** **

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K**

 

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

 

**For the fiscal year ended August 31,2009**

 

**or**

 

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

 

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

 

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**AMERICAN CRYSTAL SUGARCOMPANY**

(Exact name of registrant as specified in itscharter)

 

| **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) ofthe Act:

**NONE**

 

Securities registered pursuant to Section 12(g) ofthe Act:

**NONE**

 

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

 

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Indicate by check mark if the registrant isnot required to file reports pursuant to Section 13 or 15(d) of theAct.  Yes  o  No  x

 

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

 

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Indicate by check mark whether the registranthas submitted electronically and posted on its corporate Web site, if any,every Interactive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files).  YES  o  NO  o

 

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Indicate by check mark if disclosure ofdelinquent filers pursuant to Item 405 of Regulation S-K is not containedherein, and will not be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in Part IIIof this Form 10-K or any amendment to this Form 10-K. x

 

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Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer, or a non-acceleratedfiler.  See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one)

 

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

 

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

 

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As of October 29, 2009, 2,812 shares ofthe Registrant’s Common Stock and 498,570 shares of the Registrant’s PreferredStock were outstanding.  There is no establishedpublic market for the Registrant’s Common Stock or Preferred Stock.  Although there is a limited, private marketfor shares of the Registrant’s stock, the Registrant does not obtaininformation regarding the transfer price in transactions between its membersand therefore is unable to estimate the aggregate market value of theRegistrant’s shares held by non-affiliates.

 

**DOCUMENTS INCORPORATED BY REFERENCE**

# **NONE**

 

 

 

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# **PART I**

 

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

 

**Item1.**                                        BUSINESS

 

**GENERAL**

 

The Company is a Minnesota agricultural cooperativecorporation owned by approximately 2,800 sugarbeet growers in the Minnesota andNorth Dakota portions of the Red River Valley. The Red River Valley is the largest sugarbeet growing area in the UnitedStates, forming a band approximately 35 miles wide on either side of the NorthDakota and Minnesota border and extending approximately 200 miles south fromthe border of the United States and Canada. The Company was organized in 1973 by sugarbeet growers to acquire thebusiness and assets of the American Crystal Sugar Company, then a publicly heldNew Jersey corporation in operation since 1899. The Company’s Board of Directors establishes sugarbeet acreage plantingrequirements in the Red River Valley (the Red River Valley Crop) each yearbased on factory processing capacity, expected crop quality, governmentregulations and other factors.  Based onthe tons of sugarbeets required to meet sugar production levels, the totalauthorized acres to be planted are allocated ratably to each preferred shareheld by the members.  The Companyprocessed sugarbeets from approximately 408,000 acres for the 2008 crop andexpects to process sugarbeets from approximately 445,000 acres for the 2009 crop.  By owning and operating five sugarbeetprocessing facilities in the Red River Valley, the Company provides itsshareholders with the ability to process their sugarbeets into sugar andagri-products such as: molasses; sugarbeet pulp; and by-products of themolasses desugarization process, betaine and concentrated separated by-product(CSB).

 

The Company, through its wholly-owned subsidiary,Sidney Sugars Incorporated (Sidney Sugars), owns two sugarbeet processingfacilities.  At the Sidney, Montana,facility, the Company processed non-member sugarbeets from approximately 15,000acres for the 2008 crop and expects to process from approximately 25,000 acresfor the 2009 crop.  The Torrington,Wyoming, facility has been leased on a long-term basis to another sugarproducer.

 

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.

 

The Company is the controlling member of ProGoldLimited Liability Company (ProGold), which owns a corn wet-milling plant inWahpeton, North Dakota, that is currently being leased to Cargill, Incorporated(Cargill).  On November 6, 2007,ProGold entered into an amended lease agreement with Cargill that supersededand replaced the previous 10 year lease between ProGold and Cargill andprovides that (1) Cargill will pay ProGold average annual rental paymentsequal to $21,900,000, and (2) that the term of the lease be extended untilDecember 31, 2017.

