**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K**

 

**x  Annual Report Pursuant to Section 13 or15(d) of the Securities Exchange Act of 1934**

 

**For the fiscal year ended August 31, 2010**

** **

**or**

 

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

 

----

 

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

 

----

 

**AMERICAN CRYSTAL SUGAR COMPANY**

(Exact name of registrant as 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 registered pursuant to Section 12(b) of the Act:

**NONE**

 

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

**NONE**

 

----

 

Indicateby check mark if the registrant is a well known seasoned issuer, as defined in Rule 405of the Securities Act. Yes o  No x

 

----

 

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

 

----

 

Indicateby check mark whether the Registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x  No o

 

----

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  YES o  NO o

 

----

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. x

 

----

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act.  (Check one)

 

| Large  accelerated filer o |   | Accelerated  filer o         |
|----------------------------|--------|-----------------------------------|
|                       |   |                              |
| Non-accelerated  filer x   |   | Smaller  reporting company o |

 

----

 

Indicateby check mark whether the registrant is a shell company (as defined in rule 12b-2of the Act). Yes o  No x

 

----

 

Asof October 28, 2010, 2,768 shares of the Registrant’s Common Stock and498,570 shares of the Registrant’s Preferred Stock were outstanding.  There is no established public market for theRegistrant’s Common Stock or Preferred Stock. Although there is a limited, private market for shares of the Registrant’sstock, the Registrant does not obtain information regarding the transfer pricein transactions between its members and therefore is unable to estimate theaggregate market value of the Registrant’s shares held by non-affiliates.

 

**DOCUMENTS INCORPORATED BYREFERENCE**

NONE

 

 

 

----

**PART I**

 

*This report contains forward-looking statements and information basedupon assumptions by American Crystal Sugar Company’s management, includingassumptions about risks and uncertainties faced by the Company.  These forward-looking statements can beidentified by the use of forward-looking terminology such as “expects”, “believes”,“will” or similar verbs or expressions. If any of management’s assumptions prove incorrect or shouldunanticipated circumstances arise, the Company’s actual results couldmaterially 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**

 

TheCompany is a Minnesota 308A agricultural cooperative corporation owned byapproximately 2,800 sugarbeet growers in the Minnesota and North Dakotaportions of the Red River Valley.  TheRed River Valley forms a band approximately 35 miles wide on either side of theNorth Dakota and Minnesota border and extending approximately 200 miles southfrom the border of the United States and Canada.  The Company was organized in 1973 bysugarbeet growers to acquire the business and assets of the American CrystalSugar Company, then a publicly held New Jersey corporation in operation since1899.  By owning and operating fivesugarbeet processing facilities in the Red River Valley, the Company providesits shareholders 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’s Board of Directorsestablishes sugarbeet acreage planting requirements in the Red River Valley(the Red River Valley crop) each year based on factory processing capacity,expected crop quality, government regulations and other factors.  The total authorized acres to be planted areallocated ratably to each preferred share held by the members.  The Company processed sugarbeets fromapproximately 442,000 acres for the 2009 Red River Valley crop and expects toprocess sugarbeets from approximately 415,000 acres for the 2010 Red RiverValley crop.

 

TheCompany, through its wholly-owned subsidiary, Sidney Sugars Incorporated(Sidney Sugars), owns two additional sugarbeet processing facilities.  At the Sidney, Montana, facility, the Companyprocessed non-member sugarbeets from approximately 25,000 acres for the 2009 cropand expects to process from approximately 31,000 acres for the 2010 crop.  The Torrington, Wyoming, facility has beenleased on a long-term basis to another sugar producer.

 

The Company, through its wholly-owned subsidiary, CrabCreek Sugar Company (Crab Creek), controls the long-term production of sugar ata sugarbeet processing facility at Moses Lake, Washington.  Neither Crab Creek nor the Company currentlyoperates or intends to operate the Moses Lake facility.

 

TheCompany is the controlling member of ProGold Limited Liability Company (ProGold),which owns a corn wet-milling plant in Wahpeton, North Dakota, that iscurrently being leased to Cargill, Incorporated (Cargill) pursuant to a 10year lease between ProGold and Cargill that runs through December 31,2017. The lease provides that Cargill pay ProGold average annual rentalpayments equal to $21,900,000.

 

2

----

 

TheCompany’s sugar marketing agent, United Sugars Corporation (United), is acooperative owned by the Company, Minn-Dak Farmers Cooperative and UnitedStates Sugar Corporation.  The Company’sagri-products are marketed through a marketing agent, Midwest Agri-CommoditiesCompany (Midwest).  Midwest is acooperative owned by the Company, Minn-Dak Farmers Cooperative, Southern MinnesotaBeet Sugar Cooperative and Michigan Sugar Company.

 

**Operating Segments**

 

TheCompany has identified two reportable operating segments: Sugar andLeasing.  The Sugar segment is engagedprimarily in the production 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 engaged primarily in the production and marketing ofsugar from sugarbeets.  Total sugar salesaccounted for 88.1 percent, 85.6 percent and 87.1 percent of the Company’sconsolidated total revenues for the years ended August 31, 2010, 2009 and2008, respectively.  United SugarsCorporation, the Company’s sugar marketing agent, sells sugar primarily toindustrial users such as confectioners, breakfast cereal manufacturers andbakeries.  For the fiscal year endedAugust 31, 2010, 86.4 percent (by weight) of the sugar was sold toindustrial users.  The remaining portionis marketed by United Sugars Corporation to wholesalers and retailers under the“Crystal Sugar” and various private labels for household consumption.  With regard to brand name sales, the Companylicenses the use of the “Crystal Sugar” trademark to United Sugars Corporation.

 

Themajority of United Sugars Corporation’s sugar sales are contracted one or morequarters in advance.

 

The Company also sells agri-products such as: molasses; sugarbeet pulp;betaine and concentrated separated by-product (CSB), by-products of themolasses desugarization process; and sugarbeet seed.  Substantially all of the Company’sagri-products are marketed through Midwest Agri-Commodities Company, a commonmarketing agency.  Sugarbeet pulp ismarketed to livestock feed mixers and livestock feeders in the United Statesand foreign markets.  A large proportionof the Company’s pulp production is exported to Japan and Europe.  The market for sugarbeet pulp is affected bythe availability and quality of competitive feedstuffs and foreign exchangerates.  Sugarbeet molasses is marketedprimarily to yeast manufacturers, livestock feed mixers and livestock feeders.  Total agri-product sales accounted for 8.7percent of the Company’s consolidated total revenues during fiscal 2010, ofwhich export agri-product sales accounted for 3.8 percent of suchrevenues.  Agri-products sales accountedfor 10.4 percent and 9.9 percent of the Company’s consolidated total revenuesin fiscal 2009 and fiscal 2008, respectively, while agri-product export salesaccounted for 4.8 percent and 4.4 percent of the Company’s total revenues infiscal 2009 and fiscal 2008, respectively.

 

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

 

The Company’s total annual sugar and agri-product production isinfluenced by the amount and the quality of sugarbeets grown by its members andnon-members, the processing capacity of the Company’s plants, by its ability tostore harvested sugarbeets and by government programs and regulations.

 

3

----

 

**Raw Materials**

 

The Company purchases all of its Red River Valley sugarbeets frommembers under contract with the Company. All members are party to a five year contract for the 2008 through 2012crop years which will automatically renew for additional five-year terms unlessterminated 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 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’s Board of Directors set the planting tolerance for the 2010crop year at .80 to .85 acres per share of preferred stock.  Based on current market conditions andprocessing capacity, the Company estimates planting tolerances for the 2011crop year and beyond will be in the range of .80 to .85 acres per PreferredShare.  The Board of Directors and management regularly review and determine therelationship between the ownership of Preferred Stock and acreage planting.

 

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

 

Underthe grower contracts, payments to members for sugarbeets must be made in atleast three installments: (i) on or about November 15, the Companypays its members an amount equal to 65 percent of the Company’s estimate of themember’s net beet payment; (ii) on or about March 31, the Companypays an amount, which combined with the November payment, equals 90percent of the member’s estimated net beet payment; (iii) and not morethan 15 days after completion and acceptance of the audit of the Company’sannual consolidated financial statements by the Board of Directors, the Companypays the remainder of the member’s net beet payment.  Except for unit retains, the Company must payto its members for their sugarbeets all proceeds from the sale of the members’sugar and agri-products in excess of related member business operating costs,as described above.

 

Allof the sugarbeets processed at the Sidney, Montana, factory are purchased fromnon-member growers under contract with Sidney Sugars.  Each non-member grower has an annual contractwith Sidney Sugars specifying the number of acres the non-member grower is obligatedto grow during each year.

 

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

 

Undergrower contracts between Sidney Sugars and its growers, payments to thesegrowers for sugarbeets must be made in three installments following delivery ofthe crop: (i) in November, Sidney Sugars pays the growers an amount equalto 65 percent of the estimated Scale Payment for that year’s crop; (ii) inApril, Sidney Sugars pays an amount, which combined with theNovember payment, equals 90 percent of the estimated Scale Payment forthat year’s crop; (iii) and in October, Sidney Sugars pays the remainderof the actual Scale Payment.

 

4

----

 

**Seasonality**

 

The period during which the Company’s plants are inoperation to process sugarbeets into sugar and agri-products is referred to asthe “campaign.”  During the campaign, theCompany’s factories operate twenty-four hours per day, seven days perweek.  In the Red River Valley, thecampaign typically begins in September and continues until the availablesupply of sugarbeets has been depleted, which generally occurs in May ofthe following year.  Based on currentprocessing capacity, an average campaign lasts approximately 250 days, assumingnormal crop yields.  At the Sidney,Montana factory, the campaign begins in late September or earlyOctober.  The 2010 campaign lasted 111days.

 

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

 

**Sales Backlog**

 

The backlog of any unfilled sales orders at August 31,2010 and 2009 was not material to the Company.

 

**Market and Competition**

 

CurrentUnited States government statistics estimate total United States refined sugardeliveries at approximately 204 million hundredweight for the yearbeginning October 1, 2009 and ending September 30, 2010.  For the same period endingSeptember 2009, total deliveries were approximately 198 millionhundredweight.  Comparing the two yearsshows an increase in demand of approximately three percent.

 

TheUnited States refined sugar market has grown less than one percent per yearover the last ten years.  Corn sweetenersand non-nutritive sweeteners also constitute a large portion of the overall sweetenermarket.  The Company believes that theUnited States annual market growth for sugar in the near future willapproximate that of the last ten years.

 

TheUnited States sugar industry has been subject to industry consolidation.  Today, there are fewer than 10 sugar sellers,****with approximately 72 percent of United States sugar marketshare concentrated in the top three sellers. The Company’s sugar production and sales represent approximately 14percent of the total domestic market for refined sugar in 2009/2010.  The Company had the right to market, or tohave marketed on its behalf, approximately 32 million hundredweight of sugarfrom the 2009 crop.  Sugar sales byUnited Sugars Corporation, the Company’s marketing agent, representapproximately 24 percent of the United States sugar market.

 

Unitedis currently the second largest marketer of sugar in the United States. Maincompetitors in the domestic market are: The American Sugar Refining Company;Imperial Sugar Company; Cargill, Incorporated; The Amalgamated SugarCompany LLC; Michigan Sugar Company; and The Western 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 andRegulations**

 

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

 

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

 

5

----

 

·                  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.

 

Underthe Farm Bill, sugar processors can borrow funds on a non-recourse basis fromthe Commodity Credit Corporation (CCC), with repayment of such funds secured bysugar.  If the price of sugar drops belowthe forfeiture price, the processors can forfeit the sugar securing the loansto the CCC in lieu of repayment. Processors may also obtain CCC loans for “in-process” sugar or syrups at80 percent of the loan rate.

 

TheFarm Bill incorporates gradual loan rate increases for raw and refinedsugar.  For raw sugar, the loan rateincreases three-quarters of a cent per pound, raw value, phased-in inquarter-cent increments over crop years 2009-2011.  Raw cane loan rates were at 18.25 cents/lbfor the 2009 crop and will gradually rise to 18.75 cents by 2011, and they willremain at 18.75 cents/lb for the 2012 crop year.  Refined beet sugar loan rates were set at23.45 cents/lb for the 2009 crop and are set at a rate equal to 128.5 percentof the loan rate per pound for raw cane sugar for each of the 2010 through 2012crop years.

 

TheU.S. Department of Agriculture (USDA) has historically maintained raw andrefined sugar prices above the forfeiture price without cost to the U.S.Treasury by regulating the supply of sugar in the U.S. market throughmanagement of a tariff rate quota system. Currently, forty exporting countries retain guaranteed preferentialaccess to the U.S. market under World Trade Organization (WTO) and Free TradeAgreement (FTA) rules.  Mexico’s accesshas been unlimited since January 1, 2008. The Farm Bill sets a minimum overall allotment quantity for U.S.producers at no less than 85% of domestic human consumption and provides a marketbalancing mechanism if there is an oversupply in the domestic sugarmarket.  If the Secretary of Agriculturedetermines there is an oversupply of sugar, the new market balancing mechanismrequires the Secretary to divert the excess sugar from sugar producers toethanol producers while minimizing the cost to the U.S Treasury.  No sugar has been diverted under this marketbalancing mechanism.

 

Themarketing allotments and allocations set forth under the Farm Bill affect thesugar produced from the 2008 crop through the 2012 crop.  On an annual basis, the marketing allotmentsand the corresponding allocation to the Company will dictate the amount ofsugar the Company can sell into the domestic market.  The Company’s marketing allocation for the2009 crop was set at approximately 32 million hundredweight.  The Company’s marketing allocation for the2010 crop is currently set at approximately 34 million hundredweight. TheCompany’s allocation may decrease or increase the amount of sugar the Companycan market for a given year, thus affecting the number of acres of sugarbeetsrequired for processing to produce that amount of sugar.

 

**North American Free TradeAgreement**

 

TheNorth American Free Trade Agreement (NAFTA) governs sweetener trade between theUnited States and Mexico.  Under the NAFTA, tariffs on over-quota importsof sugar from and exports of sugar to Mexico expired on January 1,2008.  Imports of Mexican sugar could cause material harm to theUnited States sugar market.  During the years ended September 30,2010, 2009 and 2008, Mexico 

 

6

----

 

exportedapproximately 14 million, 26 million and 13 million hundredweight of sugar intothe United States, respectively.  TheCompany has no way to predict the extent to which Mexico will take advantage ofits export opportunities*.*

 

**Regional and Bilateral Free TradeAgreements**

 

TheUnited States government may continue to pursue international tradeagreements.  The Company monitors theU.S. government’s international trade policy because it may lead to additionalcommitments to import sugar into the U.S. market.  Some of the countries who have eitherparticipated in trade agreements or are contemplated for new negotiations aremajor producers of sugar.  The primaryagreements affecting sugar that are completed or are being negotiated, to theCompany’s knowledge, include the Colombian Free Trade Agreement, Panama FreeTrade Agreement, the Trans-Pacific Free Trade Agreement, the Association ofSoutheast Asian Nations, South Africa, Thailand, and others.  The Company believes these agreements, ifthey reach fruition, could negatively impact the Company’s profitability.  If increases in guaranteed access orreductions in sugar tariffs are included in these agreements, excess sugar fromthese regions could enter the U.S. market and reduce domestic sugar prices.

 

ThePeru Free Trade Agreement became effective on February 1, 2009.  Under this agreement, sugar trade with Peruis subject to a net surplus producer requirement.  Peru, typically a net importer, is unlikelyto meet that requirement most years.

 

Negotiationshave been completed on the U.S.-Colombian Free Trade Agreement and theU.S.-Panama Free Trade Agreement but they have not been ratified by the U.S.Congress.  The U.S.-Colombian Free TradeAgreement would allow Colombia to export into the U.S. an additional 1.0million cwt of sugar above its traditional WTO level of 521,000 cwt.  The U.S.-Panama Free Trade Agreement wouldallow Panama to export into the U.S. an additional 144,000 cwt of sugar aboveits traditional WTO level of 629,000 cwt. The Company does not know when thesetrade agreements will be brought before Congress for a vote.

 

TheDoha Round negotiations of the WTO may be pursued by the U.S. Administration andsome of its international counterparts. It is unclear 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.

 

TheU.S. sugar industry and the Company, as an influential member of such industry,recognize the potential negative impact that could result if these agreementsare entered into by the United States and are taking steps to attempt topositively influence the outcome.  TheCompany and the sugar industry intend to continue to focus significantattention on trade issues in the future.

 

Theimpact of the various trade agreements on the Company cannot be assessed atthis time due to the uncertainty concerning the terms of the agreements andwhether they will ultimately be implemented. It is possible, however, that the passage of various trade agreementscould have a material adverse effect on the Company through a reduction insugar selling prices, and a corresponding reduction in the beet payment to itsshareholders.

 

**Employees**

 

Asof October 15, 2010, the Company had****1,361 full-time employees, of which1,103 were hourly and 258 were salaried. The Company had 16 part-time employees. In addition, the Company 

 

7

----

 

employsapproximately 874 hourly seasonal workers, approximately 373 during thesugarbeet harvest and approximately 501 during the remainder of the sugarbeetprocessing campaign. ** **During the sugarbeet harvest, theCompany also contracts with third party agencies for approximately another1,300 additional workers.

 

Substantiallyall of the hourly employees at the Company’s factories, including full-time andseasonal employees, are represented by the Bakery, Confectionery, TobaccoWorkers and Grain Millers (BCTGM) AFL-CIO, and are covered by collectivebargaining agreements expiring July 31, 2011 for the Red River Valleyfactory employees and April 30, 2012 for the Sidney, Montana, factoryemployees.  Office, clerical andmanagement employees are not unionized, except for certain office employees atthe Moorhead and Crookston, Minnesota, and Hillsboro, North Dakota, factorieswho are covered by the collective bargaining agreement with the BCTGM.  The Company considers its employee relationsto be good.

 

**Environmental Matters**

 

TheCompany is subject to extensive federal and state environmental laws andregulations with respect to water and air quality, solid waste disposal andodor and noise control.  The Company conductsan ongoing compliance program designed to meet these environmental laws andregulations.  The Company believes thatit is in substantial compliance with applicable environmental laws andregulations.  From time to time, however,the Company may be involved in investigations or determinations regardingmatters that may arise in the ordinary course of business.  The Company works closely with all affectedgovernment agencies to resolve environmental issues that have arisen andbelieves such issues will be resolved without any material adverse effect onthe Company.

 

TheCompany’s sugar manufacturing process is energy intensive and generates carbondioxide and other “Greenhouse Gases” (GHGs). Several bills have been passed or introduced in the United States Senateand House of Representatives that would regulate GHGs and carbon dioxideemissions to reduce the impact of global climate change.  The Company believes it is likely thatindustries generating GHGs, including the Company, will be subject to eitherfederal or state regulation relating to climate change policies in therelatively near future.  These policies,if adopted, will increase the Company’s energy and other operating costs.  Depending on how these policies addressimports, the domestic sugar market may have a competitive disadvantage comparedwith imported sugar.  These policiescould have a significant negative impact on the Company’s beet payment toshareholders if the Company is not able to pass the increased costs on to theCompany’s customers.

 

On June 26, 2009, the House of Representativespassed H.R. 2454, the American Clean Energy and Security Act (ACES), a billthat would place a cap on GHGemissions.  Similar legislation is being considered in the U.S.Senate.  Separately, the Environmental Protection Agency (EPA) finalizedfindings that GHG emissions endanger public health and welfare through theirimpact on climate change, and that motor vehicles “cause or contribute” todangerous GHG pollution.  The findings, which respond to the Supreme Court’s2007 decision in *Massachusetts v. EPA*,legally obligates the EPA to issue GHG standards for motor vehicles under theClean Air Act and supports the EPA’s effort to use existing legal authority toregulate GHGs.  As an emitter of GHGs covered by ACES, the Company iswatching legislative and regulatory developments carefully yet cannot predictwhether new proposed laws or regulations will have a material impact on theCompany.

 

OnNovember 25, 2008, the Company entered into a stipulation agreement withthe Minnesota Pollution Control Agency (MPCA) related to hydrogen sulfideemissions from its Crookston, East Grand Forks and Moorhead, Minnesotafactories.  As part of the stipulationagreement, the Company has agreed to make certain capital expenditures over thesubsequent three years and implement specified 

 

8

----

 

changesin operating procedures to contain hydrogen sulfide emissions at the Minnesotafactories. The Company is on schedule with the agreed to changes.

 

OnSeptember 7, 2010, the Company entered into an Administrative ConsentAgreement with the North Dakota Department of Health related to pulp dryeremissions at the Hillsboro, North Dakota factory. As part of the AdministrativeConsent Agreement, the Company agreed to pay a penalty of $103,181, which wasrecognized in fiscal 2010.

 

Includingthe expenditures related to the MPCA stipulation agreement, the Company hasidentified capital expenditures for environmental related projects over thenext three years at the Company’s factory locations of approximately $18.5million.

 

**Available Information**

 

TheCompany’s corporate headquarters are located at 101 North Third Street,Moorhead, Minnesota 56560, telephone number (218) 236-4400.  The Company’s fiscal year endsAugust 31.  The Company’s website iswww.crystalsugar.com.  The Company filesannual, quarterly and periodic reports with the United States Securities andExchange Commission (SEC).  These reportscan be accessed by selecting “Links” on the Company’s website or electronic orpaper copies can be obtained free of charge upon request.  In addition, the Company’s reports may beread or copied at the SEC Public Reference Room at 100 F. Street, N.E.,Washington, D.C. 20549.  The public mayobtain information on the operation of the Public Reference Room bycalling the SEC at 1-800-SEC-0330.  TheSEC maintains an Internet site at http://www.sec.gov that contains reports andother information filed electronically about the Company.

 

**Item 1A.                 RISKFACTORS**

 

Therisks described below together with all of the other information included inthis Annual Report on Form 10-K should be considered carefully.  The risks and uncertainties described belowand elsewhere in this Annual Report on Form 10-K are not the only ones weface.  If any of the following risksactually occur, our business, financial condition or results of operationswould likely suffer.  In that case, thebeet payments made to our members may decrease, the value of our PreferredStock could fall, and a member could lose all or part of their investment.

 

**Risingoperating expenses might inhibit our ability to compete effectively in ourindustry.**

 

OurCompany operates in a commodity market environment.  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 realigning andstreamlining our operations and optimizing the efficiency of our productionfacilities.  We cannot assure that ourefforts will result in our continued or increased profitability.

 

**Anoversupply of sugar could reduce the price of sugar and our profitability.**

 

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.

 

9

----

 

Underthe current terms of the NAFTA and other government regulations, imports ofsugar from Mexico may enter the U.S. market. These imports could oversupply the U.S. market and reduce the price ofsugar.

 

TheUnited States government has been engaged in regional and bilateral tradenegotiations with countries that produce sugar. If the United States government enters into bilateral trade agreementswith sugar producing countries, the amount of sugar in the domestic sugarmarket could increase.  An increase inthe supply of sugar could reduce the price of sugar, which would reduce ourprofitability.

 

**The success or failure of ourbusiness is linked to certain government programs, regulations and legislationthat may change in the future.**

 

Thenature and scope of future legislation and regulation affecting the sugarmarket and industry cannot be predicted. The current price supports and market protections for sugar in place maynot continue in their present forms.  Ifthe price support programs were eliminated in their entirety, or if certainprotections the federal government provides from foreign competitors werematerially reduced, the amount of sugar we can sell, the amount of sugarbeetswe can process and the price for which we can sell our sugar may be impacted,which could reduce the profitability of our business.  If legislation or government programs change,we may not be able to adopt strategies that would allow us to competeeffectively in a greatly changed domestic market for sugar and the adverseeffects could negatively impact the desirability of growing sugarbeets fordelivery to us for processing, our financial results, and our continuedviability.

 

**If weare unable to compete in the sweetener market, our operating results maysuffer.**

 

Sugaris a fungible commodity with competition for sales volume based primarily uponprice, customer service and reliability. The overall sweetener market, in addition to sugar, includes corn-basedsweeteners, such as regular and high fructose corn syrups, and non-nutritive,high-intensity sweeteners such as aspartame. Differences in functional properties and prices have tended to definethe use of these various sweeteners. Although the various sweeteners are not interchangeable in allapplications, the substitution of other sweeteners for sugar has occurred in certainproducts, such as soft drinks.  We cannotpredict the availability, development or potential use of these and otheralternative sweeteners and their possible impact on us or our members.  We believe that we possess the ability tocompete successfully with other producers of sugar in the United States.  In spite of this competitive advantage,substitute products could reduce the demand for sugar which could lower theprice of sugar, resulting in reduced profitability in the future.

 

OurBoard of Directors authorized the planting of Roundup Ready® sugarbeetsbeginning with the 2008 crop.  Sugar andagri-products produced from Roundup Ready® sugarbeets have received regulatoryapproval in most of the countries in which we have direct or indirect sales ofour products.  While the sale of sugarand agri-products from Roundup Ready® sugarbeet seed has been approved in mostmarkets, marketing risks still exist. United Sugars Corporation and Midwest Agri-Commodities, our sugar andagri-product marketing agents, respectively, feel they can successfully selland distribute products from Roundup Ready® sugarbeets with minimal affect onour revenue.  However, customers’ viewson the use of products from biotechnology derived crops such as Roundup Ready®sugarbeets may change over time which could negatively impact ourprofitability.

 

**Ouroperations are sensitive to energy prices.**

 

Theprices we pay for energy related products, such as natural gas, coal, coke anddiesel fuel, have been volatile and may continue to be volatile.  We use substantial amounts of these productsin our manufacturing process.  We believethat the prices for these energy related products will continue to be

 

10

----

 

volatileand higher than historical levels. Higher energy prices may also increase the costs of many goods andservices we acquire.  These higher pricesmay materially increase our cost of production, thus reducing ourprofitability.

 

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

 

Thesugarbeet, as with most other crops, is affected by many factors, includingseed varieties and weather conditions during the growing season.  Additionally, the quantity of sugarbeets tobe processed and weather conditions during the processing season affect ourability to store sugarbeets held for processing.  Growing and storage conditions different fromwhat we predict or expect may change the quantity and quality of sugarbeetsavailable for processing and therefore may affect the quantity of the sugar weproduce.

 

Asignificant decrease in the quantity or quality of sugarbeets harvested due topoor weather conditions would result in higher unit operating costs and lowerearnings.

 

Asignificant increase in the quantity or quality of sugarbeets harvested due togood weather conditions or improved seed varieties could result in anunpredictably large quantity of sugarbeets to be processed.  If we are required to process a larger thananticipated quantity of sugarbeets we may experience increased per unit ofsugar processing cost which in turn would have an adverse financial consequenceto us and our members.

 

In order to manage the quantity and quality of sugarbeets that areharvested or available for processing, our Grower Contract allows for areduction in the number of acres to be planted at the beginning of a crop year orharvested at the end of a crop year.

 

Adequate sugarbeet storage conditions during a processing campaign arecritical to ensure that the quantity and quality of sugarbeets available forprocessing are maintained.  If we are notable to obtain or maintain adequate storage conditions, the sugarbeets storedfor processing at a later date may deteriorate, resulting in increasedproduction costs, and decreased production which in turn would have an adversefinancial consequence to us and our members.

 

Basedon results of recent yield trials and crop results, we expect that newsugarbeet varieties may continue to result in increases in the averagesugarbeet crop yields over the next five years. As a result, we anticipate that there may continue to be a need toreduce the number of acres of sugarbeets that can be planted by eachshareholder in order to match the sugarbeet crop volume to our processing andmarketing capacity.  This reduction, ifnecessary, would be accomplished by reducing the per share planting toleranceby 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 sugarbeetvarieties would allow shareholders to deliver substantially the same number oftons of sugarbeets to us from fewer acres. Individual shareholder profitability will continue to depend on thecircumstances unique to each shareholder.

 

OnSeptember 21, 2009 the U.S. District Court (District Court) ruled againstthe USDA finding that the USDA violated federal law by failing to prepare anEnvironmental Impact Statement (EIS) before deregulating Roundup Ready®sugarbeets.  On January 19, 2010, a motion was filed in Federal Courtseeking a preliminary injunction to halt the planting and processing of RoundupReady® sugarbeets for both the seed and root crops.  On March 16,2010, the U.S. District Court denied the plaintiffs’ request for thepreliminary injunction.

 

11

----

 

Followingthe August 13, 2010 District Court hearing on interim remedies, theDistrict Court issued a ruling confirming the ability of the shareholders toharvest the 2010 root crop even though it was produced primarily from RoundupReady® sugarbeet seed.  In addition, theDistrict Court immediately vacated the original decision by USDA to deregulatethe use of Roundup Ready® sugarbeet seed. As a result, the planting of Roundup Ready® sugarbeet seed after August 13,2010 is prohibited until further action is taken by USDA in accordance withapplicable law to allow planting of Roundup Ready® sugarbeet seed.  It is impractical to speculate on thelikelihood of the USDA taking action prior to the planting of the 2011sugarbeet crop.  Given the recent ruling,and the uncertain timing of USDA action, it is possible that the Company’sshareholders may not be able to plant Roundup Ready® sugarbeets in 2011.  The ability of shareholders to plant RoundupReady® sugarbeets in subsequent years will be determined as a final matterbased on the outcome of the EIS and further decision by USDA.  The number of years required to complete theEIS is uncertain.

 

Ifthe Company’s shareholders are not able to plant Roundup Ready® sugarbeets,conventional varieties would need to be utilized which could have a negativeimpact on our crop yields.  Chemicalmanufacturers have significantly reduced planned production of conventionalherbicides due to the rapid increase in planting of Roundup Ready®sugarbeets.  Weed control forconventional varieties could be difficult if there is an inadequate supply ofconventional herbicides.  While we aretaking precautionary measures, the risk of Roundup Ready® sugarbeetrestrictions still exists and the negative financial impact to us and ourmembers could be significant.

 

Ifwe are unable to manage the quantity and quality of sugarbeets available forprocessing, we could experience adverse financial consequences that wouldimpact both us and our members.

