retirement Plans. The Company also expects tocontribute approximately $720,000 to the post-retirement plans during the nextfiscal year.

 

The following schedules providethe components of the Net Periodic Pension and Post-Retirement Costs for theyears ended August 31, 2008, 2007 and 2006:

** **

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

* *
| **(In Thousands)**              | ** ** | **2008**    | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------------------|------------|-------------|------------|----------|------------|----------|------------|
| Service Cost                         | ** ** | **$**       | **3,763**  |     | $          | 3,533    |       | $ | 4,222 |   |
| Interest Cost                        | ** ** | **8,154**   |       | 7,907    |       | 7,185    |       |
| Expected Return on Plan Assets       | ** ** | **(12,965** | **)**      | (10,908  | )          | (9,856   | )          |
| Multiple Employer Adjustment         | ** ** | **—**  |       | (131     | )          | (69      | )          |
| Settlement Loss                      | ** ** | **242**     |       | —   |       | —   |       |
| Amortization of Prior Service  Costs | ** ** | **1,317**   |       | 2,912    |       | 1,126    |       |
| Amortization of Net (Gain)  Loss     | ** ** | **(199**    | **)**      | 433      |       | 2,992    |       |
| Net Periodic Pension Cost            | ** ** | **$**       | **312**    |     | $          | 3,746    |       | $ | 5,600 |   |

 

A-19

----

*** ***

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

 
| **(In Thousands)**            | ** ** | **2008**  | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------|------------|-----------|------------|----------|------------|----------|------------|
| Service Cost                       | ** ** | **$**     | **1,076**  |     | $          | 1,102    |       | $ | 1,411 |   |
| Interest Cost                      | ** ** | **1,864** |       | 1,923    |       | 2,088    |       |
| Settlement Gain                    | ** ** | **(5**    | **)**      | —   |       | —   |       |
| Amortization of Net (Gain)  Loss   | ** ** | **(225**  | **)**      | (19      | )          | 387      |       |
| Net Periodic Post-Retirement  Cost | ** ** | **$**     | **2,710**  |     | $          | 3,006    |       | $ | 3,886 |   |

 

In fiscal 2007, the Company changed the estimatedamortization period for prior service costs. It was determined that the period in which the Company expects torealize economic benefits from plan amendments granting retroactive benefitswas shorter than the remaining service period of active employees.  Therefore, the amortization period waschanged from the remaining service period of active employees to the lesser ofseven years or the length of the union contract that included the benefitchange.

 

For measurement purposes, a 9.0 percent annual rate ofincrease in the per capita cost of covered healthcare benefits for participantsunder age 65 was assumed for 2008.  Therate is assumed to decline to 5.0 percent over the next five years.  For participants age 65 and older, a 10.0percent annual rate of increase in the per capita cost of covered healthcarebenefits was assumed for 2008.  The rateis assumed to decline to 6.0 percent over the next five years.

 

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

 
| **(In Thousands)**                                                                             | ** ** | **1% Increase** | ** ** | **1% Decrease** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|
| Effect on total service and interest cost components  of net periodic post-retirement benefit costs |       | $                    | 429        |                 | $          | (363 | ) |
| Effect on the accumulated post-retirement benefit  obligation                                       |       | $                    | 3,300      |                 | $          | (2,780 | ) |

 

A-20

----

 

The following schedules set forth a reconciliation ofthe changes in the plans’ benefit obligation and fair value of assets for theyears ending August 31, 2008 and 2007 and a statement of the funded statusand amounts recognized in the Balance Sheets and Accumulated OtherComprehensive Income as of August 31, 2008 and 2007:

 
| ** **                                                          | ** ** | **Pension** |        | **Post-Retirement** | ** ** |
|---------------------------------------------------------------------|------------|-------------|-------------|---------------------|------------|
| **(In Thousands)**                                             | ** ** | **2008**    | ** **  | **2007**            |       | **2008** | ** ** | **2007** | ** ** |
| ***Change in Benefit  Obligation***                                 | ** ** | ** **  | ** **  | ** **          |       | ** ** | ** ** | ** ** | ** ** |
| Obligation at the Beginning of  the Year                            | ** ** | **$**       | **132,851** | ** **          | $          | 122,413 |   | **$** | **29,643** | ** ** | $ | 29,430 |   |
| Service Cost                                                        | ** ** | **3,763**   | ** **  | 3,533               |       | **1,076** | ** ** | 1,102 |   |
| Interest Cost                                                       | ** ** | **8,154**   | ** **  | 7,907               |       | **1,864** | ** ** | 1,923 |   |
| Plan Participant Contributions                                      | ** ** | **—**  | ** **  | —              |       | **464** | ** ** | 488 |   |
| Medicare Part D Subsidy                                        | ** ** | **—**  | ** **  | —              |       | **58** | ** ** | 48 |   |
| Settlement (Gain) Loss                                              | ** ** | **242**     | ** **  | —              |       | **—** | ** ** | — |   |
| Transfers                                                           | ** ** | **(1,414**  | **)**       | —              |       | **—** | ** ** | — |   |
| Actuarial (Gain) Loss                                               | ** ** | **(11,742** | **)**       | 3,528               |       | **(3,855** | **)** | (1,985 | ) |
| Benefits Paid                                                       | ** ** | **(8,151**  | **)**       | (4,530              | )          | **(2,057** | **)** | (1,363 | ) |
| Obligation at the End of the  Year                                  | ** ** | **$**       | **123,703** | ** **          | $          | 132,851 |   | **$** | **27,193** | ** ** | $ | 29,643 |   |
|                                                                | ** ** | ** **  | ** **  |                |       | ** ** | ** ** |   |   |
| ***Change in Plan Assets***                                         |       |        | ** **  |                |       |   | ** ** |   |   |
| Fair Value at the Beginning of  the Year                            | ** ** | **$**       | **164,613** | ** **          | $          | 138,597 |   | **$** | **—** | ** ** | $ | — |   |
| Actual Return on Plan Assets                                        | ** ** | **(2,186**  | **)**       | 25,192              |       | **—** | ** ** | — |   |
| Plan Participant Contributions                                      | ** ** | **—**  | ** **  | —              |       | **464** | ** ** | 488 |   |
| Medicare Part D Subsidy                                        | ** ** | **—**  | ** **  | —              |       | **58** | ** ** | 48 |   |
| Transfers                                                           | ** ** | **(1,414**  | **)**       | —              |       | **—** | ** ** | — |   |
| Employer Contributions                                              | ** ** | **3,663**   | ** **  | 5,354               |       | **1,535** | ** ** | 827 |   |
| Benefits Paid                                                       | ** ** | **(8,151**  | **)**       | (4,530              | )          | **(2,057** | **)** | (1,363 | ) |
| Fair Value at the End of the  Year                                  | ** ** | **$**       | **156,525** | ** **          | $          | 164,613 |   | **$** | **—** | ** ** | $ | — |   |
|                                                                |       |        | ** **  |                |       |   | ** ** |   |   |
| ***Funded Status***                                                 |       |        | ** **  |                |       |   | ** ** |   |   |
| Funded Status as of  August 31,                                | ** ** | **$**       | **32,822**  | ** **          | $          | 31,762 |   | **$** | **(27,193** | **)** | $ | (29,643 | ) |
| Net Amount Recognized                                               | ** ** | **$**       | **32,822**  | ** **          | $          | 31,762 |   | **$** | **(27,193** | **)** | $ | (29,643 | ) |
|                                                                | ** ** | ** **  | ** **  |                |       | ** ** | ** ** |   |   |
| ***Amounts Recognized in  the Balance Sheets***                     |       |        | ** **  |                |       |   | ** ** |   |   |
| Noncurrent Assets                                                   | ** ** | **$**       | **35,101**  | ** **          | $          | 37,400 |   | **$** | **—** | ** ** | $ | — |   |
| Current Liabilities                                                 | ** ** | **(115**    | **)**       | (3,791              | )          | **(720** | **)** | (706 | ) |
| Noncurrent Liabilities                                              | ** ** | **(2,164**  | **)**       | (1,847              | )          | **(26,473** | **)** | (28,937 | ) |
| Net Amount Recognized                                               | ** ** | **$**       | **32,822**  | ** **          | $          | 31,762 |   | **$** | **(27,193** | **)** | $ | (29,643 | ) |
|                                                                | ** ** | ** **  | ** **  |                |       | ** ** | ** ** |   |   |
| ***Amounts Recognized in  Accumulated Other Comprehensive Income*** |       |        | ** **  |                |       |   | ** ** |   |   |
| Prior Service Cost                                                  | ** ** | **$**       | **(3,949**  | **)**               | $          | (5,266 | ) | **$** | **—** | ** ** | $ | — |   |
| Accumulated Gain (Loss)                                             | ** ** | **(10,950** | **)**       | (7,100              | )          | **7,409** | ** ** | 3,783 |   |
| Net Amount Recognized                                               | ** ** | **$**       | **(14,899** | **)**               | $          | (12,366 | ) | **$** | **7,409** | ** ** | $ | 3,783 |   |