 

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

 

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

 

**OperatingSegments**

 

The Company has identified tworeportable operating segments: Sugar and Leasing.  The Sugar segment is engaged primarily in theproduction and marketing of sugar from sugarbeets.  It also sells agri-products and sugarbeetseed.  The Leasing segment is engaged inthe leasing of a corn wet milling plant used in the production of high-fructosecorn syrup.  For financial information bysegment see Note 12 of “Notes to the Consolidated Financial Statements.”

 

**Principal Products Produced**

 

The Company is engagedprimarily in the production and marketing of sugar from sugarbeets.  Total sugar sales accounted for 85.6 percent,87.1 percent and 88.6 percent of the Company’s consolidated total revenues forthe years ended August 31, 2009, 2008 and 2007, respectively.  United Sugars Corporation, the Company’ssugar marketing agent, sells sugar primarily to industrial users such asconfectioners, breakfast cereal manufacturers and bakeries.  For the fiscal year ended August 31,2009, 87.4 percent (by weight) of the sugar was sold to industrial users.  The remaining portion is marketed by UnitedSugars Corporation to wholesalers and retailers under the “Crystal Sugar” andvarious private labels for household consumption.  With regard to brand name sales, the Companylicenses the use of the “Crystal” trademark to United Sugars Corporation.

 

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

 

The Company also sellsagri-products such as: molasses; sugarbeet pulp; betaine and concentratedseparated by-product (CSB), by-products of the molasses desugarization process;and sugarbeet seed.  Substantially all ofthe Company’s agri-products are marketed through Midwest Agri-CommoditiesCompany, a common marketing agency. Sugarbeet pulp is marketed to livestock feed mixers and livestockfeeders in the United States and foreign markets.  A large proportion of the Company’s pulpproduction is exported to Japan and Europe. The market for sugarbeet pulp is affected by the availability andquality of competitive feedstuffs and foreign exchange rates.  Sugarbeet molasses is marketed primarily toyeast manufacturers, livestock feed mixers and livestock feeders.  Total agri-product sales accounted for 10.4percent of the Company’s consolidated total revenues during fiscal 2009, ofwhich export agri-product sales accounted for 4.8 percent of suchrevenues.  Agri-products sales accountedfor 9.9 percent and 8.8 percent of the Company’s consolidated total revenues infiscal 2008 and fiscal 2007, respectively, while agri-product export salesaccounted for 4.4 percent and 3.3 percent of the Company’s total revenues infiscal 2008 and fiscal 2007, respectively.

 

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

 

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

 

**RawMaterials**

 

The Company purchases allof its Red River Valley sugarbeets from members under contract with theCompany.  All members are party to a fiveyear contract for the 2008 through 2012 crop years which will automaticallyrenew for additional five-year terms unless terminated by one of the parties atthe end of the current term.  In addition,each member has an annual contract with the Company specifying the number ofacres the member is obligated to grow during that year.  Each share of Preferred Stock held by amember requires that member to grow one acre of sugarbeets, subject to the plantingtolerance, for sale to the Company.  TheCompany’s Board of Directors has the discretion to adjust the acreage that isrequired to be planted for each share of Preferred Stock held by themembers.  The Company’s Board ofDirectors set the planting tolerance for the 2009 crop year at .83 acres pershare of preferred stock, with a planting tolerance of minus .03 or plus .09(.80 minimum and .92 maximum).  Based oncurrent market conditions and processing capacity, the Company estimatesplanting tolerances for the 2010 crop year and beyond will be in the range of..80 to .85 acres per Preferred Share.  The Board ofDirectors and management regularly review and determine the relationshipbetween the ownership of Preferred Stock and acreage planting.

 

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

 

Under the grower contracts, payments to members forsugarbeets must be made in at least three installments: (i) on or about November 15,the Company pays its members an amount equal to 65 percent of the Company’sestimate of the member’s net beet payment; (ii) on or about March 31,the Company pays an amount, which combined with the November payment,equals 90 percent of the member’s estimated net beet payment; (iii) andnot more than 15 days after completion and acceptance of the audit of theCompany’s annual consolidated financial statements by the Board of Directors,the Company pays 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.