 

**Increasedprofitability of alternative crops could adversely affect the desirability ofgrowing sugarbeets.**

 

Theprices growers receive from crops other than sugarbeets could impact theirdecisions as to which crop to plant and how much to plant.  Higher prices and increased profitability foralternative crops could negatively impact the desirability of growing sugarbeetsfor delivery to us for processing, our financial results, and our continuedviability.

 

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

 

Weare subject to extensive federal and state environmental laws and regulationswith respect to water and air quality and solid waste disposal.  We conduct on-going programs designed to meetthese environmental laws and regulations. Changes in environmental laws or regulations or complying with existingenvironmental laws and regulations or enforcement action brought under suchenvironmental laws and regulations might increase the cost of operating ourfacilities or result in significant capital investment.  Any such changes or compliance costs couldreduce our profitability.

 

Oursugar manufacturing process is energy intensive and generates carbon dioxideand other “Greenhouse Gases” (GHGs). Several bills have been introduced in the United States Senate and Houseof Representatives that would regulate GHGs and carbon dioxide emissions toreduce the impact of global climate change. We believe it is likely that industries generating GHGs, including us,will be subject to either federal or state regulation under climate changepolicies in the relatively near future. These policies, if adopted, will increase our energy and other operatingcosts.  Depending on how these policiesaddress imports, the domestic sugar market may have a competitive disadvantagewith imported 

 

12

----

 

sugar.  These policies could have a significant negativeimpact on the beet payment to our shareholders if we are not able to pass theincreased costs on to our customers.

 

**HealthcareLegislation may impact our operations.**

 

InMarch 2010, the Patient Protection and Affordable Care Act (PPACA) and theHealth Care and Education Reconciliation Act which amends certain provisions ofthe PPACA were signed into law.  Webelieve healthcare costs could increase as a result of this legislation,negatively affecting our profitability.

 

**Item 1B.****                              ****UNRESOLVEDSTAFF COMMENTS**

 

None.

 

**Item 2.****                                       ****PROPERTYAND PROCESSING FACILITIES**

 

TheCompany operates five sugarbeet processing factories in the Red River Valleyand one in Sidney, Montana.  The Companyowns all of its factories and the land on which they are located.  The factories range in size from 150,000 to400,000 square feet.  These propertiesare used in the Company’s sugar segment. The location and processing capacityof the Company’s factories are:

 
| **Location**          | ** ** | **Approximate Daily Slicing Capacity  (Tons of Sugarbeets)** |
|-----------------------|------------|---------------------------------------------------------------------------------------|
|                  |       |                                                                                  |
| Crookston,  MN        |       | 5,950                                                                                 |
| East  Grand Forks, MN |       | 9,200                                                                                 |
| Moorhead,  MN         |       | 6,000                                                                                 |
| Drayton,  ND          |       | 6,850                                                                                 |
| Hillsboro,  ND        |       | 9,000                                                                                 |
| Sidney,  MT           |       | 6,400                                                                                 |

 

Eachof the processing factories includes the physical facilities and equipmentnecessary to process sugarbeets into sugar. Each factory has space for sugarbeet storage, including ventilatedstorage sites.  The Red River Valleyfactories also have cold storage facilities. Each of the Red River Valley factories is currently operating at or nearits capacity.  The Sidney, Montanafactory is currently operating at less than full capacity.  The Company owns molasses desugarization(MDS) plants at its East Grand Forks and Hillsboro facilities.  The MDS plants process molasses to extractadditional sugar.  The Company has sugarpackaging facilities located at the Moorhead, Hillsboro, Crookston, East GrandForks and Sidney factories.

 

TheCompany also owns a sugarbeet processing plant in Torrington, Wyoming.  The Torrington, Wyoming, facility is leasedon a long-term basis to another sugar company.

 

ProGoldowns a corn wet-milling plant in Wahpeton, North Dakota, which is currentlybeing leased to Cargill.  The cornwet-milling plant is capable of processing corn to produce high fructose cornsyrup and various agri-products.  Thisproperty is used in the Company’s leasing segment.  The 10 year lease between ProGold and Cargillruns through December 31, 2017 and provides that Cargill pay ProGoldaverage annual rental payments equal to $21,900,000.

 

TheCompany’s corporate office is located in a 30,000 square foot, two-story officebuilding in Moorhead, Minnesota.  TheCompany also has a 100,000 square foot Technical Services Center situated 

 

13

----

 

onapproximately 200 acres in Moorhead, Minnesota. The Company owns both facilities. The Company also owns numerous sites as sugarbeet receiving and storagestations located within proximity of their factories.  Substantially all non-current assets aremortgaged or pledged as collateral for its indebtedness to various financialinstitutions.

 

**Item 3.****                                       ****LEGALPROCEEDINGS**

 

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

 

OnSeptember 21, 2009 the U.S. District Court (District Court) ruled againstthe USDA finding that the USDA violated federal law by failing to prepare anEnvironmental Impact Statement (EIS) before deregulating Roundup Ready®sugarbeets.  On January 19, 2010, a motion was filed in Federal Courtseeking a preliminary injunction to halt the planting and processing of RoundupReady® sugarbeets for both the seed and root crops.  On March 16,2010, the U.S. District Court denied the plaintiffs’ request for thepreliminary injunction.

 

Followingthe August 13, 2010 District Court hearing on interim remedies, theDistrict Court issued a ruling confirming the ability of the shareholders toharvest the 2010 root crop even though it was produced primarily from RoundupReady® sugarbeet seed.  In addition, theDistrict Court immediately vacated the original decision by USDA to deregulatethe use of Roundup Ready® sugarbeet seed. As a result, the planting of Roundup Ready® sugarbeet seed after August 13,2010 is prohibited until further action is taken by USDA in accordance withapplicable law to allow planting of Roundup Ready® sugarbeet seed.  It is impractical to speculate on thelikelihood of the USDA taking action prior to the planting of the 2011sugarbeet crop.  Given the recent ruling,and the uncertain timing of USDA action, it is possible that the Company’sshareholders may not be able to plant Roundup Ready® sugarbeets in 2011.  The ability of shareholders to plant RoundupReady® sugarbeets in subsequent years will be determined as a final matterbased on the outcome of the EIS and further decision by USDA.  The number of years required to complete theEIS is uncertain.

 

**Item 4.****                                       ****(REMOVEDAND RESERVED)**

 

14

----

 

**PART II**

 

**Item 5.****                                       ****MARKETFOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES**

 

Asof August 31, 2010, the Company had 2,768 shares of the Common Stock and498,570 shares of the Preferred Stock issued and outstanding.  There is no established public market for theCompany’s Common Stock or Preferred Stock, as such shares may be held only byfarmer-producers who are eligible for membership in the Company.  The Company’s shares are not listed fortrading on any exchange or quotation system. Although transfers of the Company’s shares may occur only with theconsent of the Board of the Directors, the Company does not obtain informationregarding the transfer price in connection with such transfers.  As a result, the Company is not able toprovide information regarding the prices at which the Company’s shares havebeen transferred.

 

Becausethe number of acres of sugarbeets a member may grow for sale to the Company isdirectly related to the number of shares of Preferred Stock owned, a limited,private market for Preferred Stock exists. It is not anticipated that a general public market for the Company’sshares of Common Stock or Preferred Stock will develop due to the limitationson transfer and the various membership requirements which must be satisfied inorder to acquire such shares.

 

Amember desiring to sell his or her Common Stock or Preferred Stock must firstoffer them to the Company for purchase at par value.  If the Company declines to purchase suchshares, either class may be sold to a new member (i.e., another farm operatornot already a member) and Preferred Stock may be sold to one or more existingmembers or farm operators approved for membership, in each case subject toapproval by the Board of Directors.  Todate, the Company’s Board of Directors has not exercised the Company’s right offirst refusal to purchase preferred shares offered for sale by itsmembers.  Because the Company does notrequire parties seeking approval for transfers to provide information regardingthe transfer price, the Company does not possess verifiable informationregarding the transfer price involved in recent transfers of the Company’sPreferred Stock.

 

**Item 6.****                                       ****SELECTEDFINANCIAL DATA**

 

Theselected financial data of the Company should be read in conjunction with theconsolidated financial statements and related notes included in Appendix A ofthis report.

 
| ** **                                  | ** ** | **Fiscal Year Ended August 31,  (In Thousands, except for ratios)** | ** ** |
|---------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|
| ** **                                  | ** ** | **2010**                                                                                                    | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                        |       |                                                                                                        |       |   |   |   |   |   |   |   |   |
| Net Revenues                                |       | $                                                                                                           | 1,203,897  |   | $ | 1,200,229 |   | $ | 1,232,832 |   | $ | 1,222,857 |   | $ | 1,005,716 |   |
| Consolidated Net Proceeds (1)               |       | $                                                                                                           | 532,544    |   | $ | 542,254 |   | $ | 549,589 |   | $ | 607,028 |   | $ | 449,658 |   |
| Total Assets                                |       | $                                                                                                           | 787,678    |   | $ | 761,258 |   | $ | 813,299 |   | $ | 875,315 |   | $ | 839,997 |   |
| Long-Term Debt, Net of Current Maturities   |       | $                                                                                                           | 140,698    |   | $ | 143,073 |   | $ | 157,801 |   | $ | 157,974 |   | $ | 200,037 |   |
| Total Members’ Investments             |       | $                                                                                                           | 330,610    |   | $ | 339,528 |   | $ | 391,115 |   | $ | 395,620 |   | $ | 379,355 |   |
| Property and Equipment                      |       |                                                                                                        |       |   |   |   |   |   |   |   |   |
| Additions, net of retirements               |       | $                                                                                                           | 73,512     |   | $ | 47,687 |   | $ | 45,188 |   | $ | 63,032 |   | $ | 45,453 |   |
| Working Capital                             |       | $                                                                                                           | 54,057     |   | $ | 50,482 |   | $ | 57,775 |   | $ | 36,929 |   | $ | 58,214 |   |
| Ratio of Long-Term Debt to Total Equity (2) |       | .43:1                                                                                                       |       | .42:1 |   | .40:1 |   | .40:1 |   | .53:1 |   |

 

15

----

 
| ** **                        | ** ** | **Fiscal Year Ended August 31,  (In Thousands, except for Tons purchased per acre harvested  and Sugar content of sugarbeets)** | ** ** |
|-----------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Crop Data (3)**       | ** ** | **2010**                                                                                                                                                                                                        | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|                              |       |                                                                                                                                                                                                            |       |   |   |   |   |   |   |   |   |
| Acres harvested                   |       | 467                                                                                                                                                                                                             |       | 422 |   | 529 |   | 507 |   | 507 |   |
| Tons purchased                    |       | 10,501                                                                                                                                                                                                          |       | 10,707 |   | 12,465 |   | 12,845 |   | 9,628 |   |
| Tons purchased per acre harvested |       | 22.5                                                                                                                                                                                                            |       | 25.4 |   | 23.6 |   | 25.3 |   | 19.0 |   |
| Sugar Content of Sugarbeets       |       | 16.7                                                                                                                                                                                                            | %          | 17.6 | % | 18.1 | % | 18.2 | % | 18.0 | % |
| Sugar hundredweight               |       |                                                                                                                                                                                                            |       |   |   |   |   |   |   |   |   |
| Produced                          |       | 29,028                                                                                                                                                                                                          |       | 30,679 |   | 36,613 |   | 37,193 |   | 29,728 |   |
| Sold, including purchased sugar   |       | 30,370                                                                                                                                                                                                          |       | 32,870 |   | 36,879 |   | 35,243 |   | 29,691 |   |
| Purchased sugar sold              |       | 335                                                                                                                                                                                                             |       | 618 |   | 179 |   | 7 |   | 45 |   |
| Agri-Products tons                |       |                                                                                                                                                                                                            |       |   |   |   |   |   |   |   |   |
| Produced                          |       | 669                                                                                                                                                                                                             |       | 695 |   | 849 |   | 930 |   | 717 |   |
| Sold                              |       | 694                                                                                                                                                                                                             |       | 672 |   | 871 |   | 898 |   | 721 |   |

 

----

(1)Consolidated Net Proceeds are the Company’s gross revenues, including leaserevenue, less the costs and expenses of producing and marketing sugar,agri-products and sugarbeet seed, but before payments to members forsugarbeets.  (For a more completedescription of the calculation of the payment to members for sugarbeets, see “Item1.  Business — Raw Materials.”)

 

(2)Calculated by dividing the Company’s long term debt, exclusive of the currentmaturities of such debt, by total members’ investments.

 

(3)Information for a fiscal year relates to the crop planted and harvested in thepreceding calendar year (i.e., information for the fiscal year ended August 31,2010 relates to the crop of 2009).  Cropdata reflect the combined data of the Red River Valley crop and the Sidneycrop.

 

**Item 7.****                                       ****MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

*The following discussion of the financial conditions and results ofoperations of the Company should be read in conjunction with the Company’sconsolidated financial statements and notes thereto included in Appendix A ofthis report.*

 

**Liquidity and Capital Resources**

 

Underthe Company’s Bylaws and Member Grower Contracts, payments for member-deliveredsugarbeets, the principal raw material used in producing the sugar andagri-products it sells, are subordinated to all member business expenses.  In addition, the beet payments made to membergrowers and non-member growers are paid in three payments over the course of ayear, and the member payments are made net of any anticipated unit retain forthe crop.  These procedures have the effectof providing the Company with an additional source of short-term capital.

 

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

 

16

----

 

Duringthe recent national economic downturn and financial market instability, theCompany, due to its strong financial position and relationships with itslenders, has continued to secure the necessary financing for its workingcapital requirements and capital expenditures.

 

TheCompany has a seasonal line of credit through July 30, 2012, with aconsortium of lenders led by CoBank, ACB of $320.0 million, against whichthere was no outstanding balance as of August 31, 2010 and a line ofcredit with Wells Fargo Bank for $1.0 million, against which there was nooutstanding balance as of August 31, 2010. The Company’s commercial paper program provides short-term borrowings ofup to $320 million of which approximately $5.0 million was outstanding as of August 31,2010.  The Company had $3.0 million ofshort-term letters of credit outstanding as of August 31, 2010.  Any borrowings under the commercial paperprogram along with outstanding short-term letters of credit will act to reducethe available credit under the CoBank, ACB seasonal line of credit by acommensurate amount.  The unusedshort-term line of credit as of August 31, 2010, was $313.0 million. TheCompany is currently seeking an increase in the seasonal line of credit withthe consortium of lenders led by CoBank, ACB in anticipation of the fundsrequired for the final 2009 crop net beet payment and the initial 2010 cropestimated net beet payment which will be issued in November.  The Company expects to complete the amended seasonalline of credit agreement in early November.

 

Underthe Farm Bill, the Company can borrow funds on a non-recourse basis from theCCC, with repayment of such funds secured by sugar.  The Company did not utilize the CCC duringfiscal 2010.  The limitations on suchborrowings are based on the amount of the Company’s sugar inventory and certainloan covenant restrictions by CoBank, ACB. As of August 31, 2010, the Company had the capacity to obtainnon-recourse loans from the CCC of approximately $66.9 million.

 

TheCompany also has a long-term debt line of credit through July 30, 2015,with CoBank, ACB of****$132.1million, of which $21.3 million in loans and $69.9 million in long-term lettersof credit were outstanding as of August 31, 2010.  The unused long-term line of credit as of August 31,2010, was $40.9 million.  In addition,the Company had long-term debt outstanding, as of August 31, 2010, of$50 million from a private placement of Senior Notes that occurred in September of1998 and $69.8 million from five separate issuances of Pollution Controland Industrial Development Revenue Bonds.

 

TheCompany had outstanding purchase commitments totaling $23.2 million as of August 31,2010, for equipment and construction contracts related to various capitalprojects.

 

Asof August 31, 2010, Midwest had outstanding short-term debt with CoBank,ACB of $4.9 million, of which $2.3 million was guaranteed by the Company.

 

Thenet cash provided by operations was $159.4 million for the year ended August 31,2010, as compared to $72.1 million for the year ended August 31,2009.  This increase in the cash providedof $87.3 million was primarily the result of the following:

 

·                  Reflected in the change in the net cashprovided by operating activities is a net cash increase of $3.2 million fromthe prior year which was the result of a decrease in the member gross beetpayment of $13.2 million and increased revenue of $3.6 million partially offsetby increased costs of $12.1 million and decreased unit retains of $1.5 million.

·                  There was a net favorable change in assetsand liabilities of $84.1 million primarily comprised of the following:

·                  The decrease in cash usedrelated to the Amount Due Growers of $83.6 million was due to a reduction of$33.7 million in the final grower payments issued in fiscal 2010 for the 

 

17

----

 

previous year’s crop ascompared to the final grower payments issued in fiscal 2009. Also adding tothis favorable change was $49.9 million due to a larger increase this year ascompared to last year in the grower payments since the last payments were madeto the growers in March of each year partially offset by a lower currentyear’s total estimated grower payment due to a reduction in tons harvested.

·                  The decrease in cash usedrelated to changes in advances to related parties of $15.2 million wasprimarily due to the timing of the cash requirements of our marketing agents.

·                  The decrease in cash usedrelated to changes in other liabilities of $6.8 million and $4.8 million innon-current pension asset/liabilities is due to the timing of payments.

·                  The increase in cashprovided by receivables of $4.1 million is due to the timing of collections.

·                  These favorable changes incash were partially offset by an increase in cash used related to the change ininventories of $29.8 million which was primarily due to an increase in finishedproduct inventories as of August 31, 2010. Sugar and molasses on hand increased due primarily to early startup ofthe factories and an increased net realizable value per hundredweight of sugarand per ton of Betaine.  This increasewas partially offset by a decreased net realizable value per ton of molasses,pulp and CSB.

 

Thenet cash used in investing activities was $69.6 million for the year ended August 31,2010, as compared to $49.8 million for the year ended August 31,2009.  The increase of $19.8 million wasprimarily due to increased purchases of property and equipment of $22.7 millionpartially offset by a change in other assets of $1.5 million and an equitydistribution from CoBank, ACB in 2010 of $1.5 million.

 

Thenet cash used for financing activities was $89.8 million for the year ended August 31,2010, as compared to $22.3 million for the year ended August 31,2009.  This increase of $67.5 million wasprimarily due to increased payments on short-term debt of $71.7 million,decreased proceeds from long term debt of $100.0 million, partially offset bydecreased payments on long term debt of $96.2 million, increased distributionsto minority interest of $ .3 million and decreased payments of unit retains of$7.7 million.

 

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

 

The following table provides information regardingthe Company’s contractual obligations as of August 31, 2010:

 
| **(In Thousands)**           | ** ** | **Total** | ** ** | **Less than  One Year** | ** ** | **One to  Three Years** | ** ** | **Four to Five  Years** | ** ** | **After Five  Years** | ** ** |
|-----------------------------------|------------|-----------|------------|-----------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|----------------------------|------------|
| Long-Term Debt                    |       | $         | 141,073    |                              | $          | 375                               |       | $                                 | 13,345     |                       | $          | 14,943 |   | $ | 112,410 |   |
| Interest on Fixed Rate L-T  Debt  |       | 52,464    |       | 3,846                             |       | 11,422                            |       | 7,527                             |       | 29,669                     |       |
| Purchase Obligations              |       | 26,465    |       | 25,858                            |       | 495                               |       | 112                               |       | —                     |       |
| Operating Lease  Obligations      |       | 12,972    |       | 1,598                             |       | 4,143                             |       | 2,142                             |       | 5,089                      |       |
| Other Long-Term  Obligations(1)   |       | 89,684    |       | 6,169                             |       | 9,864                             |       | 6,761                             |       | 66,890                     |       |
| Pension Plan  Contributions(2)    |       | 10,000    |       | 10,000                            |       |                              |       |                              |       |                       |       |
|                              |       |      |       |                              |       |                              |       |                              |       |                       |       |
| **Total Contractual Obligations** |       | $         | 332,658    |                              | $          | 47,846                            |       | $                                 | 39,269     |                       | $          | 31,485 |   | $ | 214,058 |   |

 

----

(1)Accrued Employee benefits of $2.2 million with corresponding offsetting assetsand requiring no future payments have been excluded from the amountspresented.  Other Long-Term Liabilitiesof $2.5 million, which relate to deferred revenue also requiring no futurepayments, have also been excluded from the table.

 

18

----

 

(2)The Company expects to make contributions of approximately $10.0 million to thedefined benefit pension plans during the next fiscal year.  Contributions for future years are not knownat this time and therefore are not included in the above table.  The Company expects to make contributions inthe next fiscal year of approximately $99,000 related to Supplemental ExecutiveRetirement Plans.  This amount isreflected in Other Long-Term Obligations in the above table.

 

**CriticalAccounting Policies and Estimates**

 

Preparationof the Company’s consolidated financial statements requires estimates andjudgments to be made that affect the amounts of assets, liabilities, revenuesand expenses reported.  Such decisions include the selection of theappropriate accounting principles to be applied and the assumptions on which tobase accounting estimates.  Management continually evaluates theseestimates based on historical experience and other assumptions we believe to bereasonable under the circumstances.

 

Thedifficulty in applying these policies arises from the assumptions, estimatesand judgments that have to be made currently about matters that are inherentlyuncertain, such as future economic conditions, operating results and valuationsas well as management intentions.  As the difficulty increases, the levelof precision decreases, meaning that actual results can and probably will bedifferent from those currently estimated.

 

Estimatesare considered to 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:

 

*Inventory Valuation*

 

Sugar,pulp, molasses and other agri-product inventories are valued at estimated netrealizable value.  The Company derivesits estimates from sales contracts, recent sales and evaluations of marketconditions and trends.  Sugarbeets arevalued at the projected gross per-ton beet payment related to that year’scrop.  Changes in market conditions andthe Company’s operations may cause management’s estimates to differ from actualresults.

 

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

 

Propertyand equipment, and property and equipment held for lease are depreciated forfinancial reporting purposes principally using straight-line methods withestimated useful lives ranging from 3 to 40 years.  Economic circumstances or other factors maycause management’s estimates of expected useful lives to differ from actual.

 

TheCompany reviews its property and equipment, and property and equipment held forlease for impairment whenever events indicate that the carrying amount of theasset may not be recoverable.  Animpairment loss is recorded when the sum of the future cash flows is less thanthe carrying amount of the asset.  Animpairment loss is measured as the amount by which the carrying amount of theasset exceeds its fair value.  Considerablemanagement judgment is necessary to estimate future cash flows and may differfrom actual results.

 

*IntangibleAssets and Amortization*

 

Intangibleassets are amortized for financial reporting purposes principally usingstraight-line methods 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.

 

19

----

 

*Pension Plan and Other Post-Retirement Benefits*

 

Accumulatedplan benefits are those future periodic payments, including lump-sumdistributions, which are attributable under the Company’s Pension Plan andPost-Retirement Plan to the service employees have rendered. Accumulated planbenefits include benefits expected to be paid to retired or vested terminatedemployees or their beneficiaries; beneficiaries of employees who have died; andpresent employees or their beneficiaries.

 

Theactuarial present value of accumulated plan benefits is determined by anactuary and is the amount that results from applying actuarial assumptions toadjust the accumulated plan benefits to reflect the time value of money and theprobability of payment.

 

Thesignificant actuarial assumptions used in the determination of the actuarialpresent value of accumulated pension plan benefits for fiscal 2010 were asfollows: *Valuation Funding Method* - Entry agenormal, frozen initial liability; *Life Expectancy*— 2010 PPA separate static annuitant and non-annuitant mortality tables; *Retirement Age —*graded rates from 1 percent retiring at age55 to 100 percent retired by age 70*;  Investment Return - 7*.50 percentcompounded annually for funding*;  Discount**Rate-*5.00 percent compounded annually;  *Salary Scale* - 3.5 percent compounded annually (Plan Aonly).

 

Thesignificant actuarial assumptions used in the determination of the actuarialpresent value of accumulated post-retirement benefits for fiscal 2010 were asfollows: *Healthcare Cost Trend* - an 8.5 percentannual rate of increase in the per capita cost of covered healthcare benefitsfor participants under age 65 was assumed for 2010.  The rate is assumed to decline to 6.5 percentover the next five years.  Forparticipants age 65 and older, a 9.5 percent annual rate of increase in the percapita cost of covered healthcare benefits was assumed for 2010.  The rate is assumed to decline to 7.5 percentover the next five years*; Discount**Rate*- 5.00 percent compounded annually.

 

Actualevents may differ from the assumptions used and may result in plan benefitpayments differing significantly from these current estimates.

 

*Self-Insurance*

 

TheCompany is self-insured for a portion of the risks related to workers’compensation claims and employees’ health insurance.  The estimate of self-insurance liability isbased upon known claims and an estimate of incurred but not reported (IBNR)claims.  IBNR claims are estimated usinghistorical claims lag information received by a third party claimsadministrator.  Actual events may differfrom the assumptions used and may result in claim payments differing from thecurrent estimates.

 

**Results of Operations**

 

TheCompany’s operational results and the resulting beet payment to its members aresubstantially dependent on market factors, including domestic prices forrefined sugar.  These factors arecontinuously influenced by a wide variety of market forces, including domesticsugarbeet and cane production, weather conditions and United States’ farm andtrade policy, which the Company is unable to predict.

 

In addition, highly variable weather conditionsduring the growing, harvesting and processing seasons, as well as diseases andinsects, may materially affect the quality and quantity of sugarbeets availablefor purchase as well as the unit costs of raw materials and processing.

 

**Comparisonof the Years Ended August 31, 2010 and 2009**

 

The harvest of the Red River Valley and Sidney sugarbeet crops grownduring 2009 and processed during fiscal 2010 produced a total of10.5 million tons of sugarbeets, or approximately 22.5

 

20

----

 

tons of sugarbeets per acre from approximately 467,000 acres.  This represents a decrease in total tonsharvested of approximately 1.9 percent compared to the 2008 crop.  The sugar content of the 2009 crop was 16.7percent as compared to the 17.6 percent sugar content of the 2008 crop.  The Company produced a total of approximately29.0 million hundredweight of sugar from the 2009 crop, a decrease ofapproximately 5.3 percent compared to the 2008 crop.

 

Revenue was $1.2 billion for each of the years ended August 31, 2010and 2009.  The table below reflects thepercentage changes in product revenues, prices and volumes for the year endedAugust 31, 2010, as compared to the year ended August 31, 2009.

 
| **Product** | ** ** | **Revenue** | ** ** | **Selling Price** | ** ** | **Volume** | ** ** |
|-------------|------------|-------------|------------|------------------------|------------|------------|------------|
| Sugar       |       | 3.2         | %          | 11.7                   | %          | -7.6       | %          |
| Pulp        |       | -18.6       | %          | -27.0                  | %          | 11.5       | %          |
| Molasses    |       | -25.8       | %          | 7.6                    | %          | -31.1      | %          |
| CSB         |       | -5.8        | %          | -5.2                   | %          | -0.6       | %          |
| Betaine     |       | 4.1         | %          | 16.0                   | %          | -10.2      | %          |

 

Theincreases in selling prices for sugar, molasses and betaine reflect strongmarkets due to supply and demand factors. The decrease in the selling price ofpulp is the result of lower prices for competing alternative products in themarketplace. The decreases in the volumes of sugar and molasses sold areprimarily due to lower beginning inventories this year as compared to theprevious year along with reduced sugar production this year. The increase inthe volume of pulp sold reflects the impact of more product availability due tohigher beginning inventories of pulp this year as compared to the previousyear. The decreases in the volumes of CSB and betaine sold are primarily due tolower production this year.

 

Costof sales for the years ended August 31, 2010, exclusive of payments to membersfor sugarbeets, increased $15.1 million as compared to the year ended August31, 2009. This increase was primarily related to the following:

 

·                  At the end of each reporting period, productinventories are recorded at their net realizable value. The change in the netrealizable value of the product inventories from the beginning of the reportingperiod is recorded on the balance sheet as either an increase or decrease toinventories with a corresponding dollar for dollar adjustment to cost of saleson the statement of operations. The decrease in the net realizable value ofproduct inventories for the year ended August 31, 2010 was $25.8 million ascompared to a decrease of $13.0 million for the previous year ended August 31,2009 resulting in a $12.8 million unfavorable change in the cost of salesbetween 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)**                                       | ** ** | **2010**                                                   | ** ** | **2009** | ** ** | **Change** | ** ** |
| Beginning Product Inventories at Net Realizable  Value       |       | $                                                          | 137.6      |   | $ | 150.6 |   | $ | (13.0 | )(1) |
|                                                         |       |                                                       |       |   |   |   |   |
| Ending Product Inventories at Net Realizable Value           |       | (111.8                                                     | )          | (137.6 | ) | 25.8 | (2) |
|                                                         |       |                                                       |       |   |   |   |   |
| Decrease in the Net Realizable Value of Product  Inventories |       | $                                                          | 25.8       |   | $ | 13.0 |   | $ | 12.8 |   |

 

----

(1) The change is primarilydue to a 26 percent decrease in the hundredweight of sugar inventory as ofAugust 31, 2009 as compared to August 31, 2008 partially offset by a 14 percentincrease in the per hundredweight net realizable value of sugar inventory as ofAugust 31, 2009 as compared to August 31, 2008; a 172 percent increase in thetons of pulp inventory as of 

 

21

----

 

August 31, 2009 as comparedto August 31, 2008; and a 68 percent increase in the per ton net realizablevalue of pulp inventory as of August 31, 2009 as compared to August 31, 2008.

(2)The change is primarily due to a 22.6 percent decrease in the hundredweight ofsugar inventory as of August 31, 2010 as compared to August 31, 2009 partiallyoffset by an 11.3 percent increase in the per hundredweight net realizablevalue of sugar inventory as of August 31, 2010 as compared to August 31, 2009;a 35.4 percent decrease in the tons of pulp inventory as of August 31, 2010 ascompared to August 31, 2009; a 47.3 percent decrease in the per ton netrealizable value of pulp inventory as of August 31, 2010 as compared to August31, 2009; and a 35.4 percent decrease in the per ton net realizable value ofmolasses as of August 31, 2010 as compared to August 31, 2009 partially offsetby a 10.7 percent increase in the tons of molasses inventory as of August 31,2010 as compared to August 31, 2009.