 

The accumulated pension benefit obligation was $116.7million and $124.8 million as of August 31, 2008 and 2007, respectively.

 

A-21

----

 

The estimated amounts that will be amortized fromAccumulated Other Comprehensive Income at August 31, 2008 into netperiodic benefit cost in fiscal 2009 are as follows:

 
| ** **              | ** ** | **Pension** | ** ** | **Post-  Retirement** | ** ** |
|-------------------------|------------|-------------|------------|-----------------------|------------|
| Prior Service (Cost)    |       | $           | (1,644     | )                     | $          | — |   |
| Accumulated Gain (Loss) |       | (70         | )          | 675                   |       |
| Total                   |       | $           | (1,714     | )                     | $          | 675 |   |

 

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

 

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

 
| ** **                                           | ** ** | **Pension** | ** ** | **Post-Retirement** | ** ** |
|------------------------------------------------------|------------|-------------|------------|---------------------|------------|
| ** **                                           | ** ** | **2008**    | ** ** | **2007**            | ** ** | **2008** | ** ** | **2007** | ** ** |
| Discount Rate                                        | ** ** | **7.04**    | **%**      | 6.37                | %          | **7.04** | **%** | 6.37 | % |
| Expected Return on Plan Assets                       | ** ** | **8.00**    | **%**      | 8.00                | %          | **N/A** |   | N/A |   |
| Rate of Compensation Increase  (Non-Union Plan Only) | ** ** | **3.5**     | **%**      | 3.5                 | %          | **N/A** |   | N/A |   |

 

*1999Long-Term Incentive Plan*

 

During 2005, the grantingof additional contract rights under the 1999 Long-Term Incentive Plan (1999Plan) was discontinued with the adoption of the 2005 Long-Term Incentive Plan(2005 Plan).  All vested contract rightsas of December 31, 2004, remained in the 1999 Plan while all unvestedcontract rights were transferred to the 2005 Plan.  The value of the contract rights remaining inthe 1999 Plan is determined by the Board of Directors.  During 2008, 309.62 vested contract rightswere exercised.  As of August 31,2008, there were 145.45 vested contract rights remaining in the 1999 Plan.  At August 31, 2008, the Board ofDirectors decreased the value of these contract rights from $2,100 to $1,750per contract right.

 

*2005 Long-Term Incentive Plan*

 

The 2005 Long-TermIncentive Plan provides deferred compensation to certain key executives of theCompany.  The plan creates financialincentives that are based upon contract rights which are available to theexecutive under the terms of the plan, the value of which is determined by theBoard of Directors.  During 2008, 502.59vested contract rights were exercised. In 2008, 282.15 contract rights were granted at a stated value of $1,750per contract right.  At August 31,2008, the Board of Directors decreased the value of the 793.08 contract rightspreviously granted from $2,100 to $1,750 per contract right.  As of August 31, 2008, there were1,075.23 contract rights issued and outstanding at a stated value of $1,750 percontract right, of which 471.23 were vested.