 

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

 

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

 

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

 

**Seasonality**

 

The period duringwhich the Company’s plants are in operation to process sugarbeets into sugarand agri-products is referred to as the “campaign.”  During the campaign, the Company’s factoriesoperate twenty-four hours per day, seven days per week.  In the Red River Valley, the campaigntypically begins in September and continues until the available supply ofsugarbeets has been depleted, which generally occurs in May of thefollowing 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.  Due to a reduction in acresplanted by the non-member growers, the 2009 campaign at the Sidney, Montanafactory lasted approximately 60 days while the 2010 campaign, due to anincrease in the acres planted, is expected to last approximately 100 days.

 

The sales of sugarand agri-products occur ratably throughout the year with modest increases insugar sales occurring prior to holiday seasons.

 

**Sales Backlog**

 

The backlog of anyunfilled sales orders at August 31, 2009 and 2008, was not material to theCompany.

 

**Market and Competition**

 

Current United States government statistics estimatetotal United States sugar consumption at approximately 204 millionhundredweight for the year beginning October 1, 2008 and ending September 30,2009.  For the same period ending September 2008,total consumption was approximately 201 million hundredweight.  Comparing the two years shows an increase indemand of approximately one percent.

 

The United States refined sugar market has grown overthe past twenty years, despite the demand lost to the substitution of highfructose corn syrups for sugar in beverages and certain food products.  Non-nutritive sweeteners such as aspartame havealso been developed to substitute for sugar. Corn sweeteners and non-nutritive sweeteners constitute a large portionof the overall sweetener market.  TheCompany believes that the United States market for sugar will reflect minimalincreases or be relatively flat in the near future.

 

The United States sugar industry has been subject toindustry consolidation.  Today, there arefewer than 10 sugar sellers,****withapproximately 68 percent of United States sugar market share concentrated inthe top three sellers.  The Company’ssugar production and sales represent approximately 15 percent of the totaldomestic market for refined sugar in 2008/2009. The Company had the right to market, or to have marketed on its behalf,approximately 35 million hundredweight of sugar from the 2008 crop.  Sugar sales by United Sugars Corporation, theCompany’s marketing agent, represent approximately 25 percent of the UnitedStates sugar market.

 

United is currently the second largest marketer ofsugar in the United States. Main competitors in the domestic market are: TheAmerican Sugar Refining Company; Imperial Sugar Company; Cargill, Incorporated;The Amalgamated Sugar Company LLC; Michigan Sugar Company; and The Western 

 

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

 

## **Government Programs andRegulations**

 

**Food, Conservation and Energy Actof 2008**

 

The Food, Conservation and Energy Act of 2008(the Farm Bill) enacted in May, 2008, contains several provisions related tothe domestic sugar industry aimed at achieving balance and stability in theU.S. sugar market while minimizing the cost to the Federal government.  The Farm Bill applies to the 2008 through2012 crop years.  Generally, the FarmBill:

 

·                  maintains a non-recourse loan program,

·                  sets a minimumoverall allotment quantity for U.S. producers at no less than 85% of domesticconsumption,

·                  maintains asystem of marketing allocations for sugarbeet and sugar cane producers,

·                  restrictsimports of foreign sugar and

·                  provides a newmarket balancing mechanism to divert any oversupply of sugar from sugarproducers to ethanol producers.

 

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

 

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

 

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

 

The marketing allotments and allocations setforth under the Farm Bill affect the sugar produced from the 2008 crop throughthe 2012 crop.  On an annual basis, themarketing allotments and the corresponding allocation to the Company willdictate the amount of sugar the Company can sell into the 

 

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domestic market.  The Company’smarketing allocation for the 2008 crop was set at approximately 35 millionhundredweight.  The Company’s marketingallocation for the 2009 crop is also currently set at approximately 35 millionhundredweight.  The Company’s allocationmay reduce or increase the amount of sugar the Company can market for a givenyear, thus affecting the number of acres of sugarbeets required for processingto produce that amount of sugar.