 

·                  Factory operating costs decreased $3.5million for the year ended August 31, 2010, as compared to the year endedAugust 31, 2009 primarily due to lower costs associated with natural gas,property taxes and sugarbeet transportation. These costs were partially offsetby higher labor and employee benefit costs.

·                  The cost recognized associated with thenon-member sugarbeets increased $14.4 million for the year ended August 31,2010, when compared to last year.  Thisincrease was primarily due to an increase in tons of sugarbeet harvested thisyear.

·                  Due to lower than anticipated sugarproduction and inventory levels during the first quarter of fiscal 2009, theCompany’s sugar marketing agent, United Sugars Corporation, purchased and soldadditional sugar to meet our customers’ needs. The requirements for purchasedsugar were much less in fiscal 2010.  Asa result, the costs associated with purchased sugar were $8.1 million lower forthe year ended August 31, 2010, as compared to the year ended August 31, 2009.

 

Selling,general and administrative expenses decreased $5.3 million for the year endedAugust 31, 2010, as compared to the year ended August 31, 2009.  Selling expenses decreased $6.8 millionprimarily due to a decrease in freight and warehousing costs due to lower volumesof products sold.  General and administrativeexpenses increased $1.5 million due to general cost increases.

 

Interestexpense decreased $1.0 million for the year ended August 31, 2010, as comparedto the year ended August 31, 2009.  Thisreflects a decrease in the average borrowing level and average interest ratesfor short-term debt and a decrease in the average borrowing level for long-termdebt partially offset by an increased average interest rate for long-term debt.

 

OtherIncome/(Expense), Net decreased $4.4 million for the year ended August 31,2010, as compared to the year ended August 31, 2009.  This was due primarily to the one-timereceipt of $4.8 million in November 2008 related to a legal settlement.

 

Netproceeds attributable to American Crystal Sugar Company decreased $10.0 millionfor the year ended August 31, 2010, as compared to the year ended August 31,2009. Payments to/due members for sugarbeets along with unit retains declaredto members decreased $13.1 million from $533.8 million in 2009 to $520.7million in 2010. This decrease was primarily due to fewer tons harvested and alower sugar content of the sugarbeets partially offset by increased sugarselling prices. Non-member business activities resulted in a gain of $5.4million for the year ended August 31, 2010, as compared to a gain of $2.3million for the year ended August 31, 2009. The increase of $3.1 million was primarily related to increased incomefrom the operations of Sidney Sugars and the activities of ProGold.

 

**Comparisonof the Years Ended August 31, 2009 and 2008**

 

The harvest of the Red River Valley and Sidney sugarbeet crops grownduring 2008 and processed during fiscal 2009 produced a total of10.7 million tons of sugarbeets, or approximately 25.4 

 

22

----

 

tons of sugarbeets per acre from approximately 422,000 acres.  This represents a decrease in total tonsharvested of approximately 14.1 percent compared to the 2007 crop.  The sugar content of the 2008 crop was 17.6percent as compared to the 18.1 percent sugar content of the 2007 crop.  The Company produced a total of approximately30.7 million hundredweight of sugar from the 2008 crop, a decrease ofapproximately 16.2 percent compared to the 2007 crop.

 

Revenue for the year ended August 31, 2009 was $1.2 billion, a decreaseof $32.6 million from the year ended August 31, 2008.  The table below reflects the percentagechanges in product revenues, prices and volumes for the year ended August 31,2009, as compared to the year ended August 31, 2008.

 
| **Product** | ** ** | **Revenue** | ** ** | **Selling Price** | ** ** | **Volume** | ** ** |
|-------------|------------|-------------|------------|------------------------|------------|------------|------------|
| Sugar       |       | -4.4        | %          | 7.3                    | %          | -10.9      | %          |
| Pulp        |       | 14.9        | %          | 40.4                   | %          | -18.1      | %          |
| Molasses    |       | -48.2       | %          | 21.9                   | %          | -57.5      | %          |
| CSB         |       | 14.1        | %          | 17.1                   | %          | -2.5       | %          |
| Betaine     |       | -0.8        | %          | 32.1                   | %          | -24.9      | %          |

 

Theincreases in selling prices for our products reflect strong markets due tosupply and demand factors. The decrease in the volume of sugar sold reflectsthe impact of less product availability due to a 16.2 percent decline in sugarproduced for the year ended August 31, 2009, as compared to the year endedAugust 31, 2008. The decreases in the volumes of pulp and molasses sold weredue in part to lower product availability resulting from an 11.5 percentdecrease in pulp produced and a 65.8 percent decrease in molasses produced forthe year ended August 31, 2009, as compared to the year ended August 31, 2008.Lower beginning inventory levels for both pulp and molasses for the year endedAugust 31, 2009, as compared to the year ended August 31, 2008 also contributedto the reduction in the availability of these products for sale.

 

Costof sales for the year ended August 31, 2009, exclusive of payments to membersfor sugarbeets, increased $2.8 million as compared to the year ended August 31,2008.  This increase was primarilyrelated to the following:

 

·                  At the end of each reporting period, productinventories are recorded at their net realizable value. The change in the netrealizable value of the product inventories from the beginning of the reportingperiod is recorded on the balance sheet as either an increase or decrease toinventories with a corresponding dollar for dollar adjustment to cost of saleson the statement of operations.  Thedecrease in the net realizable value of product inventories for the year endedAugust 31, 2009 was $13.0 million as compared to a decrease of $5.8 million forthe year ended August 31, 2008 resulting in a $7.2 million unfavorable changein the cost of sales between the two years as shown in the table below:

 

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

 
| ** **                                                   | ** ** | **For the Years Ended August 31** | ** ** |
|--------------------------------------------------------------|------------|------------------------------------------------------------|------------|
| **(In Millions)**                                       | ** ** | **2009**                                                   | ** ** | **2008** | ** ** | **Change** | ** ** |
| Beginning Product Inventories at Net Realizable  Value       |       | $                                                          | 150.6      |   | $ | 156.4 |   | $ | (5.8 | )(1) |
|                                                         |       |                                                       |       |   |   |   |   |
| Ending Product Inventories at Net Realizable Value           |       | (137.6                                                     | )          | (150.6 | ) | 13.0 | (2) |
|                                                         |       |                                                       |       |   |   |   |   |
| Decrease in the Net Realizable Value of Product  Inventories |       | $                                                          | 13.0       |   | $ | 5.8 |   | $ | 7.2 |   |

 

----

(1)The change is primarily due to lower quantities of products as of August 31,2008 as compared to August 31, 2007.

 

23

----

 

(2)The change is primarily due to a 26 percent decrease in the hundredweight ofsugar inventory as of August 31, 2009 as compared to August 31, 2008 partiallyoffset by a 14 percent increase in the per hundredweight net realizable valueof sugar inventory as of August 31, 2009 as compared to August 31, 2008; a 172percent increase in the tons of pulp inventory as of August 31, 2009 ascompared to August 31, 2008; and a 68 percent increase in the per ton netrealizable value of pulp inventory as of August 31, 2009 as compared to August31, 2008.

 

·                  Factory operating costs increased $9.2million for the year ended August 31, 2009, as compared to the year endedAugust 31, 2008 primarily due to higher costs associated with coke, chemicals,operating supplies, property taxes and maintenance costs. These costs werepartially offset by lower natural gas costs.

·                  An impairment loss of $11.9 million relatedto the property and equipment at the Sidney, Montana facility was recognized in2008 and included in cost of sales. There was no impairment loss in 2009.

·                  The cost recognized associated with thenon-member sugarbeets decreased $18.8 million for the year ended August 31,2009, when compared to the year ended August 31, 2008.  This decrease was primarily due to a 56.6percent decrease in tons purchased.

·                  Due to lower than anticipated sugarproduction and inventory levels during the first quarter of fiscal 2009, theCompany’s sugar marketing agent, United Sugars Corporation, purchased and soldadditional sugar to meet our customers’ needs. As a result, the costs associated with purchased sugar increased $14.2million for the year ended August 31, 2009, as compared to the year endedAugust 31, 2008.

·                  The cost of beet seed sold increased $4.0million for the year ended August 31, 2009, as compared to the year endedAugust 31, 2008. This increase was due to higher seed processing costs alongwith a 93.8 percent increase in the volume of beet seed sold.

 

Selling,general and administrative expenses decreased $23.4 million for the year endedAugust 31, 2009, as compared to the year ended August 31, 2008.  Selling expenses decreased $24.5 millionprimarily due to the decrease in the volumes of products sold and decreasedtransportation rates resulting in decreased shipping and handlingexpenses.  General and administrativeexpenses increased $1.1 million due to general cost increases.

 

Interestexpense decreased $4.7 million for the year ended August 31, 2009, as comparedto the year ended August 31, 2008.  Thisreflects a decrease in the average borrowing levels and lower average interestrates for both short-term and long-term debt.

 

Otherincome, net increased $4.1 million for the year ended August 31, 2009, ascompared to the year ended August 31, 2008. This was due primarily to the receipt of $4.8 million in November 2008related to a legal settlement.

 

Netproceeds attributable to American Crystal Sugar Company decreased $6.5 millionfor the year ended August 31, 2009, as compared to the year ended August 31,2008. Payments to/due members for sugarbeets along with unit retains declaredto members decreased by $13.6 million from $547.4 million in 2008 to $533.8million in 2009.  This decrease wasprimarily due to fewer tons harvested and a lower sugar content of the sugarbeetspartially offset by increased product selling prices. Non-member businessactivities resulted in a gain of $2.3 million for the year ended August 31,2009, as compared to a loss of $4.8 million for the year ended August, 2008.  The $7.1 million change was primarily relatedto the impairment loss recognized in 2008 for Sidney Sugars Incorporated.

 

24

----

 

**2010 Crop and Estimated FiscalYear 2011 Information**

 

Thisdiscussion contains the Company’s current estimate of the results to beobtained from the Company’s processing of the 2010 sugarbeet crop.  This discussion includes forward-lookingstatements regarding the quantity of sugar to be produced from the 2010sugarbeet crop.  These forward-lookingstatements are based largely upon the Company’s expectations and estimates offuture events; as a result, they are subject to a variety of risks anduncertainties.  The actual resultsexperienced by the Company could differ materially from the forward-looking statementscontained herein.

 

Theharvest of the Red River Valley and the Sidney sugarbeet crops grown during2010 is estimated to produce a total of 11.7 million tons of sugarbeets,or approximately 26.3 tons of sugarbeets per acre from approximately 446,000acres.  This represents an increase intotal tons harvested of approximately 11.8 percent compared to the 2009crop.  The sugar content of the 2010 cropis estimated to be 18.0 percent as compared to the 16.7 percent sugar contentof the 2009 crop.  The Company expects toproduce a total of approximately 33.8 million hundredweight of sugar from the2010 crop, an increase of approximately 16.4 percent compared to the 2009 crop.

 

**Item 7A.****                              ****QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

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

 

The Company does not believe that it is subject toany material market risk exposure with respect to interest rates, exchangerates, commodity prices, equity prices and other market changes that wouldrequire disclosure under this item.

 

**Item 8.****                                       ****FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA**

 

Theconsolidated financial statements of the Company for the fiscal years endedAugust 31, 2010, 2009 and 2008 have been audited by Eide Bailly LLP, anindependent registered public accounting firm. Such consolidated financial statements have been included herein inreliance upon the report of Eide Bailly LLP. The consolidated financial statements of the Company are included inAppendix A to this annual report.

 

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

 

None

 

**Item 9A.****                              ****CONTROLSAND PROCEDURES**

 

**Evaluationof Disclosure Controls and Procedures**

 

TheCompany’s chief executive officer and chief financial officer have reviewed andevaluated the effectiveness of the Company’s disclosure controls and procedures(as defined in Rules 240.13a-15(e) and 15d-15(e) promulgated under theSecurities Exchange Act of 1934) as of August 31, 2010.  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 

 

25

----

 

underthe Securities Exchange Act of 1934 is recorded, processed, summarized andreported within the time periods specified in the Security and ExchangeCommission’s rules and forms, including ensuring that such information isaccumulated and communicated to the Company’s management, including the chiefexecutive officer and the chief financial officer, as appropriate to allowtimely decisions regarding required disclosure.

 

**Management’sReport on Internal Control over Financial Reporting**

 

Managementis responsible for establishing and maintaining adequate internal control overfinancial reporting as defined in Rules 13a-15(f) and 15d-15(f) under theSecurities Exchange Act of 1934, as amended. Our internal control over financial reporting is a process designed toprovide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles.

 

Allinternal control systems, no matter how well designed, have inherentlimitations. Therefore, even those systems determined to be effective canprovide only reasonable assurance with respect to financial statementpreparation and presentation.  Because ofits inherent limitations, internal control over financial reporting may notprevent or detect misstatements.  Also,because of changes in conditions, the effectiveness of internal control mayvary over time.

 

Managementassessed the effectiveness of the Company’s internal control over financialreporting as of August 31, 2010, using criteria set forth by the Committee ofSponsoring Organizations of the Treadway Commission (COSO) in *Internal Control-Integrated Framework*and concluded that theCompany maintained effective internal control over financial reporting as ofAugust 31, 2010 based on these criteria.

 

Thisannual report does not include an attestation report of the Company’sregistered public accounting firm regarding internal control over financialreporting.  Management’s report was notsubject to attestation by the Company’s registered public accounting firmpursuant to rules of the Securities and Exchange Commission that permit theCompany to provide only management’s report in this annual report.

 

**Changesin Internal Control over Financial Reporting**

 

Therewere no changes in the Company’s internal control over financial reporting thatoccurred during the Company’s most recent fiscal quarter that may havematerially affected, or are reasonably likely to materially affect, the Company’sinternal control over financial reporting.

 

**Item 9B.                 OTHERINFORMATION**

 

None.

 

26

----

 

**PART III**

 

**Item 10.****                                ****DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**

 

**Board of Directors**

 

TheBoard of Directors of the Company consists of three directors from each of thefive Red River 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. Any holder of common stock can stand for election or be nominated fromthe floor at the factory district meeting where elections are held.  The directors were elected to servethree-year terms expiring in December of the years indicated in the tablebelow.  Each person’s experience, qualifications,attributes or skills to serve as a director are determined by the membersvoting in the district meetings at which the election occurs and not reviewedor otherwise considered by the Company before any election.  One director is elected each year from eachRed River Valley factory district.  Adirector cannot serve more than four consecutive three-year terms.  Our board officers consist of a Chairman anda Vice-Chairman.  These board offices arepopulated by members of the Board of Directors who are elected by and at thediscretion of the Board of Directors. Each of these individual’s experience, qualifications, attributes orskills to serve in their capacity as a board officer is determined by themembers of the Board of Directors who are voting to place these individuals inthese offices.

 

Thetable below lists certain information concerning current directors of theCompany.

 
| **Name and Address**                                                      | ** ** | **Age**    | ** ** | **Factory District** | ** ** | **Director  Since** | ** ** | **Term Expires  December** |
|-------------------------------------------------------------------------------------|------------|------------|------------|---------------------------|------------|---------------------|------------|---------------------------------|
| ** **                                                                          | ** ** | ** ** | ** ** | ** **                | ** ** | ** **          | ** ** | ** **                      |
| Neil  C. Widner (Chairman)  PO Box 47  Stephen, MN 56757                  |       | 59         |       | Drayton                   |       | 2000                |       | 2012                            |
| ** **                                                                          | ** ** | ** ** | ** ** | ** **                | ** ** | ** **          | ** ** | ** **                      |
| Curtis  E. Haugen (Vice-Chairman)   45508 300th St. NW   Argyle, MN 56713 |       | 49         |       | East Grand Forks          |       | 2001                |       | 2010                            |
| ** **                                                                          | ** ** | ** ** | ** ** | ** **                | ** ** | ** **          | ** ** | ** **                      |
| Donald  S. Andringa  422 4th Avenue NE  Crookston, MN 56716          |       | 56         |       | Crookston                 |       | 2008                |       | 2011                            |
| ** **                                                                          | ** ** | ** ** | ** ** | ** **                | ** ** | ** **          | ** ** | ** **                      |
| William  Baldwin  8244 144th Ave. NE  St Thomas, ND 58276            |       | 64         |       | Drayton                   |       | 2004                |       | 2010                            |
| ** **                                                                          | ** ** | ** ** | ** ** | ** **                | ** ** | ** **          | ** ** | ** **                      |
| John  Brainard  204 6th St. W  Ada, MN 56510                         |       | 50         |       | Hillsboro                 |       | 2005                |       | 2011                            |
| ** **                                                                          | ** ** | ** ** | ** ** | ** **                | ** ** | ** **          | ** ** | ** **                      |
| Brian  R. Erickson  824 James Ave. SE  East Grand Forks, MN 56721         |       | 62         |       | East Grand Forks          |       | 2005                |       | 2011                            |

 

27

----

 
| Robert  M. Green  220 Park St.  Saint Thomas, ND 58276          |       | 56         |       | Drayton          |       | 2005       |       | 2011       |
|---------------------------------------------------------------------------|------------|------------|------------|------------------|------------|------------|------------|------------|
|                                                                      |       |       |       |             |       |       |       |       |
| John  F. Gudajtes  Box 37  Minto, ND 58261                      |       | 61         |       | East Grand Forks |       | 2003       |       | 2012       |
| ** **                                                                | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** |
| William Hejl 15560  28th St. SE Amenia, ND  58004               |       | 55         |       | Moorhead         |       | 2007       |       | 2010       |
|                                                                      |       |       |       |             |       |       |       |       |
| Curtis  Knutson  35545 290th St. SW  Fisher, MN 56723      |       | 52         |       | Crookston        |       | 2007       |       | 2010       |
| ** **                                                                | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** |
| Dale  Kuehl  12213 12th Avenue South  Glyndon, MN 56547    |       | 53         |       | Moorhead         |       | 2008       |       | 2011       |
|                                                                      |       |       |       |             |       |       |       |       |
| Jeff  D. McInnes  16485 6th Street SE  Hillsboro, ND 58045 |       | 53         |       | Hillsboro        |       | 2001       |       | 2010       |
|                                                                      |       |       |       |             |       |       |       |       |
| David  Mueller  16283 7th Street NE  Cummings, ND 58223              |       | 50         |       | Hillsboro        |       | 2009       |       | 2012       |
| ** **                                                                | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** |
| Wayne  Tang  25226 Town & Country Estates Rd  Detroit Lakes, MN 56501 |       | 56         |       | Moorhead         |       | 2009       |       | 2012       |
|                                                                      |       |       |       |             |       |       |       |       |
| Steve  Williams  515 Thompson Ave.  Fisher, MN 56723                      |       | 59         |       | Crookston        |       | 2006       |       | 2012       |

 

Below is the biographical information on each Director.

 

**Neil C. Widner. **Mr. Widner hasbeen a director since 2000 and has served as Chairman since 2009.  Mr. Widner has farmed near Stephen,Minnesota, since 1973.  Mr. Widner serveson the Board of Directors of United Sugars Corporation, the Board of Directorsof Midwest Agri-Commodities Company, the Board of Governors of ProGold LimitedLiability Company and as a director for the American Sugarbeet GrowersAssociation.

 

**Curtis E. Haugen. **Mr. Haugen hasbeen a director since 2001 and has served as Vice-Chairman since 2009.  Mr. Haugen has been a farmer since 1981****and farms near Argyle, Minnesota.  Mr. Haugen serves on the Board ofDirectors of United Sugars Corporation, as a director for the AmericanSugarbeet Growers Association and as a director and President of the Farmer’sUnion Oil Company, Oslo, Minnesota.

 

**Donald S. Andringa.**Mr. Andringa has been adirector since 2008. Mr. Andringa has been a sugarbeet farmer for 37 years withhis farming operations near Crookston, Minnesota.  Mr. Andringa currently serves on the Board ofGovernors of ProGold Limited Liability Company and the Advisory Board for 

 

28

----

 

the University of Minnesota-Crookston Northwest Research and OutreachCenter. Mr. Andringa previously served on Board of Directors of the CrookstonFactory District Grower Association, the Red River Valley Sugarbeet GrowersAssociation’s Executive Committee, the Board of Directors of the Red RiverValley Farmers Insurance Pool and the American Sugarbeet Growers AssociationBoard of Directors.

 

**William Baldwin. **Mr. Baldwin hasbeen a director since 2004.  Mr. Baldwinhas been farming in the Drayton Factory District since 1966 and is thePresident of Baldwin Farms Incorporated. Mr. Baldwin is the past President of the Red River Valley SugarbeetGrowers Association, served on the American Sugarbeet Growers ExecutiveCommittee and is currently serving on the Farm Service Agency, State Committee.

 

**John Brainard.** Mr. Brainard has been a director since 2005.  Mr. Brainard has been a sugarbeet growersince 1998.  Mr. Brainard currentlyserves on the Board of Directors of Midwest Agri-Commodities Company and as adirector of the American Sugarbeet Growers Association. Mr. Brainard is a pastdirector of the Minnesota Farm Bureau and has served on the executive committeeof the Red River Valley Sugarbeet Growers Association.

 

**Brian R. Erickson.**  Mr. Erickson has been a director since2005.  Mr. Erickson has been a sugarbeetgrower for over 20 years.  Mr. Ericksoncurrently serves on the Board of Directors of United Sugars Corporation. Mr.Erickson has served as a director and Chairman of the East Grand Forks EconomicDevelopment and Housing Authority.

 

**Robert M. Green.** Mr. Green has been a director since 2005.  Mr. Green has been a sugarbeet grower since1976.  Mr. Green also serves as adirector for the American Sugarbeet Growers Association.  Mr. Green served 12 years as a director ofthe Red River Valley Sugarbeet Growers Association.

 

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

 

**William A. Hejl.** Mr. Hejl has been a director since 2007.  Mr. Hejl has farmed near Amenia, North Dakotasince 1987.  Mr. Hejl currently serves asa director of the American Sugarbeet Growers Association and is a manager ofthe Rush River Water Resource District. Mr. Hejl also served as President of the Red River Valley SugarbeetGrowers Association and as President of the World Association of Beet and CaneGrowers.

 

**Curtis Knutson.** Mr. Knutson has been a director since 2007.  Mr. Knutson has farmed near Fisher, Minnesotafor 36 years.  Mr. Knutson currentlyserves on the Polk County Extension Board.

 

**Dale Kuehl.**Mr. Kuehl has been a director since 2008.  Mr. Kuehl has been a sugarbeet farmer for 33years with his farming operations near Glyndon, Minnesota.  Mr. Kuehl currently serves on the Board ofGovernors of ProGold Limited Liability Company. Mr. Kuehl previously served on the Boards of Directors of the MoorheadFactory District Grower Association, the Red River Valley Sugarbeet GrowersAssociation, the American Sugarbeet Growers Association, the InternationalSugarbeet Institute and the Red River Valley Coop Power Association.

 

**Jeff D. McInnes.** Mr. McInnes has been a director since 2001.  Mr. McInnes co-manages a 4,000 acrefarming operation near Hillsboro, North Dakota.   Mr. McInnes serves on the Board of Governorsof ProGold Limited Liability Company.

 

**David Mueller.**Mr. Mueller was elected as a director in2009. Mr. Mueller has been a sugarbeet farmer near Cummings, North Dakota since1985.  Mr. Mueller previously served onthe Red River Valley 

 

29

----

 

SugarbeetGrowers Association Boards’ Executive Committee and as treasurer of itsResearch and Education Board.

 

**Wayne Tang.**Mr. Tang was elected as a director in 2009. Mr. Tanghas been a farmer since 1972.  Mr. Tangpreviously served on the American Sugarbeets Growers Association Board ofDirectors and as Vice Chairman of the Red River Valley Sugarbeet GrowersAssociation’s Executive Committee.

 

**Steve Williams. **Mr. Williamshas been a director since 2006.  Mr.Williams has farmed near Fisher, Minnesota since 1987.  Mr. Williams serves on the Board of Directorsof the American Sugarbeet Growers Association and served as its President from2006 to 2008.  Mr. Williams is also adirector of the Sugar Association and is the President of the Board ofDirectors for the Halstad Cooperative Telephone Company.  Mr. Williams served as a director of the RedRiver Valley Sugarbeet Growers Association from 1998 to 2007, and served as itsChairman from 2003 to 2007.

 

**Audit Committee and Audit Committee Financial Expert**

 

TheAudit Committee assists the Board of Directors in fulfilling its oversightresponsibilities relating to the Company’s financial reporting and controls,the annual independent audit of the Company’s consolidated financial statementsand the legal compliance and ethics programs as established by management andthe Board of Directors.  The AuditCommittee selects the independent public accountants and approves the fees,scope and procedural plans of the audits of the Company’s consolidatedfinancial statements.  The AuditCommittee administers the Company’s employee complaint program and handles, onbehalf of the full Board of Directors, any issues that arise under the Company’sCode of Ethics.  The Audit Committee hasa charter that is available from the Company upon request.

 

Asof August 31, 2010, the Board of Directors of the Company has determined thatthere is no audit committee financial expert serving on the AuditCommittee.  The Company is a cooperativeformed in accordance with the Minnesota cooperative law of the State ofMinnesota.  In accordance with theMinnesota cooperative law, the Amended and Restated Articles of Incorporationof the Company and the Amended and Restated Bylaws of the Company, the Board ofDirectors must be composed of members of the Company (the holders of commonstock).  Membership in the Company islimited to agricultural producers who are actively involved in the productionof sugarbeets.  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.”

 

TheAudit Committee has reviewed and discussed with management and Eide Bailly LLPour audited consolidated financials statements contained in our Annual Reporton Form 10-K for the fiscal year ended August 31, 2010. The Audit Committeealso discussed with Eide Bailly LLP the matters required to be discussedpursuant to SAS No. 61 (Codification of Statements of Auditing Standards,AU Section 380), which includes, among other items, matters related to theconduct of the audit of the Company’s consolidated financial statements.

 

TheAudit Committee has received and reviewed the written disclosures and theletter from Eide Bailly LLP required by the applicable requirements of thePublic Company Accounting Oversight Board regarding Eide Bailly LLP’scommunications with the Audit Committee concerning its independence from theCompany and has discussed with Eide Bailly LLP its independence from theCompany.

 

30

----

 

Basedon the review and discussions referred to above, the Audit Committeerecommended to the Board that the audited financial statements be included inour Annual Report on Form 10-K for our fiscal year ended August 31,2010 for filing with the Commission.

 

OnAugust 31, 2010, the members of the Audit Committee were John Brainard(Committee Chair), Donald S. Andringa, Brian R. Erickson, Robert M. Green,William A. Hejl, David Mueller and Wayne Tang.

 

**Company Officers**

 

Thetable below lists the officers of the Company for the fiscal year covered bythis report, none of whom owns any shares of Common Stock or PreferredStock.  Officers are elected annually bythe Board of Directors.

 
| **Name**            | ** ** | **Age** | ** ** | **Position**                                                                                       |
|---------------------|------------|---------|------------|----------------------------------------------------------------------------------------------------|
| David  A. Berg      |       | 56      |       | President  and Chief Executive Officer                                                             |
| Thomas  S. Astrup   |       | 41      |       | Vice  President-Finance and Chief Financial Officer                                                |
| Joseph  J. Talley   |       | 50      |       | Chief  Operating Officer                                                                           |
| Brian  F. Ingulsrud |       | 47      |       | Vice  President-Administration                                                                     |
| Teresa  A. Warne    |       | 40      |       | Corporate  Controller, Chief Accounting Officer, Assistant Secretary and Assistant  Treasurer |
| Daniel  C. Mott     |       | 51      |       | Secretary                                                                                          |
| Samuel  S. M. Wai   |       | 56      |       | Treasurer  and Assistant Secretary                                                                 |
| Mark  L. Lembke     |       | 54      |       | Finance  Administration Manager, Assistant Secretary and Assistant Treasurer                  |
| David  L. Malmskog  |       | 53      |       | Director  - Economic Analysis, Assistant Secretary and Assistant Treasurer                    |
| Ronald  K. Peterson |       | 55      |       | Accounting &  Systems Manager, Assistant Secretary and Assistant Treasurer           |
| Lisa  M. Maloy      |       | 46      |       | Treasury  Operations Manager and Assistant Secretary                                               |

 

**David A. Berg.**  Mr. Bergwas named the Company’s President in March 2007 and assumed the role asthe Company’s Chief Executive Officer in October 2007.  Mr. Berg served as the Company’s VicePresident-Operations and Chief Operations Officer from January 2004 to March 2007.  Mr. Berg was the Company’s VicePresident-Agriculture during the period December 2000 to January 2004and the Company’s Vice President-Administration during the period from October 1998to December 2000.  Mr. Bergcurrently serves on the Boards of Directors of United Sugars Corporation,Midwest Agri-Commodities Company and Sidney Sugars Incorporated.

 

**Thomas S. Astrup**.  Mr. Astrupwas named the Company’s Vice President-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.

 

31

----

 

**Joseph J. Talley.**  Mr. Talleywas named the Company’s Chief Operating Officer in May 2007.  Mr. Talley was named as the Chairman ofthe Board and Chief Executive Officer of Sidney Sugars Incorporated in May 2007.  Mr. Talley served as the Company’s VicePresident-Finance and Chief Financial Officer of the Company from 2003 to2007.  Mr. Talley was the Company’sVice President-Finance from 1998 to 2003. Mr. Talley also served as Chief Operating Officer of Sidney SugarsIncorporated from 2002 to 2007.  Hecurrently serves on the Board of Governors for ProGold Limited LiabilityCompany.

 

**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. Warnewas named the Company’s Corporate Controller, Chief Accounting Officer,Assistant Treasurer 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 Secretary in 1999.  Previously, he had served as AssistantSecretary since 1995.  Mr. Mott alsoserves as the Company’s General Counsel. He is a Shareholder in the law firm of Fredrikson & Byron,P.A.  Mr. Mott is not an employee ofthe Company.

 

**Samuel S. M. Wai.** Mr. Wai was named the Company’s Treasurer and Assistant Secretaryin 1999.  Mr. Wai also serves asTreasurer of the American Crystal Sugar Political Action Committee and on theBoard of Directors of the Institute of Cooperative Financial Officers.