 

*DefinedContribution Plans*

 

The Company has qualified401(k) plans for all eligible employees. The plans provide for immediate vesting of benefits.  Participants may contribute a percentage oftheir gross earnings each pay period as provided in the participationagreement.  The Company matches thenon-union and eligible union year-round participants’ contributions up to 4percent and 2 percent, respectively, of their gross earnings.  The Company’s contributions to these planstotaled $1.9 million, $2.0 million and $1.8 million for the years ended August 31,2008, 2007 and 2006, respectively.

 

A-22

----

 

Employees of the Companywho are not members of a collective bargaining unit and who are newly hired, orrehired, and employees who transfer from a union position to a nonunionposition on or after September 1, 2007 are no longer eligible forparticipation in the defined benefit pension plan but receive a 4% non-electiveCompany Contribution to a defined contribution plan.  The Company Contribution has a six yearvesting schedule.  The Company’scontributions to this plan totaled $29,000 for the year ended August 31,2008.

 

**(11)****MEMBERS’INVESTMENTS:**

 

The following scheduledetails the Preferred Stock and Common Stock as of August 31, 2008, 2007and 2006:

 
| ** **           | ** ** | **Par**   | ** ** | **Shares**     | ** ** | **Shares Issued**     | ** ** |
|----------------------|------------|-----------|------------|----------------|------------|----------------------------|------------|
| ** **           | ** ** | **Value** | ** ** | **Authorized** | ** ** | **& Outstanding** | ** ** |
| Preferred Stock:     |       |      |       |           |       |                       |       |
| August 31, 2008 |       | $         | 76.77      |           | 600,000    |                       | 498,570    |   |
| August 31, 2007 |       | $         | 76.77      |           | 600,000    |                       | 498,570    |   |
| August 31, 2006 |       | $         | 76.77      |           | 600,000    |                       | 498,570    |   |
|                 |       |      |       |           |       |                       |       |
| Common Stock:        |       |      |       |           |       |                       |       |
| August 31, 2008 |       | $         | 10.00      |           | 4,000      |                       | 2,839      |   |
| August 31, 2007 |       | $         | 10.00      |           | 4,000      |                       | 2,878      |   |
| August 31, 2006 |       | $         | 10.00      |           | 4,000      |                       | 2,874      |   |

 

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

 

The Company has identifiedtwo reportable segments: Sugar and Leasing. The sugar segment is engaged primarily in the production and marketingof sugar from sugarbeets.  It also sellsagri-products and sugarbeet seed.  Theleasing segment is engaged in the leasing of a corn wet milling plant used inthe production of high-fructose corn syrup. The segments are managed separately. There are no inter-segment sales. The leasing segment has a major customer that accounts for all of thatsegment’s revenue.

 

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

 
| ** **                          | ** ** | **For the Year Ended August 31, 2008** | ** ** |
|-------------------------------------|------------|----------------------------------------------------------------------|------------|
| **(In Thousands)**             | ** ** | **Sugar**                                                            | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from External Customers |       | $                                                                    | 1,207,765  |   | $ | 24,198 |   | $ | 1,231,963 |   |
| Gross Proceeds                      |       | $                                                                    | 814,487    |   | $ | 14,334 |   | $ | 828,821 |   |
|                                |       |                                                                 |       |   |   |   |   |   |   |   |
| Depreciation and Amortization       |       | $                                                                    | 47,071     |   | $ | 11,126 |   | $ | 58,197 |   |
| Impairment Loss                     |       | $                                                                    | 11,867     |   | $ | — |   | $ | 11,867 |   |
| Interest Income                     |       | $                                                                    | 702        |   | $ | 38 |   | $ | 740 |   |
| Interest Expense                    |       | $                                                                    | 14,925     |   | $ | 159 |   | $ | 15,084 |   |
| Loss from Equity Method Investees   |       | $                                                                    | (221       | ) | $ | — |   | $ | (221 | ) |
| Other Income/(Expense), Net         |       | $                                                                    | 1,499      |   | $ | (26 | ) | $ | 1,473 |   |
| Net Proceeds                        |       | $                                                                    | 535,516    |   | $ | 7,177 |   | $ | 542,693 |   |
|                                |       |                                                                 |       |   |   |   |   |
| Capital Expenditures                |       | $                                                                    | 44,391     |   | $ | 1,358 |   | $ | 45,749 |   |