 

### **North American Free Trade Agreement**

 

The North American Free Trade Agreement(NAFTA) governs sweetener trade between the United States and Mexico. Under the NAFTA, tariffs on over-quota imports of sugar from and exports ofsugar to Mexico expired on January 1, 2008.  Imports of Mexicansugar could cause material harm to the United States sugar market.  Duringthe year ended September 30, 2008, Mexico exported approximately 13million hundredweight of sugar into the United States.  During the year ended September 30,2009, Mexico exported approximately 26 million hundredweight of sugar into theUnited States.  The Company has no way topredict the extent to which Mexico will take advantage of its exportopportunities**.**

 

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

 

The United States government may continue topursue international trade agreements. The Company monitors the U.S. government’s international trade policybecause it may lead to additional commitments to import sugar into the U.S.market.  Some of the countries who haveeither participated in trade agreements or are contemplated for newnegotiations are major producers of sugar. The primary agreements affecting sugar that are completed or are beingnegotiated, to the Company’s knowledge, include the Colombian Free TradeAgreement, Panama Free Trade Agreement, the Trans-Pacific Free Trade Agreement,the Association of Southeast Asian Nations, South Africa, Thailand, andothers.  The Company believes theseagreements, if they reach fruition, could negatively impact the Company’sprofitability.  If increases inguaranteed access or reductions in sugar tariffs are included in theseagreements, excess sugar from these regions could enter the U.S. market andreduce domestic sugar prices.

 

The Peru Free Trade Agreement has beenratified by the U.S. Congress and it became effective on February 1,2009.  Sugar trade with Peru is subjectto a net surplus producer requirement. Peru, typically a net importer, is unlikely to meet that requirementmost years.  Negotiations have beencompleted on the U.S.-Colombian Free Trade Agreement and the U.S.-Panama FreeTrade Agreement but they have not been ratified by the U.S. Congress.  The Company does not know when these tradeagreements will be brought before Congress for a vote.

 

The Doha Round negotiations of the WTO may bepursued by the U.S. Administration and some of its internationalcounterparts.  It is unclear at this timewhether negotiations will be completed. If the negotiations are completed, the outcome of any negotiatedarrangement could have significant adverse consequences for the Company.

 

The U.S. sugar industry and the Company, asan influential member of such industry, recognize the potential negative impactthat could result if these agreements are entered into by the United States andare taking steps to attempt to positively influence the outcome.  The Company and the sugar industry intend tocontinue to focus significant attention on trade issues in the future.

 

The impact of the various trade agreements onthe Company cannot be assessed at this time due to the uncertainty concerningthe terms of the agreements and whether they will ultimately be

 

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implemented.  It is possible,however, that the passage of various trade agreements could have a materialadverse effect on the Company through a reduction in sugar selling prices, anda corresponding reduction in the beet payment to its shareholders.

 

**Employees**

 

As of October 1, 2009, the Company had****1,369full-time employees, of which 1,108 were hourly and 261 were salaried.  The Company had 14 part-time employees.  In addition, the Company employsapproximately 813 hourly seasonal workers, approximately 370 during thesugarbeet harvest and approximately 443 during the remainder of the sugarbeetprocessing campaign. ** **During the sugarbeet harvest, theCompany also contracts with third party agencies for approximately another1,300 additional workers.

 

Substantially all of the hourly employees at theCompany’s factories, including full-time and seasonal employees, arerepresented by the Bakery, Confectionery, Tobacco Workers and Grain Millers(BCTGM) AFL-CIO, and are covered by collective bargaining agreements expiring July 31,2011 for the Red River Valley factory employees and April 30, 2012 for theSidney, Montana, factory employees. Office, clerical and management employees are not unionized, except forcertain office employees at the Moorhead and Crookston, Minnesota, andHillsboro, North Dakota, factories who are covered by the collective bargainingagreement with the BCTGM.  The Companyconsiders its employee relations to be good.

 

### **Environmental Matters**

 

The Company is subject to extensive federal and stateenvironmental laws and regulations with respect to water and air quality, solidwaste disposal and odor and noise control.  The Company conducts an ongoing complianceprogram designed to meet these environmental laws and regulations.  The Company believes that it is insubstantial compliance with applicable environmental laws and regulations.  From time to time, however, the Company maybe involved in investigations or determinations regarding matters that mayarise in the normal course of business.  The Companyworks closely with all affected government agencies to resolve environmentalissues that arise and believes they will be resolved without any adverse effecton the Company.