 

**Mark L. Lembke.** Mr. Lembke was named the Company’s Assistant Secretary andAssistant Treasurer in 1996 and also currently serves as the Company’s FinanceAdministration 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’s AssistantSecretary and Assistant Treasurer in 1998 and also currently serves as theCompany’s Director-Economic Analysis.

 

**Lisa M. Maloy.**Ms. Maloy was named the Company’sAssistant Secretary in 2002 and also currently serves as the Company’s TreasuryOperations Manager.

 

**Code of Ethics**

 

The Company has adopted a code of ethics that applies to its principalexecutive officer, principal financial officer, principal accounting officer orcontroller as well as all employees and Directors of the Company.  The Company will provide at no charge a copyof the code of ethics to any person who requests a copy by sending a writtenrequest to the Company’s headquarters, attention of the Chief Executive Officerof the Company.

 

32

----

 

**Item 11.          EXECUTIVECOMPENSATION**

 

**Compensation Discussion and Analysis**

 

**Overview**

 

Thiscompensation discussion and analysis addresses the compensation paid to theindividuals who served as our President and Chief Executive Officer, ChiefFinancial Officer, Chief Operating Officer and Vice President of Administrationfor fiscal year 2010, all of whom are identified on the Summary CompensationTable immediately following this report (Named Executive Officers).  Immediately following this compensation discussionand analysis is the Compensation Committee Report of the Board of Directors(the Committee Report) of the Compensation Committee.

 

**Purposeand Philosophy**

 

Webelieve that strong leadership is a key component of success.  To be successful, we must be able to attract,retain and motivate leaders with the skills necessary to excel in an integratedcooperative environment and understand key business and technical mattersrelated to the diverse business influences that result from growers and owners,marketing partnerships and activities, technical manufacturing processes, andgovernment policy.  Our goal is toprovide a competitive compensation package to our Named Executive Officerscombining total direct compensation, retirement income and other benefits.

 

Totaldirect compensation, which includes base salary, short-term cash incentivecompensation and long-term incentive compensation, is measured againstcomparable companies in the market in which we compete.

 

Webelieve the market in which we compete for executive talent consists ofcompanies with similar characteristics to the Company, for example,manufacturing companies with similar revenues. We further believe that the market also includes privately owned businessesin general and exclusively as it relates to long-term incentive compensationbecause of the structure and nature of our business.  Therefore, we have compared our compensationversus compensation data points for these types of companies (our market).

 

Ourmanagement, on behalf of the Compensation Committee and Board of Directors,retained Towers Watson, an outside compensation consultant (CompensationConsultant), to prepare market-based compensation data comparing compensationinformation for our Named Executive Officers with that of executive officers inour market.  This analysis uses market data from published national survey sources,including****Towers Perrin and WatsonWyatt.  In addition, pay data from theproxy materials from the following group of comparative companies is referenced:

 

33

----

 
| ·      Actuant Corporation

·      Ameron International Corp.

·      Arctic Cat Inc.

·      Barnes Group Inc.

·      Brady Corporation

·      Donaldson Company, Inc.

·      Gardner Denver, Inc.

·      Graco Inc.

·      Herman Miller, Inc.

·      IDEX Corporation

·      Imperial Sugar Company |   | ·      Magellan Midstream Partners, L.P.

·      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.

·      The Toro Company

·      Thomas & Betts Corporation |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

This group of companies, together with the surveysources, represents the market in which we believe we compete for executivetalent.

 

Thisdata was provided to the Compensation Committee in September, 2009, when theCompensation Committee made compensation determinations and was utilized toestablish market based pay practices for each of the Named Executive Officerpositions.

 

Ourbase salary midpoint for our President and Chief Executive Officer is projectedto represent less than the median of the market and total direct compensationis projected to be near the lower quartile of the market. Currently, wegenerally target our other Named Executive Officers’ base salary midpoint nearthe median of the market and total direct compensation near the lower quartileof our market.  After review anddiscussion of our compensation objectives and any risks associated with theseobjectives, the Compensation Committee determined that total directcompensation as established was appropriate and reflects the compensationprinciples outlined in this report.

 

Whilemarket based information is important in terms of setting pay practices, it isnot the only factor considered by our Compensation Committee when makingindividual executive compensation decisions. Other factors considered whenmaking individual executive compensation decisions include individual roles andresponsibilities, performance, reporting structure, experience in theexecutives’ particular position and internal pay relationships.

 

**Process**

 

TheCompensation Committee of the Board of Directors is responsible for annuallyreviewing and recommending to the Board of Directors the base salary andperformance objectives for the incentive compensation (both short-term andlong-term) of the President and Chief Executive Officer, as well as theperformance objectives for long-term incentive compensation for all NamedExecutive Officers.  Board action onrecommendations of the Compensation Committee is taken by a vote of all of thedirectors, none of whom are members of management.  Decisions on executive compensation made bythe Compensation Committee, the Board or the President and Chief ExecutiveOfficer have been guided by our compensation philosophy discussed above.

 

OurPresident and Chief Executive Officer sets base salary and the annualperformance objectives for the short-term incentive compensation for the otherNamed Executive Officers.  Theprospective base salary and annual performance objectives for the other NamedExecutive Officers are reviewed with the Compensation Committee prior to beingfinalized by the President and Chief Executive Officer.

 

34

----

 

**Elementsof Compensation**

 

Theelements of compensation paid to our Named Executive Officers for 2010 are asfollows:

 

·                  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.

 

**BaseSalary**

 

Theobjective of the level of base salary paid to our Named Executive Officers isto reflect individual roles and responsibilities, performance, reportingstructure, experience in the executive’s particular position, and internal payrelationships with respect to market competitiveness.  All established base salaries for fiscal year2010 for our Named Executive Officers were in accordance with our compensationphilosophy described earlier in this report.

 

Thefiscal year 2010 base salary of our President and Chief Executive Officer,Mr. Berg, was set by the Board of Directors in September, 2009 based onthe comparable market data provided by our Compensation Consultant and the basesalaries for the remaining Named Executive Officers were set by Mr. Bergusing the same comparable market data.

 

**Short-TermCash Incentive Compensation**

 

Ourshort-term cash incentive compensation is designed to reward the NamedExecutive Officers for their individual performance and our financialperformance for the most recently completed fiscal year.  Short-term cash incentive compensation ispaid in cash following the close of the fiscal year.

 

Short-termcash incentive compensation provides an annual cash incentive opportunity,expressed as a percent of base salary, for our Named Executive Officers whomeet performance objectives.  For fiscalyear 2010, our President and Chief Executive Officer had an opportunity toreceive an additional 45% of his base salary, and the other Named ExecutiveOfficers had an opportunity to receive an additional 35% of their base salary,by meeting “target” performance levels. Actual awards are determined based on the different performance levelsachieved by the Named Executive Officers. The potential for short-term cash incentive compensation for thePresident and Chief Executive Officer ranges from 0% for unsatisfactoryperformance to a maximum of 90% for outstanding performance.  For our other Named Executive Officers, thepotential for short-term cash incentive compensation ranges from 0% forunsatisfactory performance to a maximum of 70% for outstanding performance.

 

35

----

 

ThePresident and Chief Executive Officer’s performance objectives were weightedwith 50% of the potential award based on our overall financial performance and50% of the potential award based on the President and Chief Executive Officer’sindividual performance objectives as established by the Board of Directors atthe beginning of the fiscal year.  Forthe other Named Executive Officers, annual performance objectives weredetermined by the President and Chief Executive Officer with the input andconsult of the Compensation Committee at the beginning of the fiscal year, with40% based on our overall financial performance and 60% based on the achievementof individual performance objectives, including personal effectiveness.  Our overall financial performance objectivesare based on the final gross beet payment for the fiscal year and total on-farmprofit.  Total on-farm profit is equal tototal 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.  Both of the targets for these performanceobjectives are approved by the Compensation Committee.  For fiscal year 2010, the final gross beetpayment and the total on-farm profit were between the target and outstandingperformance level.

 

The individual performance objectives of our NamedExecutive Officers are based primarily on performance measures in the key areasof cost and revenue management, agronomy best practices, factory performance,sugar recovery, safety, product quality and financial management.  Our Named Executive Officers’ performanceobjectives also include key elements of personal managerial effectiveness suchas leadership, management, honesty/integrity, problem solving, risk taking andcommunication.

 

As indicated above, Mr. Berg’s performanceobjectives for fiscal year 2010 were set by the Board of Directors.  The performance objectives for fiscal year2010 for our other Named Executive Officers were set by Mr. Berg at thebeginning of fiscal year 2010.

 

TheBoard of Directors rates the President and Chief Executive Officer at the endof the fiscal year with respect to his achievement of his performanceobjectives during that fiscal year, and his short-term cash incentivecompensation for that fiscal year is based on this rating.  The President and Chief Executive Officerrates the other Named Executive Officers with respect to their individualachievement of their performance objectives and each of them receives ashort-term cash incentive compensation award based on that rating.

 

**Long-TermIncentive Compensation**

 

Long-termincentive compensation provides a financial incentive opportunity, expressed asa percent of base salary, for our Named Executive Officers as a group who meetperformance objectives designed to encourage long-term commitment to ourorganization.  Our 2005 Long-TermIncentive Plan, as amended (Plan), sets forth long-term incentive compensationavailable to our Named Executive Officers. For fiscal year 2010, our President and Chief Executive Officer had anopportunity to receive an additional 40% of his base salary and the other NamedExecutive Officers had an opportunity to receive an additional 20% of theirbase salary assuming target performance levels. Actual awards are determined based on the performance level achieved bythe Named Executive Officers as a group. The potential for long-term incentive compensation ranges from 0% forunsatisfactory performance to a maximum of 80% for outstanding performance forthe President and Chief Executive Officer. For our other Named Executive Officers, the potential for long-termincentive compensation ranges from 0% for unsatisfactory performance to amaximum of 40% for outstanding performance. Unlike our short-term cash incentive compensation, long-term incentivecompensation awards are based on the performance level of our Named ExecutiveOfficers as a group.  Forty-five percent(45%) of the performance objectives were based on the fiscal year’s actualon-farm profit as compared to historical profit levels 

 

36

----

 

whilethe other 55% was based on an assessment made by the Board of Directorsregarding achievement of specific long-term performance objectives asestablished by the Board of Directors in the areas of international trade andgovernmental policy, strategic planning, succession management and reputationmanagement.  For fiscal year 2010, thetotal on-farm profit performance level was between the target and outstandingperformance level.

 

Accordingto the Plan, a long-term incentive award may be granted to a Named ExecutiveOfficer in the form of contract rights, cash, or in a combination of both cashand contract rights (incentive awards). The value of any contract rights granted is determined by our Board ofDirectors.  To date, all incentive awardsgranted have been in the form of contract rights.  Incentive awards vest over a three-yearperiod, with the first vesting occurring one year after the grant.  Vested incentive awards may be redeemed atthe discretion of the Named Executive Officer and must be redeemed upon certainother events causing a termination of employment.  Redemptions that are in the form of cashpayments must be deferred by the Named Executive Officer while employed by theCompany.  Named Executive Officersreceive a profit per acre payment for vested contract rights based on theaverage profit per acre paid to our shareholders.  Profit per acre payments are made to theNamed Executive Officers in the same manner as our shareholders receive theircrop payments.  Profit per acre paymentscan be taken in cash or deferred until a later date.  The Board of Directors retains the discretionto determine the amount of any incentive awards to be made available to theNamed Executive Officers with respect to a given fiscal year.

 

In the event the Company is required to amend itsfinancial statements for a given year because of material noncompliance withfinancial reporting requirements, the value of the incentive awards for thecurrent fiscal year and the three immediately preceding fiscal years will beadjusted to reflect the changes reflected in the amended financial statementsif the amended year is within three (3) years of the current fiscal year.

 

On September 28, 2010, 210.56 contract rightswere awarded with a grant date of August 31, 2010 to Named ExecutiveOfficers with respect to performance for the fiscal year ended August 31,2010 at a value of $2,550 per contract right. Correspondingly, the redemption value of the contract rights previouslygranted to the Named Executive Officers was increased from $2,200 to $2,550 percontract right.  Effective as ofAugust 31, 2010, (and including the contract rights awarded onSeptember 28, 2010), there were a total of 1,315.28 contract rights issuedand outstanding to the Named Executive Officers, of which 822.59 were vested.

 

**Compensation Policies and Practices and RiskManagement**

 

The Company’s short-and long-term success is adirect result of the value we as a company provide to our shareholder/growers.  This “value” is specifically measured annuallyby the amount of the gross beet payment and total on-farm profits.  The members of our Compensation Committee andthe Board of Directors, all of whom are shareholders of the Company and none ofwhom are members of management, have examined and reviewed all of ourcompensation policies and practices in light of the risks that may existrelated to using personal performance standards and the annual gross beetpayment and total on-farm profits as the measurements used for determiningcompensation.  Both the gross beetpayment and total on-farm profits are amounts and values that are directly paidto or experienced by our shareholders on an annual basis, with each fiscal year’sresults for such amounts generally independent from the results from prior orupcoming fiscal years.  The value of thegross beet payment and total on-farm profits are independently verifiednumbers.  The other measurements used todetermine either incentive compensation or increases in compensation for ouremployees are based on job specific performance standards, none of which arespecifically measured by performance actions by employees 

 

37

----

 

thatrelate to or affect risk taking by our employees.  The incentive awards held by our NamedExecutive Officers were designed to align the managements’ incentivecompensation with the success of the Company such that the financial benefitsto the shareholders and management are balanced and management is notincentivized to take risks to artificially increase the value of such contractrights or incentive awards.  Therefore,the Board of Directors and the Compensation Committee reasonably believe, basedon the information provided to them, that any risks that arise from ourcompensation policies and practices are not reasonably likely to have amaterial adverse effect on our business operations.

 

**Retirementand Other Benefits**

 

Retirementbenefits are an important tool in achieving overall compensation objectivesbecause they provide 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 SERPtrust.  Both have nine investment optionsand are subject 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.

 

OurNamed Executive Officers participate in our fully insured long-term disabilityprogram for all nonunion employees to provide income protection in the event ofpermanent disability.  The long-term disabilityplan is part of the core benefits we provide. The long-term disability plan provides a benefit equal to 60% of basepay with 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 disabled their benefit willnot be taxable.  Other nonunion employeesare not taxed on the value of their long-term disability premium; therefore ifthey become disabled their benefit will be taxable.  For the Named Executive Officers, we imputethe value of the premium to provide a tax-free benefit to partially offset theimpact of receiving a disability benefit less than 60% of base pay because ofthe $10,000 monthly benefit limitation.

 

**Perquisites**

 

OurCompensation Committee and the Board of Directors believe perquisites should bemodest, reasonable in terms of cost, aligned with business needs andcomparative to other salaried employees. Named Executive Officers may receive some or all of the followingperquisites while employed: car allowance, cell phone, minimum of 4 weeksannual vacation accrual, reimbursement for income tax preparation and executivephysicals.  Additionally, the Presidentand Chief Executive Officer is provided with a country club membership.   The above described perquisites cease uponretirement or separation of service with us.

 

**Severance**

 

Ifwe terminate Mr. Berg without cause he is entitled to receive apost-termination severance payment equal to two years of his base salary ineffect on the date of termination.  Thereare no compensatory plans or arrangements providing for payments to any of theother Named 

 

38

----

 

ExecutiveOfficers in conjunction with any termination of employment with us, includingwithout 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.

 

**EmploymentAgreements**

 

Weentered into an employment agreement 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.  The agreement grants the Board of Directorsthe authority to establish Mr. Berg’s base salary each year, and also providesthat he may participate in other benefit plans offered to all employees.

 

**CompensationCommittee Report**

 

TheCompensation Committee of the Company’s Board of Directors has reviewed anddiscussed the Compensation Discussion and Analysis required by Item 402(b) ofRegulation S-K with management and, based on such review and discussion,the Compensation Committee recommended to the Board of Directors that theCompensation Discussion and Analysis be included in this Form 10-K.

 

Membersof the Compensation Committee as of the date of the report, all of whom aremembers of the Board of Directors and none of whom are members of managementare:

 

SteveWilliams, Chairman

JohnBrainard

BrianR. Erickson

JohnF. Gudajtes

DaleKuehl

William Baldwin

 

**Summary Compensation Table**

 

The following tablesummarizes the compensation of the Named Executive Officers for the fiscalyears ended August 31, 2010, 2009 and 2008.  The Named Executive Officers are the Company’sChief Executive Officer, Chief Financial Officer and the two other most highlycompensated executive officers of the Company.

 

39

----

 

**2010 SUMMARY COMPENSATIONTABLE**

 
| **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)** | ** ** | **Non-Equity Long-  Term Incentive  Plan  Compensation  (1),(4)** | ** ** | **Change in Pension  Value and  Nonqualified  Deferred  Compensation  (NQDC) Earnings  (5)** | ** ** | **All Other  Compensation (6)** | ** ** | **Total** | ** ** |
|--------------------------------------------|------------|----------|------------|---------------------|------------|------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-----------|------------|
| David  A. Berg - President                 |       | 2010     |       | $                   | 554,077    |                                                                         | $          | 340,808                                                                     |       | $                                                                           | 297,560    |                                                                        | $          | 170,380                                                                                                          |       | $                                         | 64,523     |      | $          | 502,639 |   | $ | 45,501 |   | $ | 1,975,488 |   |
| and  Chief Executive                       |       | 2009     |       | $                   | 508,108    |                                                                         | $          | 316,575                                                                     |       | $                                                                           | 343,354    |                                                                        | $          | 148,829                                                                                                          |       | $                                         | 87,469     |      | $          | 154,366 |   | $ | 41,311 |   | $ | 1,600,012 |   |
| Officer                                    |       | 2008     |       | $                   | 401,169    |                                                                         | $          | 256,662                                                                     |       | $                                                                           | 244,493    |                                                                        | $          | (93,112                                                                                                          | )          | $                                         | 59,076     |      | $          | 52,415 |   | $ | 26,052 |   | $ | 946,755 |   |
|                                       |       |     |       |                |       |                                                                         |       |                                                                        |       |                                                                        |       |                                                                        |       |                                                                                                             |       |                                      |       |      |       |
| Thomas  S. Astrup - Vice                   |       | 2010     |       | $                   | 277,579    |                                                                         | $          | 107,163                                                                     |       | $                                                                           | 74,486     |                                                                        | $          | 95,102                                                                                                           |       | $                                         | 61,000     |      | $          | 103,213 |   | $ | 17,596 |   | $ | 736,139 |   |
| President-Finance  and                     |       | 2009     |       | $                   | 259,902    |                                                                         | $          | 135,638                                                                     |       | $                                                                           | 86,218     |                                                                        | $          | 113,639                                                                                                          |       | $                                         | 67,348     |      | $          | 37,373 |   | $ | 16,043 |   | $ | 716,160 |   |
| Chief  Financial Officer                   |       | 2008     |       | $                   | 239,400    |                                                                         | $          | 114,792                                                                     |       | $                                                                           | 78,453     |                                                                        | $          | (72,697                                                                                                          | )          | $                                         | 44,693     |      | $          | 6,513 |   | $ | 15,463 |   | $ | 426,617 |   |
|                                       |       |     |       |                |       |                                                                         |       |                                                                        |       |                                                                        |       |                                                                        |       |                                                                                                             |       |                                      |       |      |       |
| Joseph  J. Talley - Chief                  |       | 2010     |       | $                   | 361,652    |                                                                         | $          | 176,708                                                                     |       | $                                                                           | 97,028     |                                                                        | $          | 42,924                                                                                                           |       | $                                         | 23,418     |      | $          | 176,124 |   | $ | 30,732 |   | $ | 908,586 |   |
| Operating  Officer                         |       | 2009     |       | $                   | 337,662    |                                                                         | $          | 151,704                                                                     |       | $                                                                           | 112,486    |                                                                        | $          | 59,972                                                                                                           |       | $                                         | 13,225     |      | $          | 74,408 |   | $ | 30,582 |   | $ | 780,039 |   |
|                                       |       | 2008     |       | $                   | 302,800    |                                                                         | $          | 173,970                                                                     |       | $                                                                           | 99,243     |                                                                        | $          | (26,797                                                                                                          | )          | $                                         | 27,814     |      | $          | 34,002 |   | $ | 26,957 |   | $ | 637,989 |   |
|                                       |       |     |       |                |       |                                                                         |       |                                                                        |       |                                                                        |       |                                                                        |       |                                                                                                             |       |                                      |       |      |       |
| Brian  F. Ingulsrud - Vice                 |       | 2010     |       | $                   | 252,876    |                                                                         | $          | 105,150                                                                     |       | $                                                                           | 67,856     |                                                                        | $          | 58,657                                                                                                           |       | $                                         | 27,139     |      | $          | 172,772 |   | $ | 15,521 |   | $ | 699,971 |   |
| President-Administration                   |       | 2009     |       | $                   | 236,948    |                                                                         | $          | 102,617                                                                     |       | $                                                                           | 78,562     |                                                                        | $          | 59,342                                                                                                           |       | $                                         | 23,140     |      | $          | 61,841 |   | $ | 16,344 |   | $ | 578,794 |   |
|                                       |       | 2008     |       | $                   | 218,400    |                                                                         | $          | 104,723                                                                     |       | $                                                                           | 71,575     |                                                                        | $          | (31,837                                                                                                          | )          | $                                         | 10,665     |      | $          | 11,963 |   | $ | 14,445 |   | $ | 399,934 |   |

 

----

(1)          Amounts shown are notreduced to reflect the Named Executive Officers’ elections, if any, to defercompensation into the Supplemental Executive Retirement Plan (SERP).

(2)          Represents the stated valueof contract rights that were earned in the fiscal year, which was the yearperformance targets were achieved. Contract rights vest equally over a threeyear period.  For further informationregarding the Long-Term Incentive Plan, see “Compensation Discussion andAnalysis” within this Form 10-K.

(3)          Represents the change invalue of the outstanding contract rights granted to the executives in prioryears of $350 per contract right in 2010, $450 per contract right in 2009 and($350) per contract right in 2008. Contract rights vest equally over a three year period.  For further information regarding theLong-Term Incentive Plan, see “Compensation Discussion and Analysis” withinthis Form  10-K.

(4)          Represents theProfit-Per-Acre payments that were earned in the fiscal year on vested contractrights.

(5)          Components of Change inPension Value and NQDC Earnings. See table below for details:

 

**Change in Pension Value and Nonqualified DeferredCompensation Earnings**

 
| **Name and Principal Position**                         | ** ** | **Pension (A)** | ** ** | **SERP-(Pension)  (A)** | ** ** | **Preferential  Interest on Non-  Qualified  Deferred  Compensation (B)** | ** ** | **Total** | ** ** |
|------------------------------------------------------------------------|------------|----------------------|------------|-------------------------|------------|------------------------------------------------------------------------------------------|------------|-----------|------------|
| David A. Berg - President and Chief Executive  Officer                 |       | $                    | 203,170    |                    | $          | 299,469                                                                                  |       | $         | 0          |   | $ | 502,639 |   |
|                                                                   |       |                 |       |                    |       |                                                                                     |       |      |       |
| Thomas S. Astrup - Vice President-Finance and  Chief Financial Officer |       | $                    | 75,802     |                    | $          | 27,411                                                                                   |       | $         | 0          |   | $ | 103,213 |   |
|                                                                   |       |                 |       |                    |       |                                                                                     |       |      |       |
| Joseph J. Talley - Chief Operating Officer                             |       | $                    | 121,178    |                    | $          | 54,946                                                                                   |       | $         | 0          |   | $ | 176,124 |   |
|                                                                   |       |                 |       |                    |       |                                                                                     |       |      |       |
| Brian F. Ingulsrud - Vice President-Administration                     |       | $                    | 130,492    |                    | $          | 42,280                                                                                   |       | $         | 0          |   | $ | 172,772 |   |

 

----

(A) Representsthe change in the present value of the accumulated benefits provided by theplan or agreement including the efffect of the decrease in the discount ratefrom 6.55% to 5.00%.

(B) Interest is considered to be preferential if the rate paid to the executiveexceeds 120% of the applicable long-term federal rate under the Interal RevenueCode.  Amounts reported reflect only theinterest that exceeds 120% of the applicable long-term federal rate.

 

(6)          Includes the imputed valueof Company provided life insurance and long-term disability insurance, carallowance, reimbursement of health club dues, costs of tax return preparation,costs of medical physicals, Company 401(k) matching contributions, Companymatching SERP contributions, flexible spending taxable cash and flexiblespending dollars into 401(k).

 

40

----

 

**Grants of Plan-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 Long-Term Incentive Plan(LTIP).  The amounts of these awards thatwere expensed are shown in the Summary Compensation Table.  The table below also discloses the estimatedfuture payouts related to contract rights under the LTIP, Short-Term IncentivePlan (STIP) and the Profit-Per-Acre (PPA) payment under the LTIP.

 

**Grants of Plan-BasedAwards Table**

 
| **Name and Principal**                                       | ** ** | ** **          | ** ** | ** **           | ** ** | **Units**   | ** ** | **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)** | ** ** |
|------------------------------------------------------------------------|------------|---------------------|------------|----------------------|------------|-------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------|------------|
| **Position**                                                           | ** ** | **Grant Date** | ** ** | **Action Date** | ** ** | **Granted** | ** ** | **Threshold**                                                                                                                                                   | ** ** | **Target**                                                                                                             | ** ** | **Maximum**                                                                                                                       | ** ** | **Threshold** | ** ** | **Target** | ** ** | **Maximum** | ** ** | **Threshold** | ** ** | **Target** | ** ** | **Maximum** | ** ** |
| David  A. Berg - President and Chief Executive Officer                 |       | 8/31/2010           |       | 9/28/2010            |       | 116.69      |       |                                                                                                                                                            |       | $                                                                                                                      | 297,560    |                                                                                                                              |       |   | $ | 0 |   | $ | 252,450 |   | $ | 504,900 |   |   |   | $ | 36,835 |   |   |   |
| Thomas  S. Astrup - Vice President-Finance and Chief Financial Officer |       | 8/31/2010           |       | 9/28/2010            |       | 29.21       |       |                                                                                                                                                            |       | $                                                                                                                      | 74,486     |                                                                                                                              |       |   | $ | 0 |   | $ | 98,315 |   | $ | 196,630 |   |   |   | $ | 9,221 |   |   |   |
| Joseph  J. Talley - Chief Operating Officer                            |       | 8/31/2010           |       | 9/28/2010            |       | 38.05       |       |                                                                                                                                                            |       | $                                                                                                                      | 97,028     |                                                                                                                              |       |   | $ | 0 |   | $ | 128,049 |   | $ | 256,099 |   |   |   | $ | 12,011 |   |   |   |
| Brian  F. Ingulsrud - Vice President-Administration                    |       | 8/31/2010           |       | 9/28/2010            |       | 26.61       |       |                                                                                                                                                            |       | $                                                                                                                      | 67,856     |                                                                                                                              |       |   | $ | 0 |   | $ | 89,553 |   | $ | 179,106 |   |   |   | $ | 8,400 |   |   |   |

 

----

(1)          The “Target” amounts representcontract rights at the 8/31/2010 stated value of $2,550 per contractright.  These rights vest to theexecutive equally over three years. Theoretically, the minimum received for these contract rights could be$0 and there is no maximum.

(2)          The amounts indicatedrepresent future potential payments under the Short-Term Incentive Plan (STIP)based on the executives’ salary as of August 31, 2010.

(3)          The “Target” amountrepresents future Profit Per Acre (PPA) annual payments that will be paid toexecutives upon vesting and assuming a similar beet payment and on-farm coststo that experienced in fiscal year 2010. PPA payments are only paid on vested contract rights.  Theoretically the minimum payment could be $0and there is no maximum.

 

41

----

 

**Pension Benefits**

 

The table below reflectsinformation for the Named Executive Officers pertaining to the Company’sPension Plan and the Supplemental Executive Retirement Plan.

 
| **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) |       | 23                                               |       | $                                                                 | 566,246    |                                                 | —     |   |
|                                                                   |       |                                        |       |                                             |       |                                                              |       |                                                 |       |
|                                                                   |       | Supplemental Executive Retirement Plan (2)  |       | 23                                               |       | $                                                                 | 576,343    |                                                 | —     |   |
|                                                                   |       |                                        |       |                                             |       |                                                              |       |                                                 |       |
| Thomas S. Astrup - Vice President-Finance and  Chief Financial Officer |       | Retirement Plan A For Employees of ACSC (2) |       | 16                                               |       | $                                                                 | 166,425    |                                                 | —     |   |
|                                                                   |       |                                        |       |                                             |       |                                                              |       |                                                 |       |
|                                                                   |       | Supplemental Executive Retirement Plan (2)  |       | 16                                               |       | $                                                                 | 63,327     |                                                 | —     |   |
|                                                                   |       |                                        |       |                                             |       |                                                              |       |                                                 |       |
| Joseph J. Talley - Chief Operating Officer                             |       | Retirement Plan A For Employees of ACSC (2) |       | 16                                               |       | $                                                                 | 289,261    |                                                 | —     |   |
|                                                                   |       |                                        |       |                                             |       |                                                              |       |                                                 |       |
|                                                                   |       | Supplemental Executive Retirement Plan (2)  |       | 16                                               |       | $                                                                 | 179,000    |                                                 | —     |   |
|                                                                   |       |                                        |       |                                             |       |                                                              |       |                                                 |       |
| Brian F. Ingulsrud - Vice President-Administration                     |       | Retirement Plan A For Employees of ACSC (2) |       | 19                                               |       | $                                                                 | 291,241    |                                                 | —     |   |
|                                                                   |       |                                        |       |                                             |       |                                                              |       |                                                 |       |
|                                                                   |       | Supplemental Executive Retirement Plan (2)  |       | 19                                               |       | $                                                                 | 68,406     |                                                 | —     |   |

 

----

(1)          Footnote (10), “EmployeeBenefit Plans”, of the Company’s Notes to the Consolidated Financial Statementsdiscloses the significant assumptions used in calculating this benefit.