 

A-23

----

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

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

 
| ** **                  | ** ** | **As of August 31, 2008** | ** ** |
|-----------------------------|------------|-----------------------------------------------|------------|
| **(In Thousands)**     | ** ** | **Sugar**                                     | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Property and Equipment, Net |       | $                                             | 351,581    |   | $ | — |   | $ | 351,581 |   |
| Assets Held for Lease, Net  |       | $                                             | —     |   | $ | 120,001 |   | $ | 120,001 |   |
| Segment Assets              |       | $                                             | 688,768    |   | $ | 124,531 |   | $ | 813,299 |   |

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

 

A-24

----

 

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

 

The fair value of financial instruments is generallydefined as the amount at which the instrument could be exchanged in a currenttransaction between willing parties, other than in a forced liquidationsale.  Quoted market prices are generallynot available for the Company’s financial instruments.  Fair values are based on judgments regardinganticipated cash flows, future expected loss experience, current economicconditions, risk characteristics of various financial instruments and otherfactors.  These estimates involveuncertainties and matters of judgment, and therefore, cannot be determined withprecision.  Changes in assumptions couldsignificantly affect the estimates.

 

*Long-Term Debt, Inclusive of Current Maturities*- Based upon current borrowing rates with similar maturities, the fair value ofthe long-term debt is approximately $175.7 million in comparison to thecarrying value of $178.8 million.

 

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

 

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

 

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

 

TheCompany had no unrecognized tax benefits on September 1, 2007.  No interest or penalties are recognized inthe consolidated statements of operations or in the consolidated balancesheets.  The Company is no longer subjectto U.S. Federal or state income tax examinations by tax authorities for fiscalyears 2004 and earlier.

 

Total income tax payments (refunds) were ($33,000);($119,000); and $290,000 for the years ended August 31, 2008, 2007 and2006, respectively.

 

As of August 31, 2008, the Company hadaccumulated approximately $14.1 million of net operating loss carry-forwardsfor income tax reporting purposes.  Thenet operating loss carry-forwards expire in the years 2018 through 2023.  The Company’s net deferred tax liabilityincluded in Other Liabilities on the Company’s Balance Sheets as of August 31,2008 and 2007 is reflected below:

 

A-25

----

 
| **(In Thousands)**                                                       | ** ** | **2008**   | ** ** | **2007** | ** ** |
|-------------------------------------------------------------------------------|------------|------------|------------|----------|------------|
| Deferred Tax Assets related to non-patronage source  temporary differences    | ** ** | **$**      | **14,048** |     | $          | 13,587 |   |
| Deferred Tax Liability related to non-patronage  source temporary differences | ** ** | **18,019** |       | 19,610   |       |
|                                                                          |       |       |       |     |       |
| Net Deferred Tax Liability                                                    | ** ** | **$**      | **3,971**  |     | $          | 6,023 |   |

 

Income taxexpense/(benefit) for the years ended August 31, 2008, 2007 and 2006 is asfollows:

 
| **(In Thousands)**            | ** ** | **2008**   | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| Current Income Taxes               | ** ** | **$**      | **653**    |     | $          | 403      |       | $ | 687 |   |
| Deferred Income Taxes              | ** ** | **(2,052** | **)**      | 900      |       | 1,000    |       |
|                               |       |       | ** ** |     |       |     |       |
| Total Income Tax Expense/(Benefit) | ** ** | **$**      | **(1,399** | **)**    | $          | 1,303    |       | $ | 1,687 |   |

 

A reconciliation of the Company’s effective tax ratesfor the years ended August 31, 2008, 2007 and 2006 is shown below:

 
| ** **                            | ** ** | **2008**  | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------------|------------|-----------|------------|----------|------------|----------|------------|
| Federal tax expense at statutory rate | ** ** | **35.0**  | **%**      | 35.0     | %          | 35.0     | %          |
| State tax expense at statutory rate   | ** ** | **6.0**   | **%**      | 6.0      | %          | 6.0      | %          |
| Payments to members                   | ** ** | **(41.7** | **)%**     | (40.8    | )%         | (40.7    | )%         |
| Other, net                            | ** ** | **(.2**   | **)%**     | —   |       | —   |       |
| Effective tax rate                    | ** ** | **(0.9**  | **)%**     | 0.2      | %          | 0.3      | %          |

 

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

 

The Company is subject to extensive federal and stateenvironmental laws and regulations with respect to water and air quality, solidwaste disposal and odor and noise control. The Company conducts an ongoing compliance program designed to meetthese environmental laws and regulations. The Company believes that it is in substantial compliance withapplicable environmental laws and regulations. From time to time, however, the Company may be involved ininvestigations or determinations regarding non-material matters that may arise.