 

The Company’s sugar manufacturing process isenergy intensive and generates carbon dioxide and other “Greenhouse Gases”(GHGs).  Several bills have beenintroduced in the United States Senate and House of Representatives that wouldregulate GHGs and carbon dioxide emissions to reduce the impact of globalclimate change.  The Company believes itis likely that industries generating GHGs, including the Company, will besubject to either federal or state regulation relating to climate changepolicies in the relatively near future. These policies, if adopted, will increase the Company’s energy and otheroperating costs.  Depending on how thesepolicies address imports, the domestic sugar market may have a competitivedisadvantage with imported sugar.  Thesepolicies could have a significant negative impact on the Company’s beet paymentto shareholders if we are not able to pass the increased costs on to theCompany’s customers****.  On June 26,2009, the United States House of Representatives passed H.R. 2454, the AmericanClean Energy and Security Act.  This billcreates a system for regulating emissions of GHG’s and also creates a marketfor emission allowances or credits. It is uncertain whether the steps necessaryto move this bill or similar bills through the legislative process will becompleted this year.****

 

On November 25, 2008, the Companyentered into a stipulation agreement with the Minnesota Pollution ControlAgency (MPCA) related to hydrogen sulfide emissions from its Crookston, EastGrand Forks and Moorhead, Minnesota factories. As part of the stipulation agreement, the Company has agreed to makecertain capital expenditures over the next three years and implement specified 

 

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changes in operating procedures to contain hydrogen sulfide emissionsat those factories.  The required capitalexpenditures are currently estimated to be approximately $12 million.

 

Including the expenditures related to theMPCA stipulation agreement, the Company has identified capital expenditures forenvironmental related projects over the next three years at the Company’sfactory locations of approximately $15.8 million.

 

## **Available Information**

 

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

 

**Item1A.          RISK FACTORS**

 

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

** **

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

 

Our Company operates in a commodity marketenvironment.  Our strategy involves, to asubstantial degree, maximizing profitability by continuing to control operatingexpenses. In furtherance of this strategy, we have engaged in ongoing,company-wide efficiency activities intended to increase productivity and reducecosts.  These activities have includedrealigning and streamlining our operations and optimizing the efficiency of ourproduction facilities.  We cannot assurethat our efforts will result in our continued or increased profitability.

** **

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

 

As directed by Section 404 of the Sarbanes-OxleyAct of 2002, the Securities and Exchange Commission adopted rules requiringus to include a report of management on our internal control over financialreporting in our annual reports on Form 10-K that contains an assessmentby management of the effectiveness of our internal control over financialreporting.  In addition, the independentregistered public accounting firm auditing our financial statements will berequired, as of August 31, 2010, to attest to and report on management’sassessment of the effectiveness of our internal control over financialreporting.  Management has conducted arigorous review of our internal control over financial reporting 

 

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in order to assurecompliance with the Section 404 requirements.  However, if our independent auditorsinterpret the Section 404 requirements and the related rules andregulations differently from us or if our independent auditors are notsatisfied with our internal control over financial reporting or with the levelat which it is documented, operated or reviewed, they may, when required,decline to attest to management’s assessment or issue a qualified report.

 

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

 

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

 

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

 

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

 

### **The success or failure of our business is linkedto certain government programs, regulations and legislation that may change inthe future.**

 

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

 

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

 

Sugar is a fungible commodity with competition for sales volume basedprimarily upon customer service, price and reliability, though differences inproximity to various geographic markets within the United States result indifferences in freight and shipping costs which in turn generally affectpricing and competitiveness.  The overallsweetener market, in addition to sugar, includes corn-based sweeteners, such asregular and high fructose corn syrups, and non-nutritive, high-intensitysweeteners 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 incertain products, such as soft drinks. We cannot predict the availability, development or potential use ofthese and other alternative sweeteners and their possible impact on us or ourmembers.  We believe that we possess theability to compete successfully with other producers of sugar in the UnitedStates.  In spite of this competitiveadvantage, substitute products could reduce the demand for sugar which couldlower the price of sugar, resulting in reduced profitability in the future.