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

 

42

----

 

**Non-Qualified Deferred Compensation**

 

The table below reflects information for the NamedExecutive Officers pertaining to non-qualified deferred compensation.  All non-qualified deferred compensationlisted 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                  |       | $                                                                         | 31,658     |                                                                       | $          | 25,026                                                               |       | $                                                   | 21,306     |                                                                | —     |   | $ | 586,017 |   |
|                                                                   |       |                                                                      |       |                                                                       |       |                                                                 |       |                                                |       |                                                                |       |
| Thomas S. Astrup - Vice President-Finance and  Chief Financial Officer |       | —                                                                    |       | $                                                                          | 6,277      |                                                                 | $          | 3,793                                               |       | —                                                              |       | $ | 72,980 |   |
|                                                                   |       |                                                                      |       |                                                                       |       |                                                                 |       |                                                |       |                                                                |       |
| Joseph J. Talley - Chief Operating Officer                             |       | $                                                                         | 140,401    |                                                                       | $          | 10,163                                                               |       | $                                                   | 43,938     |                                                                | —     |   | $ | 1,075,741 |   |
|                                                                   |       |                                                                      |       |                                                                       |       |                                                                 |       |                                                |       |                                                                |       |
| Brian F. Ingulsrud - Vice President-Administration                     |       | $                                                                         | 3,346      |                                                                       | $          | 4,013                                                                |       | $                                                   | 331        |                                                                | —     |   | $ | 20,664 |   |

 

----

(1)          Executives may defer from 2%to 20% of eligible earnings above the limit for a qualified plan and up to 100%of incentive compensation (which includes short-term incentive comp, profit peracre payments and proceeds from the sale of contract rights).  These amounts are included in the SummaryCompensation Table.

(2)          Represents Company 401kmatching above the IRS limit for a qualified plan.  These amounts are included in the “All OtherCompensation” column of the Summary Compensation Table.

(3)          Preferential interest isincluded here as well as in the NQDC column of the Summary Compensation Table.There was no preferential interest for the executives during fiscal year2010.  Executives have the option ofinvesting funds in an S&P 500 index fund or in a money market fund guaranteeinginterest at prime as of January 2 of each calendar year.  The 2010, 2009 and 2008 calendar year rateswere 3.25%, 3.25%, and 7.25%, respectively.

(4)          Distributions occur upontermination of employment and can be in a lump sum or in equal installmentsover a period not to exceed ten years.

 

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

 

OnMarch 21, 2007, the Company and Mr. Berg entered into an agreementregarding Mr. Berg’s employment by the Company.  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 withMr. Berg, grants the Board of Directors the authority to establish Mr. Berg’sbase compensation each year, and also provides that he may participate in otherincentive compensation and benefit programs available to the Company’sexecutive officers.

 

IfMr. Berg is terminated without cause, he will be eligible for severancepay equal to two times his then current base salary.  The present value of Mr. Berg’sSupplemental Executive Retirement Plan was approximately $576,000 as of August 31,2010.

 

**Compensation of Directors**

 

TheBoard of Directors meets monthly.  Forfiscal year 2010, the Company provided its directors with compensationconsisting of (i) a payment of $625 per month, (ii) a per diempayment of $300 for each day spent on Company activities, including boardmeetings and other Company functions, and (iii) reimbursement of expensesassociated with director responsibilities. The Chairman of the Board of 

 

43

----

 

Directorsreceived payments of $2,125 per month and a per diem in the amount of $300 foreach day spent on Company activities. The monthly compensation paid to directors and the Chairman increases by$25 per month each fiscal year.

 

Under the terms of the Boardof Directors Deferred Compensation Plan, members of the Board of Directors canelect to defer receipt of their monthly and per diem compensation.  This is an annual irrevocable election madeprior to January 1 of each calendar year the fees 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.  Twopayment options are available at the election of the participant.  Payments can be received in a single lump sumor in equal installments over a period of up to ten years.  The Board of Directors, at its discretion,can elect to distribute the remaining balance at any time.  Interest is earned on the amounts deferredbased on the Company’s weighted average cost of short-term and long-termborrowing.  Currently, there is oneformer Board member who has elected to participate in this plan.  The amount deferred, as of August 31,2010, was approximately $96,000.

 

The table below reflectsdirector compensation for the year ended August 31, 2010.

 

44

----

 
| **Name**                                                        | ** ** | **Fees Earned (1)** | ** ** | **Non-Equity  Incentive Plan  Compensation** | ** ** | **Change in Pension  Value and NQDC  Earnings** | ** ** | **All Other  Compensation** | ** ** | **Total**  | ** ** |
|-----------------------------------------------------------------|------------|-------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------------------------|------------|----------------------------------|------------|------------|------------|
| ** **                                                      | ** ** | ** **                    | ** ** | ** **                                        | ** ** | ** **                                                          | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Neil Widner, Director, Chairman of the Board                    |       | $                             | 44,500     |                                              | N/A        |                                                                | N/A        |                             | N/A        |       | $          | 44,500 |   |
|                                                            |       |                          |       |                                              |       |                                                                |       |                             |       |       |       |
| Curtis Haugen, Director, Vice-Chairman of the  Board            |       | $                             | 29,050     |                                              | N/A        |                                                                | N/A        |                             | N/A        |       | $          | 29,050 |   |
|                                                            |       |                          |       |                                              |       |                                                                |       |                             |       |       |       |
| Donald S. Andringa, Director                                    |       | $                             | 25,750     |                                              | N/A        |                                                                | N/A        |                             | N/A        |       | $          | 25,750 |   |
|                                                            |       |                          |       |                                              |       |                                                                |       |                             |       |       |       |
| William Baldwin, Director                                       |       | $                             | 32,050     |                                              | N/A        |                                                                | N/A        |                             | N/A        |       | $          | 32,050 |   |
|                                                            |       |                          |       |                                              |       |                                                                |       |                             |       |       |       |
| Richard Borgen, Director (2)                                    |       | $                             | 12,850     |                                              | N/A        |                                                                | N/A        |                             | N/A        |       | $          | 12,850 |   |
|                                                            |       |                          |       |                                              |       |                                                                |       |                             |       |       |       |
| John Brainard, Director                                         |       | $                             | 26,200     |                                              | N/A        |                                                                | N/A        |                             | N/A        |       | $          | 26,200 |   |
|                                                            |       |                          |       |                                              |       |                                                                |       |                             |       |       |       |
| Brian Erickson, Director                                        |       | $                             | 30,550     |                                              | N/A        |                                                                | N/A        |                             | N/A        |       | $          | 30,550 |   |
|                                                            |       |                          |       |                                              |       |                                                                |       |                             |       |       |       |
| Robert Green, Director                                          |       | $                             | 30,250     |                                              | N/A        |                                                                | N/A        |                             | N/A        |       | $          | 30,250 |   |
|                                                            |       |                          |       |                                              |       |                                                                |       |                             |       |       |       |
| John Gudajtes, Director                                         |       | $                             | 20,350     |                                              | N/A        |                                                                | N/A        |                             | N/A        |       | $          | 20,350 |   |
|                                                            |       |                          |       |                                              |       |                                                                |       |                             |       |       |       |
| William Hejl, Director                                          |       | $                             | 26,650     |                                              | N/A        |                                                                | N/A        |                             | N/A        |       | $          | 26,650 |   |
|                                                            |       |                          |       |                                              |       |                                                                |       |                             |       |       |       |
| Curtis Knutson, Director                                        |       | $                             | 18,250     |                                              | N/A        |                                                                | N/A        |                             | N/A        |       | $          | 18,250 |   |
|                                                            |       |                          |       |                                              |       |                                                                |       |                             |       |       |       |
| Francis L. Kritzberger, Director and Chairman of  the Board (2) |       | $                             | 21,100     |                                              | N/A        |                                                                | N/A        |                             | N/A        |       | $          | 21,100 |   |
|                                                            |       |                          |       |                                              |       |                                                                |       |                             |       |       |       |
| Dale Kuehl, Director                                            |       | $                             | 23,350     |                                              | N/A        |                                                                | N/A        |                             | N/A        |       | $          | 23,350 |   |
|                                                            |       |                          |       |                                              |       |                                                                |       |                             |       |       |       |
| Jeff McInnes, Director                                          |       | $                             | 22,300     |                                              | N/A        |                                                                | N/A        |                             | N/A        |       | $          | 22,300 |   |
|                                                            |       |                          |       |                                              |       |                                                                |       |                             |       |       |       |
| David Mueller, Director (3)                                     |       | $                             | 14,275     |                                              | N/A        |                                                                | N/A        |                             | N/A        |       | $          | 14,275 |   |
|                                                            |       |                          |       |                                              |       |                                                                |       |                             |       |       |       |
| Wayne Tang, Director (3)                                        |       | $                             | 18,625     |                                              | N/A        |                                                                | N/A        |                             | N/A        |       | $          | 18,625 |   |
|                                                            |       |                          |       |                                              |       |                                                                |       |                             |       |       |       |
| Steve Williams, Director                                        |       | $                             | 32,050     |                                              | N/A        |                                                                | N/A        |                             | N/A        |       | $          | 32,050 |   |

 

----

(1)          Consists of fees of $625 permonth to Directors and $2,125 to the Chairman of the Board.  The Chairman and Directors also receive a perdiem fee of $300 for each day spent on Company activities.

(2)          Term expired in December of2009.

(3)          Term began in December of2009.

 

**Item 12.****                                ****SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS**

 

Understate law and the Company’s Bylaws, each member of the cooperative is entitledto one vote, regardless of the number of shares the member holds.  The Common Stock of the Company is votingstock and each member of the Company holds one share of Common Stock.  The Preferred Stock of the Company isnon-voting stock.  The Company’s stockcan 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 own approximately 2 to 3 percent of the outstanding Preferred Stock.

 

45

----

 

**Item 13.****                                ****CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**

 

Inaccordance with the Company’s Bylaws, only people who are members of theCompany or representatives of members can serve on our Board of Directors.  As members of the Company (or representativesof members), all of our Directors have a contractual patronage relationshipwith the Company that obligates them to deliver sugarbeets to the Company forprocessing.  As a result of this patronagerelationship, our Directors, like all other members of the Company, receivebeet payments from the Company.

 

TheCompany has developed its own definition of “Independent Director” that takesinto account the patronage relationship that exists between the company and theDirector.  Under the Company’sdefinition, the patronage relationship is not considered for purposes ofdetermining “independence”.  However,other relevant relationships between the Company and the Directors, and certainfamily members, are considered in assessing independence.  Except with respect to the patronagerelationship that exists, the Company’s definition is consistent with thedefinition of an independent director found in Section 303A.02 of the NewYork Stock Exchange Listed Company Manual.

 

TheCompany’s definition of Director Independence is provided below:

 

Adirector of the Company shall be considered an “Independent Director” unless:

 

(a)Thedirector has a material financial relationship with the Company (eitherdirectly or as a partner, shareholder or officer of an organization that has arelationship with the Company) other than the patronage relationship thatexists between the Company and each of its members.

 

(b)Thedirector is, or has been within the last 3 years, an employee of the Company;or immediate family member is, or has been within the last 3 years, anemployee, of the Company.

 

(c)Thedirector has received, or an immediate family member has received, during any12-month period within the last 3 years, more than $120,000 in directcompensation from the Company, other than director or committee fees andpension or other forms of deferred compensation for prior service (providedsuch compensation is not contingent in any way on continued service).

 

(d)

 

(i)thedirector is a current partner or employee of a firm that is the Company’sinternal or external auditor;

(ii)thedirector has an immediate family member who is a current partner of such firm;

(iii)thedirector has an immediate family member who is a current employee of such afirm and personally works on the Company’s audits; or

(iv)thedirector or an immediate family member was, within the last 3 years, a partneror employee of such a firm and personally worked on the Company’s audit withinthat timeframe.

 

(e)TheDirector or an immediate family member is, or has been within the last 3 years,employed as an executive officer of another company, or any of the Company’spresent executive officers, at the same time serves or served on that Company’scompensation committee.

 

46

----

 

(f)TheDirector is a current employee, or an immediate family member is a currentexecutive officer, of a company that has made payments to, or received paymentsfrom, the Company for property or services in an amount which, in any of thelast 3 fiscal years, exceeds the greater of $1,000,000 or 2% of such company’sconsolidated gross revenues, other than as a result of such person’s patronagerelationship with the Company.

 

Referencesto “company” include any parent or subsidiary in a consolidated group with suchother company.

 

Basedon the above definition, all of our Directors are independent of management andof the Company.

 

**Item 14.****                                ****PRINCIPALACCOUNTING FEES AND SERVICES**

 

Thefollowing table presents fees for professional audit services rendered by EideBailly LLP for the audits of the Company’s and consolidated companies’ annualfinancial statements for the years ended August 31, 2010 and 2009 and feesfor other services rendered by Eide Bailly LLP during those periods.

 
| **(In Thousands)** | ** ** | **2010** | ** ** | **2009** | ** ** |
|-------------------------|------------|----------|------------|----------|------------|
| Audit Fees              |       | $        | 129        |     | $          | 129 |   |
| Audit-Related Fees      |       | 33       |       | 36       |       |
| Tax Fees                |       | 34       |       | 32       |       |
| All Other Fees          |       | 8        |       | 16       |       |
| Total                   |       | $        | 204        |     | $          | 213 |   |

 

**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 2010 and fiscal 2009.

 

**Audit-Related Fees.**  The Audit-Related Fees set forth aboveinclude the aggregate fees billed by Eide Bailly LLP to the Company andconsolidated companies for assurance and related services provided by EideBailly LLP related to the performance of the audit or review of the Company’sfinancial statements for fiscal 2010 and fiscal 2009.  These services included benefit plan audits.

 

**Tax Fees.**  The Tax Fees set forth above include theaggregate fees billed by Eide Bailly LLP to the Company and consolidatedcompanies for professional services rendered by Eide Bailly for tax compliance,tax advice and tax planning for fiscal 2010 and fiscal 2009.  These services include tax returnpreparation, tax planning and tax research.

 

**All Other Fees.**  All Other Fees set forth above include theaggregate fees billed by Eide Bailly LLP to the Company and consolidatedcompanies for professional services provided by Eide Bailly LLP to the Companyand consolidated companies for fiscal 2010 and fiscal 2009.

 

TheCompany’s Audit Committee pre-approves all professional services provided byEide Bailly LLP to the Company.  TheAudit Committee approved all****of the services and the fees billedfor such services to the Company.  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 2010 financial statements wereattributed to work performed by persons who were not employed full time on apermanent basis by Eide Bailly LLP.

 

47

----

 

**PART III**

 

**Item 15.****                                ****EXHIBITSAND FINANCIAL STATEMENT SCHEDULES**

 

(a)           Documents filed as part of thisreport

 
| 1.     | Consolidated Financial Statements                                                                                                        |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|
|   | Report of Independent Registered Public Accounting  Firm                                                                                           |
|   | Consolidated Statements of Operations for the  Years Ended August 31, 2010, 2009 and 2008                                                     |
|   | Consolidated Balance Sheets as of August 31,  2010 and 2009                                                                                   |
|   | Consolidated Statements of Changes in Members’  Investments and Comprehensive Income for the Years Ended August 31,  2010, 2009 and 2008 |
|   | Consolidated Statements of Cash Flows for the  Years Ended August 31, 2010, 2009 and 2008                                                     |
|   | Notes to the Consolidated Financial Statements                                                                                                     |
|   |                                                                                                                                               |
| 2.     | Financial Statement Schedules                                                                                                                      |
|   | None                                                                                                                                               |
|   |                                                                                                                                               |
| 3.     | The exhibits to this Annual Report on  Form 10-K are listed in the Exhibit Index on pages E-1 to E-4  of this report                |

 

(b)           Exhibits

 

Theresponse to this portion of Item 15 is included as a separate section of thisAnnual Report on Form 10-K.

 

48

----

 

**SIGNATURES**

 

Pursuantto the requirements of Section 13 or 15 of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized, on November 3, 2010.

 
|     | AMERICAN  CRYSTAL SUGAR COMPANY |
|----------|---------------------------------|
|     | By:                             | /s/  DAVID A. BERG |
| * * | * *                        | *President  and Chief Executive Officer* |
| * * | * *                        | * * |
| * * | Dated:  November 3, 2010   |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed by the following persons on behalf of the registrant in thecapacities and on the dates indicated.

 
| **Signature**           | ** ** | **Title**                                                                | ** ** | **Date**               |
|-------------------------|------------|--------------------------------------------------------------------------|------------|------------------------|
| ** **              | ** ** | ** **                                                               | ** ** | ** **             |
| /s/  DAVID A. BERG      |       | President  and Chief Executive Officer (Principal Executive Officer)     |       | November 3,  2010 |
|                    |       |                                                                     |       |                   |
| /s/  THOMAS S. ASTRUP   |       | Vice  President-Finance and Chief Financial Officer (Principal Financial |       | November 3,  2010 |
|                    |       | Officer)                                                                 |       |                   |
|                    |       |                                                                     |       |                   |
| /s/  TERESA A. WARNE    |       | Corporate  Controller (Principal Accounting Officer)                     |       | November 3,  2010 |
|                    |       |                                                                     |       |                   |
| /s/  NEIL C. WIDNER     |       | Director  (Chairman)                                                     |       | November 3,  2010 |
|                    |       |                                                                     |       |                   |
| /s/  CURTIS E. HAUGEN   |       | Director  (Vice-Chairman)                                                |       | November 3,  2010 |
|                    |       |                                                                     |       |                   |
| /s/  DONALD S. ANDRINGA |       | Director                                                                 |       | November 3,  2010 |
|                    |       |                                                                     |       |                   |
| /s/  WILLIAM BALDWIN    |       | Director                                                                 |       | November 3,  2010 |
|                    |       |                                                                     |       |                   |
| /s/  JOHN BRAINARD      |       | Director                                                                 |       | November 3,  2010 |
|                    |       |                                                                     |       |                   |
| /s/  ROBERT M. GREEN    |       | Director                                                                 |       | November 3,  2010 |
|                    |       |                                                                     |       |                   |
| /s/  JOHN F. GUDAJTES   |       | Director                                                                 |       | November 3,  2010 |
|                    |       |                                                                     |       |                   |
| /s/  WILLIAM A. HEJL    |       | Director                                                                 |       | November 3,  2010 |
|                    |       |                                                                     |       |                   |
| /s/  CURTIS KNUTSON     |       | Director                                                                 |       | November 3,  2010 |
|                    |       |                                                                     |       |                   |
| /s/  DALE KUEHL         |       | Director                                                                 |       | November 3,  2010 |
|                    |       |                                                                     |       |                   |
| /s/  JEFF D. MCINNES    |       | Director                                                                 |       | November 3,  2010 |
|                    |       |                                                                     |       |                   |
| /s/  DAVID MUELLER      |       | Director                                                                 |       | November 3,  2010 |
|                    |       |                                                                     |       |                   |
| /s/  WAYNE TANG         |       | Director                                                                 |       | November 3,  2010 |
|                    |       |                                                                     |       |                   |
| /s/  STEVE WILLIAMS     |       | Director                                                                 |       | November 3,  2010 |

 

49

----

 

**APPENDIX A**

 

**INDEX TO THE CONSOLIDATED FINANCIAL 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, 2010, 2009 and  2008                                                    |       | A-3        |
| Consolidated  Balance Sheets as of August 31, 2010 and 2009                                                                                   |       | A-4        |
| Consolidated  Statements of Changes in Members’ Investments and Comprehensive Income for  the Years Ended August 31, 2010, 2009 and 2008 |       | A-6        |
| Consolidated  Statements of Cash Flows for the Years Ended August 31, 2010, 2009 and  2008                                                    |       | A-7        |
| Notes to  the Consolidated Financial Statements                                                                                                    |       | A-8        |

 

A-1

----

 

**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

 

Tothe Audit Committee of **American Crystal SugarCompany**

Moorhead,Minnesota

 

Wehave audited the accompanying consolidated balance sheets of **American Crystal Sugar Company****andSubsidiaries**as of August 31, 2010 and 2009, and the relatedconsolidated statements of operations, changes in members’ investments andcomprehensive income, and cash flows for the years ended August 31, 2010,2009, and 2008.  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 of materialmisstatement.  The Company is notrequired 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.

 

Inour opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of **American Crystal Sugar Company and Subsidiaries** as ofAugust 31, 2010 and 2009, and the results of their operations and theircash flows for the years ended August 31, 2010, 2009, and 2008, inconformity with accounting principles generally accepted in the United Statesof America.

 

Asdescribed in Note 1, in accordance with authoritative guidance issued by theFinancial Accounting Standards Board (FASB), the Company has modified the basisof presentation policy related to the presentation of noncontrolling interests.On a retrospective basis for all periods presented in this report, the Companyhas included the net proceeds attributable to noncontrolling interests, whichwas previously referred to as minority interest, as a component of consolidatednet proceeds reflected on the Consolidated Statements of Operations. Inaddition, noncontrolling interest on the Consolidated Balance Sheets are nowreflected as a component of Total Members’ Investments.

 

 

/s/EIDE BAILLY LLP

 

Minneapolis,Minnesota

November 3,2010

 

A-2

----

 

**American Crystal Sugar Company**

**ConsolidatedStatements of Operations**

**For the Years Ended August 31**

**(In Thousands)**

** **
| ** **                                                                              | ** ** | **2010**    | ** **    | **2009** | ** ** | **2008**  | ** ** |
|-----------------------------------------------------------------------------------------|------------|-------------|---------------|----------|------------|-----------|------------|
| **Net Revenue**                                                                         | ** ** | **$**       | **1,203,897** |     | $          | 1,200,229 |       | $ | 1,232,832 |   |
|                                                                                    |       |        |          |     |       |      |       |
| **Cost of Sales**                                                                       | ** ** | **420,842** |          | 405,714  |       | 402,928   |       |
|                                                                                    |       |        |          |     |       |      |       |
| **Gross Proceeds**                                                                      | ** ** | **783,055** |          | 794,515  |       | 829,904   |       |
|                                                                                    |       |        |          |     |       |      |       |
| **Selling, General and  Administrative Expenses**                                       | ** ** | **238,905** |          | 244,174  |       | 267,539   |       |
|                                                                                    |       |        |          |     |       |      |       |
| **Operating Proceeds**                                                                  | ** ** | **544,150** |          | 550,341  |       | 562,365   |       |
|                                                                                    |       |        |          |     |       |      |       |
| **Other Income (Expense):**                                                             | ** ** | ** **  |          |     |       |      |       |
| Interest Income                                                                         | ** ** | **150**     |          | 209      |       | 740       |       |
| Interest Expense, Net                                                                   | ** ** | **(9,012**  | **)**         | (10,058  | )          | (14,750   | )          |
| Other, Net                                                                              | ** ** | **(435**    | **)**         | 3,943    |       | (165      | )          |
|                                                                                    |       |        |          |     |       |      |       |
| **Total Other Expense**                                                                 | ** ** | **(9,297**  | **)**         | (5,906   | )          | (14,175   | )          |
|                                                                                    |       |        |          |     |       |      |       |
| **Proceeds Before Income Tax**                                                          | ** ** | **534,853** |          | 544,435  |       | 548,190   |       |
|                                                                                    |       |        |          |     |       |      |       |
| **Income Tax (Expense)/Benefit**                                                        | ** ** | **(2,309**  | **)**         | (2,181   | )          | 1,399     |       |
|                                                                                    |       |        |          |     |       |      |       |
| **Consolidated Net Proceeds**                                                           | ** ** | **532,544** |          | 542,254  |       | 549,589   |       |
|                                                                                    |       |        |          |     |       |      |       |
| **Less: Net Proceeds Attributable  to Noncontrolling Interests**                        | ** ** | **(6,432**  | **)**         | (6,103   | )          | (6,896    | )          |
|                                                                                    |       |        |          |     |       |      |       |
| **Net Proceeds Attributable to  American Crystal Sugar Company**                        | ** ** | **$**       | **526,112**   |     | $          | 536,151   |       | $ | 542,693 |   |
|                                                                                    |       |        |          |     |       |      |       |
| **Distributions of Net Proceeds  Attributable to American Crystal Sugar Company:**      | ** ** | ** **  |          |     |       |      |       |
| Credited (Charged) to American Crystal Sugar  Company’s Members’ Investments: | ** ** | ** **  |          |     |       |      |       |
| Non-Member Business Income/(Loss)                                                       | ** ** | **$**       | **5,426**     |     | $          | 2,309     |       | $ | (4,787 | ) |
| Unit Retains Declared to Members                                                        | ** ** | **29,531**  |          | 31,024   |       | 23,260    |       |
| Net Credit to American Crystal Sugar Company’s  Members’ Investments          | ** ** | **34,957**  |          | 33,333   |       | 18,473    |       |
| Payments to Members for Sugarbeets, Net of Unit  Retains Declared                       | ** ** | **491,155** |          | 502,818  |       | 524,220   |       |
| **Total**                                                                               | ** ** | **$**       | **526,112**   |     | $          | 536,151   |       | $ | 542,693 |   |

 

TheAccompanying Notes are an Integral Part of These Consolidated FinancialStatements.

 

A-3

----

 

**American Crystal Sugar Company**

**ConsolidatedBalance Sheets**

**August 31**

**(In Thousands)**

** **

**Assets**

** **
| ** **                                     | ** ** | **2010**     | ** **  | **2009** | ** ** |
|------------------------------------------------|------------|--------------|-------------|----------|------------|
| **Current Assets:**                            | ** ** | ** **   |        |     |       |
| Cash and Cash Equivalents                      | ** ** | **$**        | **128**     |     | $          | 127 |   |
| Receivables:                                   | ** ** | ** **   |        |     |       |
| Trade                                          | ** ** | **52,608**   |        | 61,665   |       |
| Members                                        | ** ** | **5,195**    |        | 4,480    |       |
| Other                                          | ** ** | **4,080**    |        | 2,565    |       |
| Advances to Related Parties                    | ** ** | **15,243**   |        | 22,744   |       |
| Inventories                                    | ** ** | **204,117**  |        | 181,311  |       |
| Prepaid Expenses                               | ** ** | **815**      |        | 864      |       |
|                                           |       |         |        |     |       |
| **Total Current Assets**                       | ** ** | **282,186**  |        | 273,756  |       |
|                                           |       |         |        |     |       |
| **Property and Equipment:**                    | ** ** | ** **   |        |     |       |
| Land and Land Improvements                     | ** ** | **73,804**   |        | 67,011   |       |
| Buildings                                      | ** ** | **124,533**  |        | 116,907  |       |
| Equipment                                      | ** ** | **942,346**  |        | 892,678  |       |
| Construction in Progress                       | ** ** | **16,737**   |        | 14,522   |       |
| Less Accumulated Depreciation                  | ** ** | **(775,904** | **)**       | (737,182 | )          |
|                                           |       |         |        |     |       |
| **Net Property and Equipment**                 | ** ** | **381,516**  |        | 353,936  |       |
|                                           |       |         |        |     |       |
| **Net Property and Equipment Held for  Lease** | ** ** | **102,333**  |        | 111,015  |       |
|                                           |       |         |        |     |       |
| **Other Assets:**                              | ** ** | ** **   |        |     |       |
| Investments in CoBank, ACB                     | ** ** | **8,771**    |        | 10,111   |       |
| Investments in Marketing Cooperatives          | ** ** | **1,094**    |        | 135      |       |
| Other Assets                                   | ** ** | **11,778**   |        | 12,305   |       |
|                                           |       |         |        |     |       |
| **Total Other Assets**                         | ** ** | **21,643**   |        | 22,551   |       |
|                                           |       |         |        |     |       |
| **Total Assets**                               | ** ** | **$**        | **787,678** |     | $          | 761,258 |   |

 

TheAccompanying Notes are an Integral Part of These Consolidated FinancialStatements.

 

A-4

----

 

**American Crystal Sugar Company**

**Consolidated Balance Sheets**

**August 31**

**(In Thousands)**

** **

**Liabilities and Members’ Investments**

 
| ** **                                                      | ** ** | **2010**    | ** **  | **2009** | ** ** |
|-----------------------------------------------------------------|------------|-------------|-------------|----------|------------|
| **Current Liabilities:**                                        | ** ** | ** **  |        |     |       |
| Short-Term Debt                                                 | ** ** | **$**       | **5,000**   |     | $          | 45,989 |   |
| Current Maturities of Long-Term Debt                            | ** ** | **375**     |        | 18,789   |       |
| Accounts Payable                                                | ** ** | **37,298**  |        | 35,381   |       |
| Advances Due to Related Parties                                 | ** ** | **5,697**   |        | 1,863    |       |
| Other Current Liabilities                                       | ** ** | **42,626**  |        | 34,034   |       |
| Amounts Due Growers                                             | ** ** | **137,133** |        | 87,218   |       |
|                                                            |       |        |        |     |       |
| **Total Current Liabilities**                                   | ** ** | **228,129** |        | 223,274  |       |
|                                                            |       |        |        |     |       |
| **Long-Term Debt, Net of Current  Maturities**                  | ** ** | **140,698** |        | 143,073  |       |
|                                                            |       |        |        |     |       |
| **Accrued Employee Benefits**                                   | ** ** | **77,584**  |        | 46,458   |       |
|                                                            |       |        |        |     |       |
| **Other Liabilities**                                           | ** ** | **10,657**  |        | 8,925    |       |
|                                                            |       |        |        |     |       |
| **Total Liabilities**                                           | ** ** | **457,068** |        | 421,730  |       |
|                                                            |       |        |        |     |       |
| **Commitments and Contingencies**                               | ** ** | ** **  |        |     |       |
|                                                            |       |        |        |     |       |
| **Members’ Investments:**                                  | ** ** | ** **  |        |     |       |
| Preferred Stock                                                 | ** ** | **38,275**  |        | 38,275   |       |
| Common Stock                                                    | ** ** | **28**      |        | 28       |       |
| Additional Paid-In Capital                                      | ** ** | **152,261** |        | 152,261  |       |
| Unit Retains                                                    | ** ** | **193,779** |        | 181,601  |       |
| Accumulated Other Comprehensive Income (Loss)                   | ** ** | **(85,986** | **)**       | (63,705  | )          |
| Retained Earnings (Accumulated Deficit)                         | ** ** | **(18,456** | **)**       | (23,882  | )          |
|                                                            |       |        |        |     |       |
| Total American Crystal Sugar Company Members’  Investments | ** ** | **279,901** |        | 284,578  |       |
|                                                            |       |        |        |     |       |
| Noncontrolling Interests                                        | ** ** | **50,709**  |        | 54,950   |       |
|                                                            |       |        |        |     |       |
| **Total Members’ Investments**                             | ** ** | **330,610** |        | 339,528  |       |
|                                                            |       |        |        |     |       |
| **Total Liabilities and Members’  Investments**            | ** ** | **$**       | **787,678** |     | $          | 761,258 |   |

 

TheAccompanying Notes are an Integral Part of These Consolidated FinancialStatements.