 

The Company’s Crookston,East Grand Forks and Moorhead, Minnesota factories have experienced hydrogensulfide emissions from their water treatment ponds that have exceededpermissible limits.  On July 19,2007, the Company received a notice 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 and 2008 thatexceeded permissible limits.  A penaltyassessment is currently under consideration by the MPCA.  While it is likely that the Company may beassessed penalties and/or fines related to these occurrences, as of the date ofthis report none have been assessed.  Anypotential penalties and/or fines, while possibly significant, are not expectedto be material to the Company.

 

The Company is alsoaddressing the following environmental matters:

 

·                  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.

 

A-26

----

 

·                  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.

 

Corrective actions have beentaken related to these occurrences. While the Company may be assessed penalties for these occurrences, as ofthe date of this report none have been assessed.   Any potential penalties assessed are notexpected to be material to the Company.

 

Capital expenditures arerequired to minimize environmental risk. The Company’s capital expenditure budget at the beginning of the currentfiscal year included approximately $7.7 million for environmental relatedprojects at the Company’s factory locations. During 2008, an additional $3.6 million was approved.  Expenditures during fiscal 2008 on theseprojects were approximately $3.0 million while total project-to-date spendingon these projects has been $6.3 million. Environmental related projects that were placed into service duringfiscal 2008 totaled approximately $5.6 million. The amount and timing of any additional capital expenditures that may berequired is not currently known.

 

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

 

Another sugar company has appealed to the NinthCircuit Court of Appeals a decision of the United States District Courtrelative to a determination and transfer of sugar marketing allocations made bythe USDA.  If this case is overturned, itcould result in the Company experiencing a reduction in marketing allocationsequal to the loss of approximately 15,000 acres in future crop years assumingno other related factors were to change.

 

A-27

----

 

**EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-KFOR FISCAL YEAR ENDED AUGUST 31, 2008**

 
| **Item No.** | ** ** | ** **                                                                                       | ** ** | **Method of Filing**                                                                                                                                                                |
|-------------------|------------|--------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **        | ** ** | ** **                                                                                       | ** ** | ** **                                                                                                                                                                                    |
| 3.1               |       | Restated  Articles of Incorporation of American Crystal Sugar Company                            |       | Incorporated by  reference to Exhibit 3(i) from the Company’s Registration Statement  on Form S-1 (File No. 33-83868), declared effective  November 23, 1994.   |
|              |       |                                                                                             |       |                                                                                                                                                                                          |
| 3.2               |       | Restated By-laws  of American Crystal Sugar Company                                              |       | Incorporated by  reference to Exhibit 3(ii) from the Company’s Registration  Statement on Form S-1 (File No. 333-11693), declared effective  November 13, 1996. |
|              |       |                                                                                             |       |                                                                                                                                                                                          |
| 4.1               |       | Restated  Articles of Incorporation of American Crystal Sugar Company                            |       | See  Exhibit 3.1                                                                                                                                                                         |
|              |       |                                                                                             |       |                                                                                                                                                                                          |
| 4.2               |       | Restated By-laws  of American Crystal Sugar Company                                              |       | See  Exhibit 3.2                                                                                                                                                                         |
|              |       |                                                                                             |       |                                                                                                                                                                                          |
| 10.1              |       | Form of  Operating Agreement between Registrant and ProGold Limited Liability Company       |       | Incorporated by  reference to Exhibit 10(u) from the Company’s Registration  Statement on Form  S-1 (File No. 33-83868), declared effective November 23, 1994.       |
|              |       |                                                                                             |       |                                                                                                                                                                                          |
| 10.2              |       | Form of  Member Control Agreement between Registrant and ProGold Limited Liability  Company |       | Incorporated by  reference to Exhibit 10(v) from the Company’s Registration  Statement on Form  S-1 (File No. 33-83868), declared effective November 23, 1994.       |
|              |       |                                                                                             |       |                                                                                                                                                                                          |
| 10.3              |       | Registrant’s Senior Note Purchase Agreement                                                 |       | Incorporated by  reference to Exhibit 10.24 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 1999                                             |
|              |       |                                                                                             |       |                                                                                                                                                                                          |
| 10.4              |       | Registrant’s Senior Note Inter-creditor and Collateral Agency Agreement                     |       | Incorporated by  reference to Exhibit 10.25 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 1999                                             |