 

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Our Board of Directors authorized the planting of Roundup Ready®sugarbeets beginning with the 2008 crop. Sugar and agri-products produced from Roundup Ready® sugarbeets havereceived regulatory approval in most of the countries in which we have direct orindirect sales of our products.  Whilethe sale of sugar and agri-products from Roundup Ready® sugarbeet seed has beenapproved in most markets, marketing risks still exist.  United Sugars Corporation and MidwestAgri-Commodities, our sugar and agri-product marketing agents, respectively,feel they can successfully sell and distribute products from Roundup Ready®sugarbeets with minimal affect on our revenue. However, customers’ views on the use of products from biotechnologyderived crops such as Roundup Ready® sugarbeets may change over time whichcould negatively impact our profitability.

 

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

 

The prices we pay for energyrelated products, such as natural gas, coal and coke, have been volatile andmay continue to be volatile.  We usesubstantial amounts of these products in our manufacturing process.  We believe that the prices for energy relatedproducts including natural gas, coal, coke and diesel fuel will continue to bevolatile and 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.**

 

The sugarbeet, as with most other crops, isaffected by many factors, including seed varieties and weather conditionsduring the growing season.  Additionally,the quantity of sugarbeets to be processed and weather conditions during theprocessing season affect our ability to store sugarbeets held forprocessing.  Growing and storageconditions different from what we predict or expect may change the quantity andquality of sugarbeets available for processing and therefore may affect thequantity of the sugar we produce.

 

A significant decrease in the quantity orquality of sugarbeets harvested due to poor weather conditions would result inhigher unit operating costs and lower earnings.

 

A significant increase in the quantity orquality of sugarbeets harvested due to good weather conditions or improved seedvarieties could result in an unpredictably large quantity of sugarbeets to beprocessed.  If we are required to processa larger than anticipated quantity of sugarbeets we may experience increasedper unit of sugar processing cost which in turn would have an adverse financialconsequence to 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 yearor harvested at the end of a crop year.

 

Adequate storage conditions during a processing campaign are criticalto ensure that the quantity and quality of sugarbeets available for processingare maintained.  If we are not able toobtain or maintain adequate storage conditions, the sugarbeets stored forprocessing at a later date may deteriorate, resulting in increased productioncosts, and decreased production which in turn would have an adverse financialconsequence to us and our members.

 

Based on results of recent yield trials andcrop results, we expect that new sugarbeet varieties may continue to result inincreases in the average sugarbeet crop yields over the next five years.  As a result, we anticipate that there maycontinue to be a need to reduce the number of acres of sugarbeets

 

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that can be planted by each shareholder in order to match the sugarbeetcrop volume to our processing and marketing capacity.  This reduction, if necessary, would beaccomplished by reducing the per share planting tolerance by an amount that maybe material.  Assuming there are nochanges in other variables, the increased yield per acre expected to resultfrom the continued use of the new sugarbeet varieties would allow shareholdersto deliver substantially the same number of tons of sugarbeets to us from feweracres.  Individual shareholderprofitability will continue to depend on the circumstances unique to eachshareholder.

 

On January 24, 2008, the Center for Food Safety along with othergroups filed a lawsuit against the USDA regarding the decision to deregulateRoundup Ready® sugarbeets, specifically whether a full environmental impactstudy should have been completed.  On September 21,2009 the U.S. District Court (Court) ruled against the USDA finding that theUSDA violated federal law by failing to prepare an Environmental ImpactStatement before deregulating Roundup Ready® sugarbeets. The Court has determined that the USDA now needs to prepare a fullEnvironmental Impact Statement.  Theactual direct impact of the decision on sugarbeet producers and us will becomemore defined during the “remedy phase” of the case, which will occur over thenext several months.  The Center for Food Safety has not askedthe Court to prohibit planting of Roundup Ready® sugarbeets.  However, if the Court restricts planting in2010, conventional varieties would need to be utilized which would have anegative impact on our crop yields. Chemical manufacturers have significantly reduced planned production ofconventional herbicides due to the rapid increase in planting of Roundup Ready®sugarbeets.  Weed control for conventionalvarieties could be difficult if there is an inadequate supply of conventionalherbicides.  While we are takingprecautionary measures, the risk of Roundup Ready® sugarbeet restrictions stillexists and the negative financial impact to us and our members could besignificant.