 

A-5

----

 

**American Crystal Sugar Company**

**ConsolidatedStatements of Changes in Members’ Investments and Comprehensive Income**

**For the Years Ended August 31**

**(In Thousands)**

 
| ** **                                                | ** ** | ** **    | ** ** | ** ** | ** ** | ** **     | ** ** | ** **  | ** **  | ** **    | ** ** | **Accumulated**        | ** ** | **Retained**     | ** ** | **American**           | ** ** | ** **         | ** ** | ** **  | ** **  | ** **             | ** ** |
|-----------------------------------------------------------|------------|---------------|------------|------------|------------|----------------|------------|-------------|-------------|---------------|------------|------------------------|------------|------------------|------------|------------------------|------------|--------------------|------------|-------------|-------------|------------------------|------------|
| ** **                                                | ** ** | ** **    | ** ** | ** ** | ** ** | **Additional** | ** ** | ** **  | ** **  | ** **    | ** ** | **Other**              | ** ** | **Earnings**     | ** ** | **Crystal Sugar** | ** ** | ** **         | ** ** | ** **  | ** **  | **Annual**             | ** ** |
| ** **                                                | ** ** | **Preferred** | ** ** | **Common** | ** ** | **Paid-In**    | ** ** | **Unit**    | ** **  | **Equity**    | ** ** | **Comprehensive**      | ** ** | **(Accumulated** | ** ** | **Company**            | ** ** | **Noncontrolling** | ** ** | ** **  | ** **  | **Comprehensive**      | ** ** |
| ** **                                                | ** ** | **Stock**     | ** ** | **Stock**  | ** ** | **Capital**    | ** ** | **Retains** | ** **  | **Retention** | ** ** | **Income (Loss)** | ** ** | **Deficit)**     | ** ** | **Total**              | ** ** | **Interests**      | ** ** | **Total**   | ** **  | **Income (Loss)** | ** ** |
| **Balance, August 31, 2007**                         |       | $             | 38,275     |       | $          | 29             |       | $           | 152,261     |          | $          | 170,363                |       | $                | 2,687      |                   | $          | (8,552             | )          | $           | (21,178     | )                      | $          | 333,885 |   | $ | 61,735 |   | $ | 395,620 |   |   |   |
| Non-Member Business Loss                                  |       | —        |       | —     |       | —         |       | —      |        | —        |       | —                 |       | (4,787           | )          | (4,787                 | )          | —             |       | (4,787      | )           | $                      | (4,787     | ) |
| Net Proceeds Noncontrolling Interests                     |       | —        |       | —     |       | —         |       | —      |        | —        |       | —                 |       | —           |       | —                 |       | 6,896              |       | 6,896       |        |                   |       |
| Distributions to Noncontrolling Interests                 |       | —        |       | —     |       | —         |       | —      |        | —        |       | —                 |       | —           |       | —                 |       | (8,792             | )          | (8,792      | )           |                   |       |
| SFAS 158 Unrecognized Prior Service Costs                 |       | —        |       | —     |       | —         |       | —      |        | —        |       | 1,317                  |       | —           |       | 1,317                  |       | —             |       | 1,317       |        | 1,317                  |       |
| SFAS 158 Unrecognized Gain/(Loss)                         |       | —        |       | —     |       | —         |       | —      |        | —        |       | (224                   | )          | —           |       | (224                   | )          | —             |       | (224        | )           | (224                   | )          |
| OCI of Equity Method Investees                            |       | —        |       | —     |       | —         |       | —      |        | —        |       | (1,491                 | )          | —           |       | (1,491                 | )          | —             |       | (1,491      | )           | (1,491                 | )          |
| Forward Contract Foreign Currency Loss                    |       | —        |       | —     |       | —         |       | —      |        | —        |       | (34                    | )          | —           |       | (34                    | )          | —             |       | (34         | )           | (34                    | )          |
| Unit Retains Withheld from Members                        |       | —        |       | —     |       | —         |       | 23,260      |        | —        |       | —                 |       | —           |       | 23,260                 |       | —             |       | 23,260      |        |                   |       |
| Payments of Unit Retains and Equity Retention to  Members |       | —        |       | —     |       | —         |       | (19,117     | )           | (1,532        | )          | —                 |       | —           |       | (20,649                | )          | —             |       | (20,649     | )           |                   |       |
| Stock Issued, Net                                         |       | —        |       | (1         | )          | —         |       | —      |        | —        |       | —                 |       | —           |       | (1                     | )          | —             |       | (1          | )           |                   |       |
|                                                      |       |          |       |       |       |           |       |        |        |          |       |                   |       |             |       |                   |       |               |       |        |        |                   |       |
| **Balance, August 31, 2008**                         |       | 38,275        |       | 28         |       | 152,261        |       | 174,506     |        | 1,155         |       | (8,984                 | )          | (25,965          | )          | 331,276                |       | 59,839             |       | 391,115     |        | $                      | (5,219     | ) |
| Non-Member Business Income                                |       | —        |       | —     |       | —         |       | —      |        | —        |       | —                 |       | 2,309            |       | 2,309                  |       | —             |       | 2,309       |        | $                      | 2,309      |   |
| Net Proceeds Noncontrolling Interests                     |       | —        |       | —     |       | —         |       | —      |        | —        |       | —                 |       | —           |       | —                 |       | 6,103              |       | 6,103       |        |                   |       |
| Distributions to Noncontrolling Interests                 |       | —        |       | —     |       | —         |       | —      |        | —        |       | —                 |       | —           |       | —                 |       | (10,992            | )          | (10,992     | )           |                   |       |
| SFAS 158 Unrecognized Prior Service Costs                 |       | —        |       | —     |       | —         |       | —      |        | —        |       | 1,644                  |       | —           |       | 1,644                  |       | —             |       | 1,644       |        | 1,644                  |       |
| SFAS 158 Unrecognized Gain/(Loss)                         |       | —        |       | —     |       | —         |       | —      |        | —        |       | (51,624                | )          | —           |       | (51,624                | )          | —             |       | (51,624     | )           | (51,624                | )          |
| SFAS 158 Measurement Date Adjustment                      |       |          |       |       |       |           |       |        |        |          |       |                   |       | (226             | )          | (226                   | )          | —             |       | (226        | )           | (226                   | )          |
| OCI of Equity Method Investees                            |       | —        |       | —     |       | —         |       | —      |        | —        |       | (4,755                 | )          | —           |       | (4,755                 | )          | —             |       | (4,755      | )           | (4,755                 | )          |
| Forward Contract Foreign Currency Gain                    |       | —        |       | —     |       | —         |       | —      |        | —        |       | 14                     |       | —           |       | 14                     |       | —             |       | 14          |        | 14                     |       |
| Unit Retains Withheld from Members                        |       | —        |       | —     |       | —         |       | 31,024      |        | —        |       | —                 |       | —           |       | 31,024                 |       | —             |       | 31,024      |        |                   |       |
| Payments of Unit Retains and Equity Retention to  Members |       | —        |       | —     |       | —         |       | (23,929     | )           | (1,155        | )          | —                 |       | —           |       | (25,084                | )          | —             |       | (25,084     | )           |                   |       |
| Stock Issued, Net                                         |       | —        |       | —     |       | —         |       | —      |        | —        |       | —                 |       | —           |       | —                 |       | —             |       | —      |        |                   |       |
|                                                      |       |          |       |       |       |           |       |        |        |          |       |                   |       |             |       |                   |       |               |       |        |        |                   |       |
| **Balance, August 31, 2009**                         |       | 38,275        |       | 28         |       | 152,261        |       | 181,601     |        | —        |       | (63,705                | )          | (23,882          | )          | 284,578                |       | 54,950             |       | 339,528     |        | $                      | (52,638    | ) |
| Non-Member Business Income                                | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **—**             | ** ** | **5,426**        | ** ** | **5,426**              | ** ** | **—**         | ** ** | **5,426**   | ** **  | **$**                  | **5,426**  | ** ** |
| Net Proceeds Noncontrolling Interests                     | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **—**             | ** ** | **—**       | ** ** | **—**             | ** ** | **6,432**          | ** ** | **6,432**   | ** **  | ** **             | ** ** |
| Distributions to Noncontrolling Interests                 | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **—**             | ** ** | **—**       | ** ** | **—**             | ** ** | **(10,673**        | **)**      | **(10,673** | **)**       | ** **             | ** ** |
| SFAS 158 Unrecognized Prior Service Costs                 | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **1,316**              | ** ** | **—**       | ** ** | **1,316**              | ** ** | **—**         | ** ** | **1,316**   | ** **  | **1,316**              | ** ** |
| SFAS 158 Unrecognized Gain/(Loss)                         | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **(23,054**            | **)**      | **—**       | ** ** | **(23,054**            | **)**      | **—**         | ** ** | **(23,054** | **)**       | **(23,054**            | **)**      |
| OCI of Equity Method Investees                            | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **1,262**              | ** ** | **—**       | ** ** | **1,262**              | ** ** | **—**         | ** ** | **1,262**   | ** **  | **1,262**              | ** ** |
| Forward Contract Foreign Currency Loss                    | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **(34**                | **)**      | **—**       | ** ** | **(34**                | **)**      | **—**         | ** ** | **(34**     | **)**       | **(34**                | **)**      |
| Interest Rate Contract                                    | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **(1,771**             | **)**      | **—**       | ** ** | **(1,771**             | **)**      | **—**         | ** ** | **(1,771**  | **)**       | **(1,771**             | **)**      |
| Unit Retains Withheld from Members                        | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **29,531**  | ** **  | **—**    | ** ** | **—**             | ** ** | **—**       | ** ** | **29,531**             | ** ** | **—**         | ** ** | **29,531**  | ** **  | ** **             | ** ** |
| Payments of Unit Retains to Members                       | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **(17,353** | **)**       | **—**    | ** ** | **—**             | ** ** | **—**       | ** ** | **(17,353**            | **)**      | **—**         | ** ** | **(17,353** | **)**       | ** **             | ** ** |
| Stock Issued, Net                                         | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **—**             | ** ** | **—**       | ** ** | **—**             | ** ** | **—**         | ** ** | **—**  | ** **  | ** **             | ** ** |
|                                                      | ** ** | ** **    | ** ** | ** ** | ** ** | ** **     | ** ** | ** **  | ** **  | ** **    | ** ** | ** **             | ** ** | ** **       | ** ** | ** **             | ** ** | ** **         | ** ** | ** **  | ** **  | ** **             | ** ** |
| **Balance, August 31, 2010**                         | ** ** | **$**         | **38,275** | ** ** | **$**      | **28**         | ** ** | **$**       | **152,261** | ** **    | **$**      | **193,779**            | ** ** | **$**            | **—** | ** **             | **$**      | **(85,986**        | **)**      | **$**       | **(18,456** | **)**                  | **$**      | **279,901** | ** ** | **$** | **50,709** | ** ** | **$** | **330,610** | ** ** | **$** | **(16,855** | **)** |

** **

TheAccompanying Notes are an Integral Part of These Consolidated FinancialStatements.

 

A-6

----

 

**American Crystal Sugar Company**

**ConsolidatedStatements of Cash Flows**

**For the Years Ended August 31**

**(In Thousands)**

 
| ** **                                                            | ** ** | **2010**     | ** **  | **2009** | ** ** | **2008** | ** ** |
|-----------------------------------------------------------------------|------------|--------------|-------------|----------|------------|----------|------------|
| **Cash Provided By (Used In)  Operating Activities:**                 | ** ** | ** **   |        |     |       |     |       |
| Net Proceeds Attributable to American Crystal  Sugar Company          | ** ** | **$**        | **526,112** |     | $          | 536,151  |       | $ | 542,693 |   |
| Payments To/Due Members for Sugarbeets, Net of  Unit Retains Declared | ** ** | **(491,155** | **)**       | (502,818 | )          | (524,220 | )          |
| Add (Deduct) Non-Cash Items:                                          | ** ** | ** **   |        |     |       |     |       |
| Depreciation and Amortization                                         | ** ** | **55,580**   |        | 55,046   |       | 58,197   |       |
| Impairment Loss                                                       | ** ** | **—**   |        | —   |       | 11,867   |       |
| (Income)/Loss from Equity Method Investees                            | ** ** | **521**      |        | (636     | )          | 221      |       |
| Loss on the Disposition of Property and Equipment                     | ** ** | **535**      |        | 1,049    |       | 504      |       |
| Non-Cash Portion of Patronage Dividend from  CoBank, ACB              | ** ** | **(147**     | **)**       | (165     | )          | (121     | )          |
| Deferred Gain Recognition                                             | ** ** | **(63**      | **)**       | (108     | )          | (197     | )          |
| Noncontrolling Interests                                              | ** ** | **6,432**    |        | 6,103    |       | 6,896    |       |
| Changes in Assets and Liabilities:                                    | ** ** | ** **   |        |     |       |     |       |
| Receivables                                                           | ** ** | **6,827**    |        | 2,741    |       | 13,837   |       |
| Inventories                                                           | ** ** | **(22,806**  | **)**       | 7,017    |       | 28,235   |       |
| Prepaid Expenses                                                      | ** ** | **38**       |        | 312      |       | 7        |       |
| Non-Current Pension Asset/Liability                                   | ** ** | **5,413**    |        | 634      |       | (113     | )          |
| Advances To/Due to Related Parties                                    | ** ** | **11,335**   |        | (3,833   | )          | (12,126  | )          |
| Accounts Payable                                                      | ** ** | **(1,681**   | **)**       | (1,399   | )          | (173     | )          |
| Other Liabilities                                                     | ** ** | **12,505**   |        | 5,697    |       | (8,894   | )          |
| Amounts Due Growers                                                   | ** ** | **49,915**   |        | (33,715  | )          | (22,327  | )          |
| **Net Cash Provided By Operating  Activities**                        | ** ** | **159,361**  |        | 72,076   |       | 94,286   |       |
|                                                                  |       |         |        |     |       |     |       |
| **Cash Provided By (Used In)  Investing Activities:**                 | ** ** | ** **   |        |     |       |     |       |
| Purchases of Property and Equipment                                   | ** ** | **(67,828**  | **)**       | (45,479  | )          | (47,380  | )          |
| Purchases of Property and Equipment Held for Lease                    | ** ** | **(2,648**   | **)**       | (2,331   | )          | (1,358   | )          |
| Proceeds from the Sale of Property and Equipment                      | ** ** | **26**       |        | 18       |       | 57       |       |
| Equity Distribution from CoBank, ACB                                  | ** ** | **1,487**    |        | —   |       | 1,802    |       |
| Investments in Marketing Cooperatives                                 | ** ** | **(154**     | **)**       | 6        |       | (8       | )          |
| Changes in Other Assets                                               | ** ** | **(439**     | **)**       | (1,978   | )          | 2,041    |       |
| **Net Cash (Used In) Investing  Activities**                          | ** ** | **(69,556**  | **)**       | (49,764  | )          | (44,846  | )          |
|                                                                  |       |         |        |     |       |     |       |
| **Cash Provided By (Used In)  Financing Activities:**                 | ** ** | ** **   |        |     |       |     |       |
| Net Proceeds from (Payments on) Short-Term Debt                       | ** ** | **(40,989**  | **)**       | 30,692   |       | (9,683   | )          |
| Proceeds from Issuance of Long-Term Debt                              | ** ** | **—**   |        | 100,092  |       | 25,818   |       |
| Long-Term Debt Repayment                                              | ** ** | **(20,789**  | **)**       | (117,021 | )          | (36,227  | )          |
| Distributions to Noncontrolling Interests                             | ** ** | **(10,673**  | **)**       | (10,992  | )          | (8,792   | )          |
| Changes in Common Stock                                               | ** ** | **—**   |        | —   |       | (1       | )          |
| Payment of Unit Retains and Equity Retention                          | ** ** | **(17,353**  | **)**       | (25,084  | )          | (20,649  | )          |
| **Net Cash (Used In) Financing  Activities**                          | ** ** | **(89,804**  | **)**       | (22,313  | )          | (49,534  | )          |
| **Increase (Decrease) In Cash and  Cash Equivalents**                 | ** ** | **1**        |        | (1       | )          | (94      | )          |
| **Cash and Cash Equivalents,  Beginning of Year**                     | ** ** | **127**      |        | 128      |       | 222      |       |
|                                                                  |       |         |        |     |       |     |       |
| **Cash and Cash Equivalents, End of  Year**                           | ** ** | **$**        | **128**     |     | $          | 127      |       | $ | 128 |   |

 

**Non-Cash Investing Activities:**Purchases ofProperty and Equipment include the changes in accounts payable related to thesepurchases of $3,597,000; $944,000 and ($2,989,000) for the years ended August 31,2010, 2009 and 2008, respectively.

** **

TheAccompanying Notes are an Integral Part of These Consolidated FinancialStatements.

 

A-7

----

 

**American Crystal Sugar Company**

**Notes to the ConsolidatedFinancial Statements**

 

**(1) PRINCIPALACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES:**

 

*Organization*

 

AmericanCrystal Sugar Company (Company) is a Minnesota agricultural cooperativecorporation which processes and markets sugar as well as sugarbeet pulp,molasses, concentrated separated by-product (CSB), betaine (collectively,agri-products) and sugarbeet seed. Business done with its shareholders (members) constitutes “patronagebusiness” as defined by the Internal Revenue Code, and the net proceedstherefrom are credited to members’ investments in the form of unit retains ordistributed to members in the form of payments for sugarbeets.  Members are paid the net amounts realizedfrom the current year’s production less member operating costs determined inconformity with accounting principles generally accepted in the United Statesof America.

 

*Basisof Presentation*

 

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

 

Inaccordance with authoritative guidance issued by the Financial AccountingStandards Board (FASB), the Company has, on a retrospective basis for allperiods presented in this report, included the net proceeds attributable tononcontrolling interests, previously referred to as minority interest, as acomponent of consolidated net proceeds reflected on the Consolidated Statementsof Operations. In addition, noncontrolling interests on the ConsolidatedBalance Sheets are now reflected as a component of Total Members’ Investments.

 

Allmaterial inter-company transactions have been eliminated.

 

*RevenueRecognition*

 

Revenuefrom the sale of sugar, agri-products and seed is recorded when the product isdelivered to the customer.  Operatinglease revenue is recognized as earned ratably over the term of the lease.

 

*OperatingLease*

 

ProGoldowns a corn wet milling 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.

 

*Cashand Cash Equivalents*

 

TheCompany considers all highly liquid investments with a maturity of three monthsor less when purchased to be cash equivalents. The Company places its temporary cash investments with high 

 

A-8

----

 

creditquality financial institutions.  Attimes, such investments may be in excess of the applicable insurance limit.

 

*AccountsReceivable and Credit Policies*

 

TheCompany grants credit, individually and through its marketing cooperatives, toits customers, which are primarily companies in the food processing industrylocated throughout 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 and other agri-products inventories are valued at estimated netrealizable value.  Maintenance parts andsupplies and sugarbeet seed inventories are valued at the lower of average costor market.  Sugarbeets are valued at theprojected gross per-ton beet payment related to that year’s crop.

 

*NetProperty and Equipment*

 

Propertyand equipment are recorded at cost less impairment.  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.

 

*NetProperty and Equipment Held for Lease*

 

Netproperty and equipment held for lease are stated at cost.  Depreciation on assets placed in service isprovided using the straight-line method with estimated useful lives rangingfrom 5 to 40 years.

 

*Impairmentof Long Lived Assets*

 

TheCompany reviews its long lived assets for impairment whenever events indicatethat the carrying amount of the asset may not be recoverable.  An impairment loss is recorded when the sumof the future cash flows is less than the carrying amount of the asset.  An impairment loss is measured as the amountby which the carrying amount of the asset exceeds its fair value. An impairmentloss of approximately $11.9 million was recognized in 2008.  No additional impairment was recognized in2010 or 2009.  See Note 4 to theconsolidated financial statements.  Thefair value of assets is a significant estimate and it is at least reasonablypossible that a change in the estimate could occur in the near term.

 

*RelatedParties*

 

Thefollowing organizations are considered related parties for financial reportingpurposes: United Sugars Corporation (United), Midwest Agri-Commodities Company(Midwest) and West Coast Beet Seed Company.

 

A-9

----

 

*Investments*

 

Investmentsin CoBank, ACB are stated at cost plus unredeemed patronage refunds received inthe form of capital stock.  Investmentsin marketing cooperatives are accounted for using the equity method.

 

*Members’Investments*

 

Preferredand Common Stock - The ownership of common and preferred stock is restricted toa “farm operator” 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 never exercisedthis repurchase option for preferred stock. The Company’s articles of incorporation do not allow dividends to bepaid on either the common or preferred stock.

 

UnitRetains - The bylaws authorize the Company’s Board of Directors to requireadditional direct capital investments by members in the form of a variable unitretain per ton of up to a maximum of 10 percent of the weighted average grossper ton beet payment.  All refunds andretirements of unit retains must be approved by the Board of Directors.

 

EquityRetention — The Payment-In-Kind (PIK) Certificate Purchase Agreement authorizesthe Company to require additional direct capital investments by membersparticipating in the PIK program. The amount of the equity contribution iscalculated per hundredweight of PIK certificates and is approximatelyequivalent (on a Company-wide average basis) to the unit retain declared by theCompany on the corresponding year’s sugarbeet crop.  All refunds and retirements of equity retainsmust be approved by the Board of Directors. All remaining Equity Retentionswere refunded during 2009.

 

AccumulatedOther Comprehensive Income (Loss) - Accumulated Other Comprehensive Income(Loss) represents the cumulative net increase (decrease) in equity related tothe recording 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 and interest rate swap contracts.  Consistent with the Company’s treatment ofincome taxes related to member-source income and expenses, accumulated othercomprehensive income (loss) does not include any adjustment for incometaxes.  For years prior to August 31,2007, Accumulated Other Comprehensive Income (Loss) represented the cumulativenet increase (decrease) in equity related to the recording of the minimumpension liability adjustment.

 

RetainedEarnings (Accumulated Deficit) - Retained earnings represents the cumulativenet income (loss) resulting from non-member business, the 2009 pensionmeasurement date adjustment and, for years prior to 1996, the differencebetween member income as determined for financial reporting purposes and forfederal income tax reporting purposes.

 

*InterestExpense, Net*

 

TheCompany earns patronage dividends from CoBank, ACB based on the Company’s shareof the net income earned by CoBank, ACB. These patronage dividends are applied against interest expense.

 

A-10

----

 

*IncomeTaxes*

 

TheCompany is a non-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 also has various temporary differences between financial and income taxreporting, most notable of which is depreciation.

 

Deferredtax assets, less any applicable valuation allowance, and deferred taxliabilities are included in the financial statements at currently enactedincome tax rates applicable to the period in which the deferred tax assets andliabilities are expected to be realized or settled.

 

*AccountingEstimates*

 

Thepreparation of the financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities at the date of the financial statements and thereported amounts of revenues and expenses during the reporting period.  Actual results could differ from thoseestimates.

 

*FairValue Measurements*

 

Fairvalue is defined as the price that would be received from selling an asset orpaid to transfer a liability in an orderly transaction between marketparticipants at the measurement date. When determining the fair valuemeasurements for assets and liabilities required to be recorded at fair value,the Company considers the principal or most advantageous market in which itwould transact and considers assumptions that market participants would usewhen pricing the asset or liability, such as inherent risk, transferrestrictions, and risk of nonperformance.

 

Thefair value hierarchy requires the Company to maximize the use of observableinputs and minimize the use of unobservable inputs when measuring fair value. Afinancial instrument’s categorization within the fair value hierarchy is basedupon the lowest level of input that is significant to the fair valuemeasurement. Three levels of inputs may be used to measure fair value:

 

Level1: Quoted prices in active markets for identical assets or liabilities.

Level2:  Includes the following inputs:

·                  quoted prices in active markets for similarassets or liabilities,

·                  quoted prices for identical or similar assetsor liabilities in markets that are not active,

·                  or other inputs that are observable or can becorroborated by observable market data for substantially the full term of theassets or liabilities.

Level 3: Unobservable inputs that are supported bylittle or no market activity and that are   significant to the fair value of the assets or liabilities.

 

*DerivativeInstruments and Hedging Activities*

 

TheCompany recognizes all derivatives in its Consolidated Balance Sheet at fairvalue. On the date the derivative instrument is entered into, the Companydesignates the derivative as either (1) a hedge of the fair value of arecognized asset or liability, or of an unrecognized firm commitment (“fairvalue hedge”) or (2) a hedge of a forecasted transaction or of thevariability of cash flows to be received or paid related to a recognized assetor liability (“cash flow hedge”). The Company has entered into foreign currencyforward contracts and an interest rate swap, each of which have been designatedas a

 

A-11

----

 

cashflow hedge. Changes in the fair value of a derivative designated as a cash flowhedge are recorded in accumulated other comprehensive income (loss) and arereclassified into earnings as the underlying hedged item affects earnings.

 

*BusinessRisk*

 

Thefinancial results of the Company’s operations may be directly and materiallyaffected by many factors, including prevailing prices of sugar andagri-products, the Company’s ability to market its sugar competitively, theweather, government programs and regulations, and operating costs.

 

*Concentrationand Sources of Labor*

 

Substantiallyall of the hourly employees at the Company’s factories, including full-time andseasonal employees, are represented by the Bakery, Confectionery, TobaccoWorkers and Grain Millers (BCTGM) AFL-CIO, and are covered by collectivebargaining agreements expiring July 31, 2011 for the Red River Valleyfactory employees and April 30, 2012 for the Sidney, Montana, factoryemployees.  Office, clerical andmanagement employees are not unionized, except for certain office employees atthe Moorhead and Crookston, Minnesota, and Hillsboro, North Dakota, factorieswho are covered by the collective bargaining agreement with the BCTGM.

 

*Shippingand Handling Costs*

 

Thecosts incurred for the shipping and handling of products sold are classified inthe consolidated financial statements as a selling expense on the ConsolidatedStatements of Operations. Shipping and handling costs were $153.7 million,$159.7 million and $185.8 million for the years ended August 31, 2010,2009 and 2008, respectively.

 

*DeferredCosts and Product Values*

 

Allcosts incurred prior to the end of the Company’s fiscal year that relate toreceiving and processing the subsequent year’s sugarbeet crop aredeferred.  Similarly, the net realizablevalues of products produced prior to the end of the Company’s fiscal year thatrelate to the 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.”  Deferred costs andproduct values were $3.3 million as of August 31, 2010. There were nodeferred costs and product values as of August 31, 2009 or 2008.

 

*RecentlyIssued Accounting Pronouncements*

 

In June and December 2009,the FASB issued authoritative guidance to improve the relevance, representationalfaithfulness, and comparability of the information that a reporting entityprovides in its financial reports about a transfer of financial assets; theeffects of a transfer on its financial position, financial performance, andcash flows; and a transferor’s continuing involvement in transferred financialassets.  This guidance becomes effectivefor the Company in fiscal 2011.  TheCompany does not expect that the adoption of this guidance will have a materialeffect on the Company’s financial statements.

 

In June and December 2009,the FASB issued authoritative guidance to improve financial reporting byenterprises involved with variable interest entities and to provide morerelevant and reliable information to users of financial statements. This guidancebecomes effective for the Company in fiscal 2011.  The Company does not expect that the adoptionof this guidance will have a material effect on the Company’s financialstatements.

 

A-12

----

 

In October 2009, theFASB issued an update to the authoritative guidance which contains amendmentsto the criteria for separating consideration in multiple-deliverablearrangements and expands disclosures related to such arrangements.  The guidance provided by this update becomeseffective for the Company in fiscal 2011. The Company does not expect that theadoption of this guidance will have a material effect on the Company’sfinancial statements.

 

In January 2010, theFASB issued an update to the authoritative guidance which contains amendmentsand clarification to the guidance related to the disclosures involvingrecurring or nonrecurring fair value measurements. The new disclosures andclarifications became effective and were adopted by the Company in the third quarterof fiscal 2010 except for the disclosures about purchases, sales, issuances andsettlements in the roll forward activity in Level 3 fair value measurementswhich becomes effective for the Company in the first quarter of fiscal 2012.The Company does not expect that the adoption of this guidance will have amaterial effect on the Company’s financial statements.

 

In July 2010, the FASBissued an update to the authoritative guidance to provide financial statementusers with greater transparency about an entity’s allowance for credit lossesand the credit quality of its financing receivables.  The guidance provided by this update becomeseffective for the Company in the second quarter of fiscal 2011. The Companydoes not expect that the adoption of this guidance will have a material effecton the Company’s financial statements.

 

**(2) RECEIVABLES:**

 

Therewas no single customer attributable to the Company that accounted for 10percent or more of the Company’s total receivables as of August 31, 2010or 2009 or that accounted for 10 percent or more of the revenues of the Companyfor the years ended August 31, 2010, 2009 or 2008.