 

E-1

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| 10.5    |   | Registrant’s Senior Note Restated Mortgage and Security Agreement                                                         |   | Incorporated by  reference to Exhibit 10.26 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 1999  |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                           |   |                                                                                                                                               |
| ++10.6  |   | Employment  Agreement between the Registrant and James J. Horvath                                                              |   | Incorporated by  reference to Exhibit 10.28 from the Company’s Annual Report on  Form 10-K form the year ended August 31, 1999 |
|    |   |                                                                                                                           |   |                                                                                                                                               |
| ++10.7  |   | Board of  Directors Deferred Compensation Plan, dated June 30, 1994                                                       |   | Incorporated by  reference to Exhibit 10.29 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2000  |
|    |   |                                                                                                                           |   |                                                                                                                                               |
| ++10.8  |   | 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  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              |
|    |   |                                                                                                                           |   |                                                                                                                                               |
| 10.10   |   | 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              |
|    |   |                                                                                                                           |   |                                                                                                                                               |
| 10.11   |   | 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              |
|    |   |                                                                                                                           |   |                                                                                                                                               |
| 10.12   |   | 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  |
|    |   |                                                                                                                           |   |                                                                                                                                               |
| ++10.13 |   | 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                               |

 

E-2

----

 
| ++10.14 |   | 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 |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.15   |   | 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 |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.16   |   | 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.            |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| ++10.17 |   | 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.            |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.18   |   | Third Amendment to Amended and Restated Loan Agreement between the  Registrant and CoBank, ACB dated April 2, 2007.                            |   | Incorporated by  reference to Exhibit 10.22 from the Company’s Form 10-Q for the  quarter ended May 31, 2007                  |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.19   |   | 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 |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.20   |   | 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 |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.21   |   | 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             |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.22   |   | Amended and  Restated Uniform Member Sugar Marketing Agreement between the Registrant and  United Sugars Corporation dated September 20, 2007. |   | Filed herewith  electronically                                                                                                                    |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.23   |   | Fifth Amendment to Amended and Restated Loan Agreement between the  Registrant and CoBank, ACB dated July 23, 2008.                            |   | Filed herewith  electronically                                                                                                                    |

 

E-3

----

 
| 21.1   |   | List of  Subsidiaries of the Registrant                                            |   | Filed herewith  electronically        |
|--------|--------|------------------------------------------------------------------------------------|--------|---------------------------------------|
|   |   |                                                                               |   |                                  |
| 31.1   |   | Rule 13a-14(a)/15(d)-14(a) Certification  of the Chief Executive Officer |   | Accompanying  herewith electronically |
|   |   |                                                                               |   |                                  |
| 31.2   |   | Rule 13a-14(a)/15(d)-14(a) Certification  of the Chief Financial Officer |   | Accompanying  herewith electronically |
|   |   |                                                                               |   |                                  |
| 32.1   |   | Section 1350  Certification of the Chief Executive Officer                    |   | Accompanying  herewith electronically |
|   |   |                                                                               |   |                                  |
| 32.2   |   | Section 1350  Certification of the Chief Financial Officer                    |   | Accompanying  herewith electronically |

 

----

+              Confidential treatment under Rule 24b-2of the Securities and Exchange Act of 1934, as amended, has been granted withrespect to designated portions of this document.

 

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

 

E-4

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