 

If we are unable to manage the quantity andquality of sugarbeets available for processing, we could experience adversefinancial consequences that would impact both us and our members.

 

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

 

The prices growers receive from crops other than sugarbeets couldimpact their decisions as to which crop to plant and how much to plant.  Higher prices and increased profitability foralternative crops could negatively impact the desirability of growingsugarbeets for delivery to us for processing, our financial results, and ourcontinued viability.

 

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

 

We are subject to extensive federal and state environmental laws andregulations with respect to water and air quality and solid wastedisposal.  We conduct on-going programsdesigned to meet these environmental laws and regulations.  Changes in environmental laws or regulationsor complying with existing environmental laws and regulations or enforcementaction brought under such environmental laws and regulations might increase thecost of operating our facilities or result in significant capital investment.  Any such changes or compliance costs couldreduce our profitability.

 

Our sugar manufacturing process is energy intensive and generatescarbon dioxide and other “Greenhouse Gases” (GHGs).  Several bills have been introduced in theUnited States Senate and House of Representatives that would regulate GHGs andcarbon dioxide emissions to reduce the impact of global climate change.  We believe it is likely that industriesgenerating GHGs, including us, will be subject to either federal or stateregulation under climate change policies in the relatively near future.  These policies, if adopted, will increase ourenergy and other operating costs. Depending on how these

 

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policies addressimports, the domestic sugar market may have a competitive disadvantage withimported sugar.  These policies couldhave a significant negative impact on the beet payment to our shareholders ifwe are not able to pass the increased costs on to our customers****.****

 

**Item2.**                                        PROPERTY AND PROCESSING FACILITIES

 

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

 

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

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

 

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

 

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

 

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

 

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

 

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**Item3.**                                        LEGAL PROCEEDINGS

 

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

 

On February 11, 2009, the Ninth CircuitCourt of Appeals (the Court) issued its decision in the case of *Amalgamated Sugar Co, LLC v. Thomas Vilsack; Department of Agriculture*,a case that involved Amalgamated Sugar’s challenge of a decision by the USDA totransfer certain sugar marketing allocations to the Company.  The Court reversed the lower court’s decisionwhich confirmed the USDA’s transfer of the marketing allocations, and remandedthe case back to the lower court for further action.  On May 19, 2009, the USDA announced,subject to further proceedings, that it was redistributing a portion of theCompany’s sugar marketing allocations to other sugar beet processors inresponse to legal proceedings contesting the transfer of certain sugarmarketing allocations to the Company.  Toprotect the Company’s interests in the marketing allocations, the Companyappealed the Court’s decision to the U.S. Supreme Court.  The U.S. Supreme Court has since deniedhearing the case, essentially putting an end to the case.  As a result, the Company will experience anet reduction of marketing allocations of approximately 1 million CWT.  The Company does not believe that the loss ofthese marketing allocations will have a material impact on the Company’splanted acres going forward, assuming average crop yield, crop quality andcontinued domestic consumption trends.

 

**Item4.**                                        SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS

 

No matters were submitted to a vote of the Company’sshareholders during the quarter ended August 31, 2009.

 

# **PART II**

 

**Item5.**                                        MARKET FOR REGISTRANT’S COMMON EQUITY ANDRELATED STOCKHOLDER MATTERS

 

As of August 31, 2009, the Company had 2,812shares of the Common Stock and 498,570 shares of the Preferred Stock issued andoutstanding.  There is no establishedpublic market for the Company’s Common Stock or Preferred Stock, as such sharesmay be held only by farmer-producers who are eligible for membership in theCompany.  The Company’s shares are notlisted for trading on any exchange or quotation system.  Although transfers of the Company’s sharesmay occur only with the consent of the Board of the Directors, the Company doesnot obtain information regarding the transfer price in connection with suchtransfers.  As a result, the Company isnot able to provide information regarding the prices at which the Company’sshares have been transferred.