 

**(3) INVENTORIES:**

 

Themajor components of inventories as of August 31, 2010 and 2009 are asfollows:

 
| **(In Thousands)**                                                | ** ** | **2010**   | ** **  | **2009** | ** ** |
|------------------------------------------------------------------------|------------|------------|-------------|----------|------------|
| Refined Sugar, Pulp, Molasses, Other Agri-Products  and Sugarbeet Seed | ** ** | **$**      | **154,602** |     | $          | 138,039 |   |
| Unprocessed Sugarbeets                                                 | ** ** | **4,396**  |        | —   |       |
| Maintenance Parts and Operating Supplies                               | ** ** | **45,119** |        | 43,272   |       |
| Total Inventories                                                      | ** ** | **$**      | **204,117** |     | $          | 181,311 |   |

 

**(4) NETPROPERTY AND EQUIPMENT:**

 

Indirectcosts capitalized were $1.4 million, $1.1 million and $1.1 million in 2010,2009 and 2008, respectively. Construction period interest capitalized was $ .6 million, $ .4 millionand $ .9 million in 2010, 2009 and 2008, respectively. Depreciation expense was$43.4 million, $43.1 million and $44.4 million in 2010, 2009 and 2008,respectively. The Company had outstanding commitments totaling $23.2 million asof August 31, 2010, for equipment and construction contracts related tovarious capital projects.

 

In2008, an impairment loss of $11.9 million related to property and equipment atthe Sidney, Montana facility was recognized. Sidney Sugars contracts with sugarbeet growers in the Sidney, Montanaarea.  The sugarbeet growers are notowners of Sidney Sugars and therefore have no requirement to grow sugarbeets onan annual basis.  Due to the highalternative crop prices compared to contracted sugarbeet prices in 2008, manygrowers chose to grow alternative crops. Total harvested 

 

A-13

----

 

acresdeclined from approximately 35,000 acres for the 2007 crop (fiscal 2008) toapproximately 15,000 acres for the 2008 crop (fiscal 2009).  The impairment loss is reflected in the Costof Sales on the Consolidated Statements of Operations.  The acres harvested from the 2009 crop(fiscal 2010) increased to approximately 25,000 acres resulting in noadditional impairment in 2009.  Theproperty and equipment at the Sidney, Montana facility is used in the sugarsegment.

 

Asof August 31, 2010, the fair value of the property and equipment to beheld and used at the Sidney, Montana facility was again determined based onnumerous scenarios which were weighted according to their respectiveprobability of occurring.  The harvestedacres for the 2010 crop (fiscal 2011) have increased to approximately 31,500acres and sugar net selling prices are higher than historical averages.  These scenarios are based on judgmentsregarding anticipated cash flows, future expected income/loss experience,current economic conditions and other factors. Based on this analysis, no additional impairment of the fair value ofthe property and equipment was indicated. The fair value of assets is a significant estimate and it is at leastreasonably possible that a change in the estimate could occur in the near term.

 

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

 

ProGoldowns a corn wet-milling facility that it leases under an operating lease whichruns through December 31, 2017. Under the terms of the operating lease, the lessee manages all aspectsof the operations of the ProGold corn wet-milling facility.

 

NetProperty and Equipment Held for Lease are stated at cost, net of accumulateddepreciation. Depreciation expense was $11.2 million, $11.2 million and $11.1million in 2010, 2009 and 2008, respectively. The components of Net Property and Equipment Held for Lease as of August 31,2010 and 2009 are shown below:

 
| **(In Thousands)**                   | ** ** | **2010**     | ** **  | **2009** | ** ** |
|-------------------------------------------|------------|--------------|-------------|----------|------------|
| Land and Land Improvements                | ** ** | **$**        | **8,022**   |     | $          | 7,937 |   |
| Buildings                                 | ** ** | **41,345**   |        | 41,242   |       |
| Equipment                                 | ** ** | **204,881**  |        | 202,962  |       |
| Construction in Progress                  | ** ** | **1,952**    |        | 1,649    |       |
| Less Accumulated Depreciation             | ** ** | **(153,867** | **)**       | (142,775 | )          |
|                                      |       |         |        |     |       |
| Net Property and Equipment Held for Lease | ** ** | **$**        | **102,333** |     | $          | 111,015 |   |

 

Futureminimum payments to be received under the lease are as follows:

 
| **Fiscal year ending August 31, (In Thousands)** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------|------------|------------|------------|
| 2011                                                                           |       | $          | 21,500     |   |
| 2012                                                                           |       | 21,500     |       |
| 2013                                                                           |       | 21,500     |       |
| 2014                                                                           |       | 21,500     |       |
| 2015                                                                           |       | 21,500     |       |
| Thereafter                                                                     |       | 50,167     |       |
|                                                                           |       |       |       |
| Total                                                                          |       | $          | 157,667    |   |

 

A-14

----

 

**(6) INVESTMENTSIN MARKETING COOPERATIVES:**

 

TheCompany has a 64 percent ownership interest and a 33 1/3 percent votinginterest in United.  The investment isaccounted for using the equity method. Substantially all sugar products produced are sold by United as an agentfor the Company.  The amount of sales andrelated costs to be recognized by each owner of United is allocated based onits pro rata share of sugar production for the year.  The owners provide United with cash advanceson an ongoing basis for operating and marketing expenses incurred byUnited.  The Company had outstandingadvances to United of $14.6 million and $21.6 million as of August 31,2010 and 2009, respectively.  The Companyprovides administrative services for United and is reimbursed for costsincurred.  The Company was reimbursed$1.0 million, $ .9 million and $1.0 million for services provided during 2010,2009 and 2008, respectively.

 

TheCompany has a 56 percent ownership interest and a 25 percent voting interest inMidwest.  The investment is accounted forusing the equity method.  Substantiallyall sugarbeet pulp, molasses and other agri-products produced are sold byMidwest as an agent for the Company.  Theamount of 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 due to Midwest of $5.7 million and $1.9 million as of August 31,2010 and 2009, respectively.  The Companyprovides administrative services for Midwest and is reimbursed for costsincurred.  The Company was reimbursed$122,000, $133,000 and $141,000 for services provided during 2010, 2009 and2008, respectively.  The owners ofMidwest are guarantors of the short-term line of credit Midwest has withCoBank, ACB.  As of August 31, 2010,Midwest had outstanding short-term debt with CoBank, ACB of $4.9 million, ofwhich $2.3 million was guaranteed by the Company.

 

TheCompany has performed a complete analysis and has determined that itsinvestments in United and Midwest do not meet the criteria of Variable InterestEntities and therefore such entities are not consolidated in the Company’sConsolidated Financial Statements.

 

**(7) LONG-TERMAND SHORT-TERM DEBT:**

 

Thelong-term debt outstanding as of August 31, 2010 and 2009 is summarizedbelow:

 
| **(In Thousands)**                                                                                                                                                                                                                                       | ** ** | **2010**    | ** **  | **2009** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|-------------|----------|------------|
| Term Loans from CoBank, ACB, due in varying  amounts through fiscal 2016, interest at fixed rates of 3.66% to 5.50%, with  senior lien on substantially all non-current assets                                                                                | ** ** | **$**       | **21,293**  |     | $          | 40,293 |   |
| Term Loans from Insurance Companies, due in  varying amounts through fiscal 2028, interest at fixed rates of 4.78% to  7.42%, with senior lien on substantially all non-current assets                                                                        | ** ** | **50,000**  |        | 51,429   |       |
| Pollution Control and Industrial Development  Revenue Bonds, due in varying amounts through fiscal 2022, interest at fixed  rates of 5.41% to 5.94% and varying rates of .27% to .52% as of  August 31, 2010, substantially secured by letters of credit | ** ** | **69,780**  |        | 70,140   |       |
| Total Long-Term Debt                                                                                                                                                                                                                                          | ** ** | **141,073** |        | 161,862  |       |
| Less Current Maturities                                                                                                                                                                                                                                       | ** ** | **(375**    | **)**       | (18,789  | )          |
| Long-Term Debt, Net of Current Maturities                                                                                                                                                                                                                     | ** ** | **$**       | **140,698** |     | $          | 143,073 |   |

 

A-15

----

 

Minimumannual principal payments for the next five years are as follows:

 
| **(In Thousands)** | ** ** | ** ** | ** ** |
|-------------------------|------------|------------|------------|
| 2011                    |       | $          | 375        |   |
| 2012                    |       | $          | 5,765      |   |
| 2013                    |       | $          | 280        |   |
| 2014                    |       | $          | 7,300      |   |
| 2015                    |       | $          | 7,315      |   |

 

TheCompany has a long-term debt line of credit through July 30, 2015, withCoBank, ACB of $132.1 million, of which $21.3 million in loans and $69.9million in long-term letters of credit were outstanding as of August 31,2010.  The unused long-term line ofcredit as of August 31, 2010 was $40.9 million.

 

Theshort-term debt outstanding as of August 31, 2010 and 2009 is summarizedbelow:

 
| **(In Thousands)**                                         | ** ** | **2010** | ** ** | **2009** | ** ** |
|-----------------------------------------------------------------|------------|----------|------------|----------|------------|
| Commercial Paper, at a fixed interest rate of  .46%, due 9/1/10 | ** ** | **$**    | **5,000**  |     | $          | 45,989 |   |
|                                                                 |            |          |            |          |            |  |  |

 

Duringthe year ended August 31, 2010, the Company borrowed from CoBank, ACB andissued commercial paper to meet its short-term borrowing requirements.  The Company has a seasonal line of creditthrough July 30, 2012, with a consortium of lenders led by CoBank, ACB of$320.0 million, against which there was no outstanding balance as of August 31,2010 and a line of credit with Wells Fargo Bank for $1.0 million, againstwhich there was no outstanding balance as of August 31, 2010.  The Company’s commercial paper programprovides short-term borrowings up to $320 million of which approximately $5.0million was outstanding as of August 31, 2010.  The Company had $3.0 million in short-termletters of credit outstanding as of August 31, 2010.  Any borrowings under the commercial paperprogram along with outstanding short-term letters of credit will act to reducethe available credit under the CoBank, ACB seasonal line of credit by acommensurate amount.  The unusedshort-term line of credit as of August 31, 2010, was $313.0 million.

 

TheCompany can borrow funds on a non-recourse basis from the Commodity CreditCorporation (CCC), with repayment of such funds secured by sugar.  The Company did not utilize the CCC duringfiscal 2010.  The limitations on suchborrowings are based on the amount of the Company’s sugar inventory and certainloan covenant restrictions by CoBank, ACB. As of August 31, 2010, the Company had the capacity to obtainnon-recourse loans from the CCC of approximately $66.9 million.

 

Duringthe year ended August 31, 2009, the Company borrowed from CoBank, ACB andthe CCC and issued commercial paper to meet its short-term borrowingrequirements.  The Company had a seasonalline of credit through July 30, 2012, with a consortium of lenders led byCoBank, ACB of $320.0 million, against which there was no outstandingbalance as of August 31, 2009 and a line of credit with Wells Fargo Bankfor $1.0 million, against which there was no outstanding balance as of August 31,2009.  The Company’s commercial paperprogram provides short-term borrowings up to $320 million of whichapproximately $46.0 million was outstanding as of August 31, 2009.  The Company had $2.7 million in short-termletters of credit outstanding as of August 31, 2009.  Any borrowings under the commercial paperprogram along with outstanding short-term letters of credit will act to reducethe available credit under the CoBank, ACB seasonal line of credit by acommensurate amount.  The unusedshort-term line of credit as of August 31, 2009, was $272.3 million.

 

A-16

----

 

Maximumborrowings, average borrowing levels and average interest rates for short-termdebt for the years ended August 31, 2010 and 2009, follow:

 
| **(In Thousands, Except Interest Rates)** | ** ** | **2010** | ** **  | **2009** | ** ** |
|---------------------------------------------------------------|------------|----------|-------------|----------|------------|
| Maximum Borrowings                                            | ** ** | **$**    | **221,372** |     | $          | 261,004 |   |
| Average Borrowing Levels                                      | ** ** | **$**    | **104,389** |     | $          | 134,945 |   |
| Average Interest Rates                                        | ** ** | **.83**  | **%**       | 1.98     | %          |

 

Theterms of the loan agreements contain prepayment penalties along with certaincovenants related to, among other matters, the: level of working capital; ratioof term liabilities to members’ investments; current ratio; level of term debtto net funds generated; and investment in CoBank, ACB stock in amountsprescribed by the bank.  Substantiallyall non-current assets are pledged to the senior lenders to provide security tosupport the Company’s seasonal and long-term financing.  As of August 31, 2010, the Company wasin compliance with the terms of the loan agreements.

 

Interestpaid, net of amounts capitalized, was $9.1 million, $10.7 million and $14.9million for the years ended August 31, 2010, 2009 and 2008, respectively.

 

**(8)  DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:**

 

The Company, as a result of its operating and financing activities, isexposed to changes in foreign currency exchange rates and interest rates whichmay adversely affect its results of operations and financial position.  In seeking to minimize the risks and/or costsassociated with such activities, the Company may enter into derivativecontracts.

 

The Company manages its foreign currency related risks primarilythrough the use of foreign currency forward contracts. The contracts held bythe Company are denominated in Euros. The Company has entered into foreigncurrency forward contracts that are designated as cash flow hedges of exchangerate risk related to foreign currency-denominated purchases of equipment.  Inputs used to measure the fair value of theforeign currency forward contracts are contained within level 1 of the fairvalue hierarchy.  At August 31,2010, the Company had cash flow hedges for approximately 219,000 Euros withmaturity dates of September 30 to October 29, 2010.  At August 31, 2010, the fair value ofthe open contracts reflected a loss of approximately $24,000 recorded inaccumulated other comprehensive income/(loss) in members’ equity.  At August 31, 2009, the Company had cashflow hedges for approximately 526,000 Euros with maturity dates of September 10,2009 to October 15, 2010.  At August 31,2009, the fair value of the open contracts reflected a gain of approximately$10,000 recorded in accumulated other comprehensive income/(loss) in members’equity.  Amounts deferred to accumulatedother comprehensive income/(loss) are reclassified into the cost of theequipment when the actual purchase takes place.

 

The Company is exposed to interest risk primarily through its borrowingactivities.  On December 24, 2009,the Company entered into an interest rate swap contract associated with a $27.3million Industrial Development Revenue Bond issue that matures on September 1,2019.  The interest rate swap contractrequires payment of a fixed interest rate of 2.827 % and the receipt of avariable rate of interest based on the Securities Industry and Financial MarketAssociation (SIFMA) index of .279 % as of August 31, 2010 on $27.3 millionof indebtedness. The Company has designated this interest rate swap contract asa cash flow hedge.  Inputs used tomeasure the fair value of the interest rate swap contracts are contained withinlevel 2 of the fair value hierarchy.  Asof August 31, 2010, the fair value of the cash flow hedge reflected a lossof approximately $1.8 million recorded in accumulated other comprehensiveincome/(loss) and will be reclassified to interest expense over the life of theswap contract. No ineffectiveness was recognized in earnings during the quarterended August 31, 2010.  The currentperiod loss of $172,000 is classified as interest expense on the statements ofoperations.  As of

 

A-17

----

 

August 31, 2010, $644,000 of deferred net losses on the interestrate swap contract contained in accumulated other comprehensive income/(loss)are expected to be reclassified to earnings during the next 12 months.

 
| ** **                                     | ** ** | **Asset Derivatives as of August 31** | ** ** |
|------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                     | ** ** | ** **                                                     | ** ** | **Fair Value (In Thousands)** | ** ** |
| ** **                                     | ** ** | **Balance Sheet Location**                           | ** ** | **2010** | ** ** | **2009** | ** ** |
| Derivatives Designated as Hedging Instruments: |       |                                                           |       |   |   |   |   |
| Foreign Currency Forward Contracts             |       | Prepaid  Expenses                                              |       | $ | — |   | $ | 10 |   |
|                                           |       |                                                           |       |   |   |   |   |
| Total Asset Derivatives                        |       |                                                           |       | $ | — |   | $ | 10 |   |

 
| ** **                                     | ** ** | **Liability Derivatives as of August 31** | ** ** |
|------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                     | ** ** | ** **                                                         | ** ** | **Fair Value (In Thousands)** | ** ** |
| ** **                                     | ** ** | **Balance Sheet Location**                               | ** ** | **2010** | ** ** | **2009** | ** ** |
| Derivatives Designated as Hedging Instruments: |       |                                                               |       |   |   |   |   |
| Foreign Currency Forward Contracts             |       | Other  Current Liabilities                                         |       | $ | 24 |   | $ | — |   |
| Interest Rate Contracts                        |       | Other  Current Liabilities                                         |       | 644 |   | — |   |
| Interest Rate Contracts                        |       | Other  Long-Term Liabilities                                       |       | 1,127 |   | — |   |
|                                           |       |                                                               |       |   |   |   |   |
| Total Liability Derivatives                    |       |                                                               |       | $ | 1,795 |   | $ | — |   |

 

**(9) OPERATINGLEASES**:

 

TheCompany is party to operating leases for such items as rail cars, computerhardware and vehicles.  Cargill, Incorporatedhas assumed responsibility for the payments on a rail car lease for theduration of that lease and accordingly, the lease payments are not included inthe table below.  Operating lease expensewas $ 1.8 million, $ 2.0 million and $ .9 million for years ended August 31,2010, 2009 and 2008, respectively. Future minimum payments under these obligations are as follows:

 
| **Fiscal year ending August 31, (In Thousands)** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------|------------|------------|------------|
| 2011                                                                           |       | $          | 1,598      |   |
| 2012                                                                           |       | 1,561      |       |
| 2013                                                                           |       | 1,427      |       |
| 2014                                                                           |       | 1,155      |       |
| 2015                                                                           |       | 1,089      |       |
| Thereafter                                                                     |       | 6,142      |       |
| Total                                                                          |       | $          | 12,972     |   |

 

**(10) EMPLOYEEBENEFIT PLANS:**

 

*Company-SponsoredDefined Benefit Pension and Other Post-Retirement Benefit Plans*

 

Substantiallyall employees who meet eligibility requirements of age, date of hire and lengthof service are covered by a Company-sponsored retirement plan.  As of August 31, 2010, the pension planswere funded as required by the funding standards set forth by the EmployeeRetirement Income Security Act (ERISA). The Company also has non-qualified supplemental executive retirement plansfor certain employees.

 

A-18

----

 

Employeesof the Company who are not members of a collective bargaining unit and who arenewly hired, or rehired, and employees who transfer from a union position to anonunion position on or after September 1, 2007 are not eligible forparticipation in the defined benefit pension plan.  These employees participate in a definedcontribution plan as described later in this note.

 

TheCompany’s Investment Committee has the responsibility of managing theoperations and administration of the Company’s retirement plans and trust. Investmentallocation decisions are made by the Investment Committee, pursuant to anInvestment Policy (Policy) that includes a target strategic asset allocation.  TheInvestment Committee is committed to diversification to reduce the risk oflarge losses. The Policy allows some flexibility within the target assetallocation in recognition that market fluctuations may cause the allocation toa specific asset class to move up or down within a range. The Policy isreviewed periodically by the Investment Committee.  The asset allocation targets within the Plan,include four areas; Domestic Equity, International Equity, Fixed Incomeand Cash.  Domestic and InternationalEquity consists primarily of publicly traded U.S. and Non-U.S. equities,respectively. The Fixed Income allocation consists of two components, a corebond mutual fund and a long duration investment grade mutual fund. As of October 1,2010, the core bond component transitioned fully to the long-durationcomponent, and 100% of the fixed income mandate will be invested inlong-duration government bonds. The cash allocation is allowed only asnecessary for impending benefit payments, lump sum contributions made by thecompany, or as authorized by the Investment Committee.  The Policy does not allow direct use ofderivatives, however, the Plan invests entirely in commingled or mutual funds,which may allow investment in derivatives. Thestated goal is for each component of the plan to earn a rate of return greaterthan its corresponding benchmark. Progress of the plan against its return objectives will be measured overa full market cycle.

 

The following schedule reflects the percentage ofpension plan assets by asset class as of the latest measurement date, August 31,2010:

 

**Percentage of Pension Plan Assets by Asset Class asof August 31, 2010**

 
| **Asset Class** | ** ** | **Target Range** | ** ** | **Actual Allocation** | ** ** |
|----------------------|------------|-----------------------|------------|----------------------------|------------|
| Domestic Equity      |       | 40.0%-60.0%           |       | 45.6                       | %          |
| International Equity |       | 15.0%-25.0%           |       | 19.5                       | %          |
| Fixed Income         |       | 20.0%-40.0%           |       | 34.8                       | %          |
| Cash                 |       | 0.0%-5.0%             |       | 0.1                        | %          |

 

Therehave been no changes in the valuation methodologies used at August 31,2010 and 2009.  The Plan’s investment inthe common/collective trust consists of investments in the Wachovia EquityIndex Trust Fund (the Fund) managed by Wells Fargo Institutional Retirement andTrust (formerly Wachovia Bank National Association).  The Fund is a medium for collectiveinvestment of certain qualified employee benefit plans in common stocks designedto approximate the performance of the S&P 500 Index.  Substantially all of the Fund’s assets are incommon stocks that make up the S&P 500 Index, however the fund may alsoinvest in S&P 500 Index Futures, common funds or investment companies, cashor cash equivalents or other securities. The net asset value of the Fund is determined daily.  All earnings, gains and losses of the Fundare reflected in the computation of the daily unit value and are realized bythe plan upon withdrawal from the Fund. Registered investment companies are valued at the net asset value ofshares held by the Plan at year end based on quoted market prices.  The money market fund is valued at quotedmarket price, which is cost plus accrued interest.

 

Themethods described above may produce a fair value calculation that may not beindicative of net realizable value or reflective of future fair values.  Furthermore, while the Plan believes itsvaluation methods are appropriate and consistent with other marketparticipants, the use of different methodologies or assumptions to determinethe fair value of certain financial instruments could result in 

 

A-19

----

 

adifferent fair value measurement at the reporting date. To develop the expected long-term rate of return on assets assumption,the Company considered the historical returns and the future expectations forreturns for each asset class, as well as, the target asset allocation of thepension portfolio.  This resulted in theselection of the 7.5% long-term rate of return on assets assumption.

 

The following schedules reflect the fair values of thepension plan assets by major category as of August 31, 2010 and 2009:

 
| ** **                      | ** ** | **Plan Assets at Fair Value August 31, 2010** | ** ** |
|---------------------------------|------------|----------------------------------------------------------------------------------|------------|
| **(In Thousands)**         | ** ** | **Level 1**                                                                 | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| Common/collective trusts        |       | $                                                                                | —     |   | $ | 34,293 |   | $ | — |   | $ | 34,293 |   |
| Registered investment company   |       |                                                                             |       |   |   |   |   |   |   |
| Fixed income                    |       | 47,924                                                                           |       | — |   | — |   | 47,924 |   |
| Equity                          |       | 28,828                                                                           |       | — |   | — |   | 28,828 |   |
| International equity            |       | 27,062                                                                           |       | — |   | — |   | 27,062 |   |
| Money market fund               |       | 371                                                                              |       | — |   | — |   | 371 |   |
| Total Plan Assets at Fair Value |       | $                                                                                | 104,185    |   | $ | 34,293 |   | $ | — |   | $ | 138,478 |   |

 
| ** **                      | ** ** | **Plan Assets at Fair Value August 31, 2009** | ** ** |
|---------------------------------|------------|----------------------------------------------------------------------------------|------------|
| **(In Thousands)**         | ** ** | **Level 1**                                                                 | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| Common/collective trusts        |       | $                                                                                | —     |   | $ | 32,352 |   | $ | — |   | $ | 32,352 |   |
| Registered investment company   |       |                                                                             |       |   |   |   |   |   |   |
| Fixed income                    |       | 32,825                                                                           |       | — |   | — |   | 32,825 |   |
| Equity                          |       | 28,605                                                                           |       | — |   | — |   | 28,605 |   |
| International equity            |       | 29,655                                                                           |       | — |   | — |   | 29,655 |   |
| Money market fund               |       | 536                                                                              |       | — |   | — |   | 536 |   |
| Total Plan Assets at Fair Value |       | $                                                                                | 91,621     |   | $ | 32,352 |   | $ | — |   | $ | 123,973 |   |

 

The development of the discount rate was based on a bondmatching model whereby a hypothetical portfolio of bonds with an “AA” or betterrating by a nationally recognized debt rating agency was constructed to matchthe expected benefit payments under the Company’s pension plans through theyear 2039.  The reinvestment rate forbenefit cash flow occurring after 2039 was discounted back to the year 2039 ata rate consistent with the yields on long-term zero-coupon bonds. The resultingpresent value was treated as additional benefit cash flow for the year 2039 andconsistently applied as any other benefit cash flow during the bond matchingprocess.

 

TheCompany has a medical plan and a Medicare supplement plan which are availableto union retirees and certain non-union retirees.  The costs of these plans are shared by theCompany 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.

 

A-20

----

 

The assumptions used in the measurement of the Company’sbenefit obligations are shown below:

 

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

 
| ** **                                            | ** ** | **Pension** | ** ** | **Post-Retirement** | ** ** |
|-------------------------------------------------------|------------|-------------|------------|---------------------|------------|
| ** **                                            | ** ** | **2010**    | ** ** | **2009**            | ** ** | **2010** | ** ** | **2009** | ** ** |
| Discount Rate                                         | ** ** | **5.00**    | **%**      | 6.55                | %          | **5.00** | **%** | 6.55 | % |
| Expected Return on Plan  Assets                       | ** ** | **7.50**    | **%**      | 8.00                | %          | **N/A** |   | N/A |   |
| Rate of Compensation  Increase  (Non-Union Plan Only) | ** ** | **3.5**     | **%**      | 3.5                 | %          | **N/A** |   | N/A |   |

 

The following schedule reflects the expected pension andpost-retirement benefit payments during each of the next five years and theaggregate for the following five years:

 
| ** **              | ** ** | **Expected Benefit Payments** | ** ** |
|-------------------------|------------|-----------------------------------------|------------|
| **(In Thousands)** | ** ** | **Pension**                             | ** ** | **Post-Retirement** | ** ** |
| 2011                    |       | $                                       | 6,290      |   | $ | 1,004 |   |
| 2012                    |       | 6,535                                   |       | 1,233 |   |
| 2013                    |       | 7,146                                   |       | 1,634 |   |
| 2014                    |       | 7,773                                   |       | 2,074 |   |
| 2015                    |       | 8,369                                   |       | 2,578 |   |
| 2016-2020               |       | 53,042                                  |       | 17,903 |   |
| Total                   |       | $                                       | 89,155     |   | $ | 26,426 |   |

 

TheCompany expects to make contributions of approximately $10.0 million to thedefined benefit pension plans during the next fiscal year.  The Company expects to make contributions inthe next fiscal year of approximately $99,000 related to Supplemental ExecutiveRetirement Plans.  The Company also expects to contributeapproximately $1.0 million to the post-retirement plans during the next fiscalyear.

 

The following schedules provide the components of theNet Periodic Pension and Post-Retirement Costs for the years ended August 31,2010, 2009 and 2008:

 

***Components of Net Periodic PensionCost***

 
| **(In Thousands)**                        | ** ** | **2010**   | ** ** | **2009** | ** ** | **2008** | ** ** |
|------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| Service Cost                                   | ** ** | **$**      | **3,632**  |     | $          | 4,197    |       | $ | 3,763 |   |
| Interest Cost                                  | ** ** | **9,126**  |       | 10,673   |       | 8,154    |       |
| Expected Return on Plan  Assets                | ** ** | **(9,924** | **)**      | (15,456  | )          | (12,965  | )          |
| Settlement Loss                                | ** ** | **—** |       | —   |       | 242      |       |
| Retained Earnings  Measurement Date Adjustment | ** ** | **—** |       | (226     | )          | —   |       |
| Amortization of Prior  Service Costs           | ** ** | **1,316**  |       | 1,644    |       | 1,317    |       |
| Amortization of Net (Gain)  Loss               | ** ** | **6,940**  |       | 70       |       | (199     | )          |
| Net Periodic Pension Cost                      | ** ** | **$**      | **11,090** |     | $          | 902      |       | $ | 312 |   |

 

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

 
| **(In Thousands)**            | ** ** | **2010**  | ** ** | **2009** | ** ** | **2008** | ** ** |
|------------------------------------|------------|-----------|------------|----------|------------|----------|------------|
| Service Cost                       | ** ** | **$**     | **968**    |     | $          | 968      |       | $ | 1,076 |   |
| Interest Cost                      | ** ** | **1,854** |       | 1,887    |       | 1,864    |       |
| Settlement Gain                    |       | —    |       | —   |       | (5       | )          |
| Amortization of Net (Gain)  Loss   | ** ** | **(687**  | **)**      | (675     | )          | (225     | )          |
| Net Periodic Post-Retirement  Cost | ** ** | **$**     | **2,135**  |     | $          | 2,180    |       | $ | 2,710 |   |

 

A-21

----

 

Priorservice costs are amortized over the lesser of seven years or the length of theunion contract that included the benefit change.

 

Formeasurement purposes, an 8.5 percent annual rate of increase in the per capita costof covered healthcare benefits for participants under age 65 was assumed for2010.  The rate is assumed to decline to6.5 percent over the next five years. For participants age 65 and older, a 9.5 percent annual rate of increasein the per capita cost of covered healthcare benefits was assumed for2010.  The rate is assumed to decline to7.5 percent over the next five years.

 

Assumedhealthcare trends can have a significant effect on the amounts reported forhealthcare plans.  A one percent changein the assumed healthcare 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 |       | $                    | 527        |                 | $          | (427 | ) |
| Effect on the accumulated post-retirement benefit  obligation                                       |       | $                    | 4,564      |                 | $          | (3,763 | ) |

 

Thefollowing schedules set forth a reconciliation of the changes in the plans’benefit obligation and fair value of assets for the years ending August 31,2010 and 2009 and a statement of the funded status and amounts recognized inthe Balance Sheets and Accumulated Other Comprehensive Income as of August 31,2010 and 2009:

 
| ** **                                                                          | ** ** | **Pension** | ** **  | **Post-Retirement** | ** ** |
|-------------------------------------------------------------------------------------|------------|-------------|-------------|---------------------|------------|
| **(In Thousands)**                                                             | ** ** | **2010**    | ** **  | **2009**            | ** ** | **2010** | ** ** | **2009** | ** ** |
| ***Change in Benefit  Obligation***                                                 | ** ** | ** **  |        |                | ** ** | ** ** |   |   |   |
| Obligation at the Beginning  of the Year                                            | ** ** | **$**       | **142,377** |                | $          | 123,703 | ** ** | **$** | **28,728** |   | $ | 27,193 |   |
| Retained Earnings Adjustment                                                        | ** ** | **—**  |        | 2,974               | ** ** | **—** |   | — |   |
| Service Cost                                                                        | ** ** | **3,632**   |        | 3,358               | ** ** | **968** |   | 968 |   |
| Interest Cost                                                                       | ** ** | **9,126**   |        | 8,538               | ** ** | **1,854** |   | 1,887 |   |
| Plan Participant  Contributions                                                     | ** ** | **—**  |        | —              | ** ** | **377** |   | 448 |   |
| Medicare Part D Subsidy                                                        | ** ** | **—**  |        | —              | ** ** | **72** |   | 82 |   |
| Actuarial (Gain) Loss                                                               | ** ** | **34,644**  |        | 10,094              | ** ** | **331** |   | (917 | ) |
| Benefits Paid                                                                       | ** ** | **(5,487**  | **)**       | (6,290              | )          | **(1,100** | **)** | (933 | ) |
| Obligation at the End of the  Year                                                  | ** ** | **$**       | **184,292** |                | $          | 142,377 | ** ** | **$** | **31,230** |   | $ | 28,728 |   |
| *** ***                                                                        | ** ** | ** **  |        |                | ** ** | ** ** |   |   |   |
| ***Change in Plan Assets***                                                         | ** ** | ** **  |        |                | ** ** | ** ** |   |   |   |
| Fair Value at the Beginning  of the Year                                            | ** ** | **$**       | **123,973** |                | $          | 156,525 | ** ** | **$** | **—** |   | $ | — |   |
| Retained Earnings Adjustment                                                        | ** ** | **—**  |        | 3,091               | ** ** | **—** |   | — |   |
| Actual Return on Plan Assets                                                        | ** ** | **15,593**  |        | (29,477             | )          | **—** |   | — |   |
| Plan Participant  Contributions                                                     | ** ** | **—**  |        | —              | ** ** | **377** |   | 448 |   |
| Medicare Part D Subsidy                                                        | ** ** | **—**  |        | —              | ** ** | **72** |   | 82 |   |
| Employer Contributions                                                              | ** ** | **4,399**   |        | 124                 | ** ** | **651** |   | 403 |   |
| Benefits Paid                                                                       | ** ** | **(5,487**  | **)**       | (6,290              | )          | **(1,100** | **)** | (933 | ) |
| Fair Value at the End of the  Year                                                  | ** ** | **$**       | **138,478** |                | $          | 123,973 | ** ** | **$** | **—** |   | $ | — |   |
| *** ***                                                                        |       |        |        |                |       |   |   |   |   |
| ***Funded Status***                                                                 |       |        |        |                |       |   |   |   |   |
| Funded Status as of  August 31,                                                | ** ** | **$**       | **(45,814** | **)**               | $          | (18,404 | ) | **$** | **(31,230** | **)** | $ | (28,728 | ) |
| Net Amount Recognized                                                               | ** ** | **$**       | **(45,814** | **)**               | $          | (18,404 | ) | **$** | **(31,230** | **)** | $ | (28,728 | ) |
| *** ***                                                                        | ** ** | ** **  |        |                | ** ** | ** ** |   |   |   |
| ***Amounts Recognized in  the Balance Sheets***                                     | ** ** | ** **  |        |                | ** ** | ** ** |   |   |   |
| Current Liabilities                                                                 | ** ** | **$**       | **(6,290**  | **)**               | $          | (5,257 | ) | **$** | **(1,004** | **)** | $ | (785 | ) |
| Noncurrent Liabilities                                                              | ** ** | **(39,524** | **)**       | (13,147             | )          | **(30,226** | **)** | (27,943 | ) |
| Net Amount Recognized                                                               | ** ** | **$**       | **(45,814** | **)**               | $          | (18,404 | ) | **$** | **(31,230** | **)** | $ | (28,728 | ) |
| *** ***                                                                        |       |        |        |                |       |   |   |   |   |
| ***Prior Service Cost  Recognized in Accumulated Other Comprehensive Income***      |       |        |        |                |       |   |   |   |   |
| Prior Service Cost Beginning  of the Year                                           | ** ** | **$**       | **(2,305**  | **)**               | $          | (3,949 | ) | **$** | **—** |   | $ | — |   |
| Recognized in Periodic Cost                                                         | ** ** | **1,316**   |        | 1,644               | ** ** | **—** |   | — |   |
| Amount Arising During the  Year                                                     | ** ** | **—**  |        | —              | ** ** | **—** |   | — |   |
| Prior Service Cost End of  the Year                                                 | ** ** | **$**       | **(989**    | **)**               | $          | (2,305 | ) | **$** | **—** |   | $ | — |   |
| *** ***                                                                        |       |        |        |                |       |   |   |   |   |
| ***Accumulated Gain (Loss)  Recognized in Accumulated Other Comprehensive Income*** |       |        |        |                |       |   |   |   |   |
| Accumulated Gain (Loss)  Beginning of the Year                                      | ** ** | **$**       | **(62,816** | **)**               | $          | (10,950 | ) | **$** | **7,651** |   | $ | 7,409 |   |
| Recognized in Periodic Cost                                                         | ** ** | **6,940**   |        | 70                  | ** ** | **(687** | **)** | (675 | ) |
| Amount Arising During the  Year                                                     | ** ** | **(28,976** | **)**       | (51,936             | )          | **(331** | **)** | 917 |   |
| Accumulated Gain (Loss) End  of the Year                                            | ** ** | **$**       | **(84,852** | **)**               | $          | (62,816 | ) | **$** | **6,633** |   | $ | 7,651 |   |

 

A-22

----

 

Theestimated amounts that will be amortized from Accumulated Other ComprehensiveIncome at August 31, 2010 into net periodic benefit cost in fiscal 2011are as follows:

 
| **(In Thousands)** | ** ** | **Pension** | ** ** | **Post-   Retirement** | ** ** |
|-------------------------|------------|-------------|------------|-----------------------------|------------|
| Prior Service (Cost)    |       | $           | (989       | )                           | $          | — |   |
| Accumulated Gain (Loss) |       | (9,489      | )          | 809                         |       |
| Total                   |       | $           | (10,478    | )                           | $          | 809 |   |

 

Theaccumulated pension benefit obligation was $174.9 million and $134.1 million asof August 31, 2010 and 2009, respectively.

 

*Long-TermIncentive Plan*

 

The Company’s Long-Term Incentive Plan providesdeferred compensation to certain key executives of the Company.  The plan creates financial incentives thatare based upon contract rights which are available to the executive under theterms of the plan, the value of which is determined by the Board ofDirectors.  During 2010, 191.52 vestedcontract rights were exercised.  In 2010,210.56 contract rights were granted at a stated value of $2,550 per contractright.  At August 31, 2010, theBoard of Directors increased the value of the 1,104.72 contract rightspreviously granted from $2,200 to $2,550 per contract right.  As of August 31, 2010, there were1,315.28 contract rights issued and outstanding at a stated value of $2,550 percontract right, of which 882.59 were vested.

 

*DefinedContribution Plans*

 

The Company has qualified 401(k) plans for alleligible employees.  The plans providefor immediate vesting of benefits. Participants may contribute a percentage of their gross earnings eachpay period as provided in the participation agreement.  The Company matches the non-union andeligible union year-round participants’ contributions up to 4 percent and 2percent, respectively, of their gross earnings. The Company’s contributions to these plans totaled $1.8 million, $1.8million and $1.9 million for the years ended August 31, 2010, 2009 and2008, respectively.

 

A-23

----

 

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 no longer eligible for participation in the defined benefit pensionplan but receive a 4% non-elective Company Contribution to a definedcontribution plan.  The CompanyContribution has a six year vesting schedule. The Company’s Contributions to this plan totaled $115,000, $87,000 and$29,000 for the years ended August 31, 2010, 2009 and 2008, respectively.

 

**(11)****MEMBERS’ INVESTMENTS:**

 

Thefollowing schedule details the Preferred Stock and Common Stock as of August 31,2010, 2009 and 2008:

 
| ** **           | ** ** | **Par**   | ** ** | **Shares**     | ** ** | **Shares Issued**     | ** ** |
|----------------------|------------|-----------|------------|----------------|------------|----------------------------|------------|
| ** **           | ** ** | **Value** | ** ** | **Authorized** | ** ** | **& Outstanding** | ** ** |
| Preferred Stock:     |       |      |       |           |       |                       |       |
| August 31, 2010 |       | $         | 76.77      |           | 600,000    |                       | 498,570    |   |
| August 31, 2009 |       | $         | 76.77      |           | 600,000    |                       | 498,570    |   |
| August 31, 2008 |       | $         | 76.77      |           | 600,000    |                       | 498,570    |   |
|                 |       |      |       |           |       |                       |       |
| Common Stock:        |       |      |       |           |       |                       |       |
| August 31, 2010 |       | $         | 10.00      |           | 4,000      |                       | 2,768      |   |
| August 31, 2009 |       | $         | 10.00      |           | 4,000      |                       | 2,812      |   |
| August 31, 2008 |       | $         | 10.00      |           | 4,000      |                       | 2,839      |   |

 

**(12) SEGMENT REPORTING:**

 

TheCompany has identified two reportable segments: Sugar and Leasing.  The sugar segment is engaged primarily in theproduction and marketing of sugar from sugarbeets.  It also sells agri-products and sugarbeetseed.  The leasing segment is engaged inthe leasing of a corn wet milling plant used in the production of high-fructosecorn syrup.  The segments are managedseparately.  There are no inter-segmentsales.  The leasing segment has a majorcustomer that accounts for all of that segment’s revenue.

 

Summarizedfinancial information concerning the Company’s reportable segments is shownbelow:

 
| ** **                          | ** ** | **For the Year Ended August 31, 2010** | ** ** |
|-------------------------------------|------------|----------------------------------------------------------------------|------------|
| **(In Thousands)**             | ** ** | **Sugar**                                                            | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from External Customers |       | $                                                                    | 1,179,349  |   | $ | 24,548 |   | $ | 1,203,897 |   |
| Gross Proceeds                      |       | $                                                                    | 769,747    |   | $ | 13,308 |   | $ | 783,055 |   |
| Depreciation and Amortization       |       | $                                                                    | 44,340     |   | $ | 11,240 |   | $ | 55,580 |   |
| Interest Income                     |       | $                                                                    | 150        |   | $ | — |   | $ | 150 |   |
| Interest Expense                    |       | $                                                                    | 9,011      |   | $ | 1 |   | $ | 9,012 |   |
| Loss from Equity Method Investees   |       | $                                                                    | (521       | ) | $ | — |   | $ | (521 | ) |
| Other Income/(Expense), Net         |       | $                                                                    | (345       | ) | $ | (90 | ) | $ | (435 | ) |
| Consolidated Net Proceeds           |       | $                                                                    | 519,418    |   | $ | 13,126 |   | $ | 532,544 |   |
|                                |       |                                                                 |       |   |   |   |   |
| Capital Additions                   |       | $                                                                    | 71,425     |   | $ | 2,648 |   | $ | 74,073 |   |

 

A-24

----

 
| ** **                          | ** ** | **For the Year Ended August 31, 2009** | ** ** |
|-------------------------------------|------------|----------------------------------------------------------------------|------------|
| **(In Thousands)**             | ** ** | **Sugar**                                                            | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from External Customers |       | $                                                                    | 1,176,289  |   | $ | 23,940 |   | $ | 1,200,229 |   |
| Gross Proceeds                      |       | $                                                                    | 781,753    |   | $ | 12,762 |   | $ | 794,515 |   |
| Depreciation and Amortization       |       | $                                                                    | 43,869     |   | $ | 11,177 |   | $ | 55,046 |   |
| Interest Income                     |       | $                                                                    | 207        |   | $ | 2 |   | $ | 209 |   |
| Interest Expense                    |       | $                                                                    | 10,058     |   | $ | — |   | $ | 10,058 |   |
| Income from Equity Method Investees |       | $                                                                    | 636        |   | $ | — |   | $ | 636 |   |
| Other Income/(Expense), Net         |       | $                                                                    | 4,070      |   | $ | (140 | ) | $ | 3,930 |   |
| Consolidated Net Proceeds           |       | $                                                                    | 529,799    |   | $ | 12,455 |   | $ | 542,254 |   |
|                                |       |                                                                 |       |   |   |   |   |
| Capital Additions                   |       | $                                                                    | 46,423     |   | $ | 2,331 |   | $ | 48,754 |   |

 
| ** **                          | ** ** | **For the Year Ended August 31, 2008** | ** ** |
|-------------------------------------|------------|----------------------------------------------------------------------|------------|
| **(In Thousands)**             | ** ** | **Sugar**                                                            | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from External Customers |       | $                                                                    | 1,208,634  |   | $ | 24,198 |   | $ | 1,232,832 |   |
| Gross Proceeds                      |       | $                                                                    | 815,570    |   | $ | 14,334 |   | $ | 829,904 |   |
| Depreciation and Amortization       |       | $                                                                    | 47,071     |   | $ | 11,126 |   | $ | 58,197 |   |
| Impairment Loss                     |       | $                                                                    | 11,867     |   | $ | — |   | $ | 11,867 |   |
| Interest Income                     |       | $                                                                    | 702        |   | $ | 38 |   | $ | 740 |   |
| Interest Expense                    |       | $                                                                    | 14,591     |   | $ | 159 |   | $ | 14,750 |   |
| Loss from Equity Method Investees   |       | $                                                                    | (221       | ) | $ | — |   | $ | (221 | ) |
| Other Income/(Expense), Net         |       | $                                                                    | (158       | ) | $ | (27 | ) | $ | (185 | ) |
| Consolidated Net Proceeds           |       | $                                                                    | 535,516    |   | $ | 14,073 |   | $ | 549,589 |   |
|                                |       |                                                                 |       |   |   |   |   |
| Capital Additions                   |       | $                                                                    | 44,391     |   | $ | 1,358 |   | $ | 45,749 |   |

 
| ** **                  | ** ** | **As of August 31, 2010** | ** ** |
|-----------------------------|------------|-----------------------------------------------|------------|
| **(In Thousands)**     | ** ** | **Sugar**                                     | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Property and Equipment, Net |       | $                                             | 381,516    |   | $ | — |   | $ | 381,516 |   |
| Assets Held for Lease, Net  |       | $                                             | —     |   | $ | 102,333 |   | $ | 102,333 |   |
| Segment Assets              |       | $                                             | 681,246    |   | $ | 106,432 |   | $ | 787,678 |   |

 
| ** **                  | ** ** | **As of August 31, 2009** | ** ** |
|-----------------------------|------------|-----------------------------------------------|------------|
| **(In Thousands)**     | ** ** | **Sugar**                                     | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Property and Equipment, Net |       | $                                             | 353,936    |   | $ | — |   | $ | 353,936 |   |
| Assets Held for Lease, Net  |       | $                                             | —     |   | $ | 111,015 |   | $ | 111,015 |   |
| Segment Assets              |       | $                                             | 645,770    |   | $ | 115,488 |   | $ | 761,258 |   |

 

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

 

Fair value is the price that would be received tosell an asset or paid to transfer a liability in an orderly transaction betweenmarket participants at the measurement date.  Quoted market prices are generally notavailable 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.

 

A-25

----

 

*Long-Term Debt, Inclusive of Current Maturities* - Based upondiscounted cash flows and current borrowing rates with similar maturities, thefair value of the long-term debt as of August 31, 2010 was approximately$141.8 million in comparison to the carrying value of $141.1 million. The fairvalue of the long-term debt as of August 31, 2009 was approximately $162.6million in comparison to the carrying value of $161.9 million.

 

*Investments in CoBank, ACB and Investments in Marketing Cooperatives* - The Companybelieves it is not practical to estimate the fair value of these investmentswithout incurring excessive costs because there is no established market forthese securities and equity interests, and it is inappropriate to estimatefuture cash flows which are largely dependent on future earnings of theseorganizations.

 

*Foreign Currency Forward Contracts* — Based on a variety ofpricing factors, which include the market price of the foreign currency forwardcontract available in the dealer-market, the fair value of the open contractsas of August 31, 2010 was a liability of approximately $24,000. The fairvalue of the open contracts as of August 31, 2009 was an asset ofapproximately $10,000.  Inputs used tomeasure the fair value of the foreign currency forward contracts are quotedprices in active markets for identical assets or liabilities and therefore arecontained within level 1 of the fair value hierarchy. See the tables below.

 

*Interest Rate Contracts* — Based on the zero couponmethod in which the term, notional amount, and repricing date of the interestrate swap match the term, repricing date, and principal amount of theinterest-bearing liability on which the hedging interest payments are due, thefair value of the interest rate contract as of August 31, 2010 was aliability of approximately $1.8 million. There were no interest rate contractsas of August 31, 2009.  Inputs usedto measure the fair value of the interest rate swap contracts are quoted pricesin active markets for similar assets or liabilities and therefore are containedwithin level 2 of the fair value hierarchy. See the tables below.

 

Thetables below reflect the assets and liabilities measured at fair value on arecurring basis as of August 31, 2010 and 2009.

 
| ** **                         | ** ** | **Fair Value of Liabilities as of August 31, 2010** | ** ** |
|------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|
| **(In Thousands)**            | ** ** | **Level 1**                                                                            | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| Foreign Currency Forward Contracts |       | $                                                                                           | 24         |   | $ | — |   | $ | — |   | $ | 24 |   |
| Interest Rate Contracts            |       | —                                                                                      |       | 1,771 |   | — |   | 1,771 |   |
| Total                              |       | $                                                                                           | 24         |   | $ | 1,771 |   | $ | — |   | $ | 1,795 |   |

 
| ** **                         | ** ** | **Fair Value of Assets as of August 31, 2009** | ** ** |
|------------------------------------|------------|----------------------------------------------------------------------------------------|------------|
| **(In Thousands)**            | ** ** | **Level 1**                                                                       | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| Foreign Currency Forward Contracts |       | $                                                                                      | 10         |   | $ | — |   | $ | — |   | $ | 10 |   |
| Total                              |       | $                                                                                      | 10         |   | $ | — |   | $ | — |   | $ | 10 |   |

 

**(14)INCOME TAXES:**

 

As of August 31, 2010 and 2009, the Company had no unrecognizedtax benefits. Any future accrued interest or penalties related to unrecognizedtax benefits will be recognized in income tax expense if incurred.  The Company is no longer subject to U.S.Federal income tax examinations by tax authorities for fiscal years 2006 andearlier.  The Company is no longersubject to state income tax examinations by tax authorities for fiscal years2006 and earlier.

 

Totalincome tax payments (refunds) were $170,000, $1.8 million and ($33,000) for theyears ended August 31, 2010, 2009 and 2008, respectively.

 

A-26

----

 

TheCompany’s net deferred tax liability included in Other Liabilities on theCompany’s Balance Sheets as of August 31, 2010 and 2009 is reflectedbelow:

 
| **(In Thousands)**                                                                                                              | ** ** | **2010**   | ** ** | **2009** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|----------|------------|------------|------------|------------|
| Deferred Tax Assets related to non- patronage  source temporary differences                                                          | ** ** | **$**      | **8,299**  |     | $          | 11,096     |       |       |   |   |
| Deferred Tax Liability related to non- patronage  source temporary differences                                                       | ** ** | **14,951** |       | 16,535   |       |       |       |       |
|                                                                                                                                 |       |       |       |     |       |       |       |       |
| Net Deferred Tax Liability                                                                                                           | ** ** | **$**      | **6,652**  |     | $          | 5,439      |       |       |   |   |
|                                                                                                                                 |
| Income  tax expense/(benefit) for the years ended August 31, 2010, 2009 and 2008  is as follows:                                |
|                                                                                                                                 |
| **(In Thousands)**                                                                                                              | ** ** | **2010**   | ** ** | **2009** | ** ** | **2008**   | ** ** |
| Current Income Taxes                                                                                                                 | ** ** | **$**      | **1,096**  |     | $          | 713        |       | $          | 653 |   |
| Deferred Income Taxes                                                                                                                | ** ** | **1,213**  |       | 1,468    |       | (2,052     | )          |
|                                                                                                                                 |       |       |       |     |       |       |       |
| Total Income Tax Expense/(Benefit)                                                                                                   | ** ** | **$**      | **2,309**  |     | $          | 2,181      |       | $          | (1,399 | ) |
|                                                                                                                                 |
| A  reconciliation of the Company’s effective tax rates for the years ended  August 31, 2010, 2009 and 2008 is shown below: |
|                                                                                                                                 |
| ** **                                                                                                                           | ** ** | **2010**   | ** ** | **2009** | ** ** | **2008**   | ** ** |
| Federal tax expense at statutory rate                                                                                                | ** ** | **35.0**   | **%**      | 35.0     | %          | 35.0       | %          |
| State tax expense at statutory rate                                                                                                  | ** ** | **6.0**    | **%**      | 6.0      | %          | 6.0        | %          |
| Payments to members                                                                                                                  | ** ** | **(40.4**  | **)%**     | (40.6    | )%         | (41.7      | )%         |
| Other, net                                                                                                                           | ** ** | **(0.2**   | **)%**     | —   |       | (0.2       | )%         |
| Effective tax rate                                                                                                                   | ** ** | **0.4**    | **%**      | 0.4      | %          | (0.9       | )%         |

 

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

 

TheCompany is subject to extensive federal and state environmental laws andregulations with respect to water and air quality, solid waste disposal andodor and noise control.  The Companyconducts an ongoing compliance program designed to meet these environmentallaws and regulations.  The Companybelieves that it is in substantial compliance with applicable environmentallaws and regulations.  From time to time,however, the Company may be involved in investigations or determinationsregarding matters that may arise in the ordinary course of business.  The Company works closely with all affectedgovernment agencies to resolve environmental issues that have arisen andbelieves such issues will be resolved without any material adverse effect onthe Company.

 

TheCompany’s sugar manufacturing process is energy intensive and generates carbondioxide and other “Greenhouse Gases” (GHGs). Several bills have been passed or introduced in the United States Senateand House of Representatives that would regulate GHGs and carbon dioxideemissions to reduce the impact of global climate change.  The Company believes it is likely thatindustries generating GHGs, including the Company, will be subject to eitherfederal or state regulation relating to climate change policies in the relativelynear future.  These policies, if adopted,will increase the Company’s energy and other operating costs.  Depending on how these policies addressimports, the domestic sugar market may have a competitive disadvantage comparedwith imported sugar.  These policiescould have a significant negative impact on the Company’s beet payment toshareholders if the Company is not able to pass the increased costs on to theCompany’s customers.

 

A-27

----

 

On June 26, 2009, the House of Representativespassed H.R. 2454, the American Clean Energy and Security Act (ACES), a billthat will place a cap on GHGemissions.  Similar legislation is being considered in the U.S.Senate.  Separately, the Environmental Protection Agency (EPA) finalizedfindings that GHG emissions endanger public health and welfare through theirimpact on climate change, and that motor vehicles “cause or contribute” todangerous GHG pollution.  The findings, which respond to the Supreme Court’s2007 decision in *Massachusetts v. EPA*,legally obligates the EPA to issue GHG standards for motor vehicles under theClean Air Act and supports the EPA’s effort to use existing legal authority toregulate GHGs.  As an emitter of GHGs covered by ACES, the Company is watchinglegislative and regulatory developments carefully yet cannot predict whethernew proposed laws or regulations will have a material impact on the Company.

 

OnNovember 25, 2008, the Company entered into a stipulation agreement withthe Minnesota Pollution Control Agency (MPCA) related to hydrogen sulfideemissions from its Crookston, East Grand Forks and Moorhead, Minnesotafactories.  As part of the stipulationagreement, the Company has agreed to make certain capital expenditures over thesubsequent three years and implement specified changes in operating proceduresto contain hydrogen sulfide emissions at the Minnesota factories. The Companyis on schedule with the agreed to changes.

 

OnSeptember 7, 2010, the Company entered into an Administrative ConsentAgreement with the North Dakota Department of Health related to pulp dryeremissions at the Hillsboro, North Dakota factory. As part of the AdministrativeConsent Agreement, the Company agreed to pay a penalty of $103,181, which wasrecognized in fiscal 2010.

 

Includingthe expenditures related to the MPCA stipulation agreement, the Company hasidentified capital expenditures for environmental related projects over thenext three years at the Company’s factory locations of approximately $18.5 million.

 

**(16)LEGAL MATTERS:**

 

OnSeptember 21, 2009 the U.S. District Court (District Court) ruled againstthe U.S. Department of Agriculture (USDA) finding that the USDA violatedfederal law by failing to prepare an Environmental Impact Statement (EIS) beforederegulating Roundup Ready® sugarbeets.  On January 19, 2010, amotion was filed in Federal Court seeking a preliminary injunction to halt theplanting and processing of Roundup Ready® sugarbeets for both the seed and rootcrops.  On March 16, 2010 the U.S. District Court denied theplaintiffs’ request for the preliminary injunction.

 

Followingthe August 13, 2010 District Court hearing on interim remedies, theDistrict Court issued a ruling confirming the ability of the shareholders toharvest the 2010 root crop even though it was produced primarily from RoundupReady® sugarbeet seed.  In addition, theDistrict Court immediately vacated the original decision by USDA to deregulatethe use of Roundup Ready® sugarbeet seed. As a result, the planting of Roundup Ready® sugarbeet seed after August 13,2010 is prohibited until further action is taken by USDA in accordance withapplicable law to allow planting of Roundup Ready® sugarbeet seed.  It is impractical to speculate on thelikelihood of the USDA taking action prior to the planting of the 2011sugarbeet crop.  Given the recent ruling,and the uncertain timing of USDA action, it is possible that the Company’sshareholders may not be able to plant Roundup Ready® sugarbeets in 2011.  The ability of shareholders to plant RoundupReady® sugarbeets in subsequent years will be determined as a final matterbased on the outcome of the EIS and further decision by USDA.  The number of years required to complete theEIS is uncertain.

 

A-28

----

 

**(17)****SUBSEQUENT EVENTS:**

 

TheCompany has evaluated events through the date that the financial statementswere issued, for potential recognition or disclosure in the August 31,2010 financial statements.

 

A-29

----

 

**EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-KFOR FISCAL YEAR ENDED AUGUST 31, 2010**

 
| **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              |       | 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                                             |
|              |       |                                                                                       |       |                                                                                                                                                                                          |
| 10.3              |       | Registrant’s Senior Note Inter-creditor and Collateral  Agency Agreement              |       | Incorporated  by reference to Exhibit 10.25 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 1999                                             |
|              |       |                                                                                       |       |                                                                                                                                                                                          |
| 10.4              |       | 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                                             |

 

E-1

----

 
| ++10.5  |   | 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 |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.6    |   | 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             |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| ++10.7  |   | 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 |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| ++10.8  |   | 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.            |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.9    |   | 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 |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.10   |   | Amended  and Restated Uniform Member Sugar Marketing Agreement between the Registrant  and United Sugars Corporation dated September 20, 2007. |   | Incorporated  by reference to Exhibit 10.22 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2008 |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.11   |   | Stipulation  Agreement between Registrant and State of Minnesota Pollution Control Agency,  dated November 25, 2008                            |   | Incorporated  by reference to Exhibit 10.19 from the Company’s Form 10-Q for the  quarter ended November 30, 2008             |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| ++10.12 |   | Restated  Supplemental Executive Retirement Plan, dated December 5, 2008                                                                       |   | Incorporated  by reference to Exhibit 10.20 from the Company’s Form 10-Q for the  quarter ended November 30, 2008             |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| ++10.13 |   | Restated  Board of Directors Deferred Compensation Plan, dated December 8, 2008                                                                |   | Incorporated  by reference to Exhibit 10.21 from the Company’s Form 10-Q for the  quarter ended November 30, 2008             |

 

E-2

----

 
| ++10.14 |   | First  Amendment to 2005 Long-Term Incentive Plan, dated December 20, 2006.                                                                    |   | Incorporated  by reference to Exhibit 10.22 from the Company’s Form 10-Q for the  quarter ended February 28, 2009             |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| ++10.15 |   | Second  Amendment to 2005 Long-Term Incentive Plan, dated November 5, 2007.                                                                    |   | Incorporated  by reference to Exhibit 10.23 from the Company’s Form 10-Q for the  quarter ended February 28, 2009             |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| ++10.16 |   | Third  Amendment to 2005 Long-Term Incentive Plan, dated December 11, 2008.                                                                    |   | Incorporated  by reference to Exhibit 10.24 from the Company’s Form 10-Q for the  quarter ended February 28, 2009             |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.17   |   | Amended and Restated Credit Agreement between the  Registrant and CoBank, ACB dated July 30, 2009.                                             |   | Incorporated  by reference to Exhibit 10.17 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2009 |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.18   |   | Amended  and Restated Uniform Member Marketing Agreement between the Registrant and  Midwest Agri-Commodities Company dated September 1, 2009. |   | Incorporated  by reference to Exhibit 10.18 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2009 |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.19   |   | Amended  and Restated Member Control Agreement between Registrant and Golden Growers  Cooperative dated September 1, 2009.                     |   | Incorporated  by reference to Exhibit 10.19 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2009 |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.20   |   | First  Amendment to Amended and Restated Credit Agreement between the Registrant and CoBank, ACB dated July 30, 2010.                          |   | Filed  herewith electronically                                                                                                                    |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| ++10.21 |   | Fourth  Amendment to 2005 Long-Term Incentive Plan, dated August 1, 2010.                                                                      |   | Filed  herewith electronically                                                                                                                    |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.22   |   | Administrative  Consent Agreement between the Registrant and the North Dakota Department of  Health dated September 7, 2010.                   |   | Filed  herewith electronically                                                                                                                    |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 21.1    |   | List  of Subsidiaries of the Registrant                                                                                                             |   | Filed  herewith electronically                                                                                                                    |

 

E-3

----

 
| 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 |

 

----

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

 

E-4

----