 

Because the number of acres of sugarbeets a member maygrow for sale to the Company is directly related to the number of shares ofPreferred Stock owned, a limited, private market for Preferred Stockexists.  It is not anticipated that ageneral public market for the Company’s shares of Common 

 

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Stock or Preferred Stockwill develop due to the limitations on transfer and the various membershiprequirements which must be satisfied in order to acquire such shares.

 

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

 

**Item6.**                                        SELECTED FINANCIAL DATA

 

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

 
| ** **                                           | ** ** | **Fiscal Year Ended August 31,  (In Thousands, except for ratios)**                                                             | ** ** |
|------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                           | ** ** | **2009**                                                                                                                             | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                 |       |                                                                                                                                 |       |   |   |   |   |   |   |   |   |
| Net Revenues                                         |       | $                                                                                                                                    | 1,200,229  |   | $ | 1,232,832 |   | $ | 1,222,857 |   | $ | 1,005,716 |   | $ | 965,474 |   |
| Net Proceeds (1)                                     |       | $                                                                                                                                    | 536,151    |   | $ | 542,693 |   | $ | 601,392 |   | $ | 445,091 |   | $ | 373,260 |   |
| Total Assets                                         |       | $                                                                                                                                    | 761,258    |   | $ | 813,299 |   | $ | 875,315 |   | $ | 839,997 |   | $ | 774,024 |   |
| Long-Term Debt, Net of Current Maturities            |       | $                                                                                                                                    | 143,073    |   | $ | 157,801 |   | $ | 157,974 |   | $ | 200,037 |   | $ | 216,842 |   |
| Members’ Investments                            |       | $                                                                                                                                    | 284,578    |   | $ | 331,276 |   | $ | 333,885 |   | $ | 323,256 |   | $ | 315,698 |   |
| Property and Equipment Additions, net of retirements |       | $                                                                                                                                    | 47,687     |   | $ | 45,188 |   | $ | 63,032 |   | $ | 45,453 |   | $ | 42,595 |   |
| Working Capital                                      |       | $                                                                                                                                    | 50,482     |   | $ | 57,775 |   | $ | 36,929 |   | $ | 58,214 |   | $ | 47,514 |   |
| Ratio of Long-Term Debt to Equity (2)                |       | .50:1                                                                                                                                |       | .48:1 |   | .47:1 |   | .62:1 |   | .69:1 |   |
|                                                 |       |                                                                                                                                 |       |   |   |   |   |   |   |   |   |
| ** **                                           | ** ** | **Fiscal Year Ended August 31,  (In Thousands, except for Tons purchased per acre harvested  and Sugar content of sugarbeets)** | ** ** |
| **Crop Data**(3)                                     | ** ** | **2009**                                                                                                                             | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                 |       |                                                                                                                                 |       |   |   |   |   |   |   |   |   |
| Acres harvested                                      |       | 422                                                                                                                                  |       | 529 |   | 507 |   | 507 |   | 526 |   |
| Tons purchased                                       |       | 10,707                                                                                                                               |       | 12,465 |   | 12,845 |   | 9,628 |   | 10,217 |   |
| Tons purchased per acre harvested                    |       | 25.4                                                                                                                                 |       | 23.6 |   | 25.3 |   | 19.0 |   | 19.4 |   |
| Sugar Content of Sugarbeets                          |       | 17.6                                                                                                                                 | %          | 18.1 | % | 18.2 | % | 18.0 | % | 17.8 | % |
| Sugar hundredweight                                  |       |                                                                                                                                 |       |   |   |   |   |   |   |   |   |
| Produced                                             |       | 30,679                                                                                                                               |       | 36,613 |   | 37,193 |   | 29,728 |   | 30,524 |   |
| Sold, including purchased sugar                      |       | 32,870                                                                                                                               |       | 36,879 |   | 35,243 |   | 29,691 |   | 31,509 |   |
| Purchased sugar sold                                 |       | 618                                                                                                                                  |       | 179 |   | 7 |   | 45 |   | 523 |   |
| Agri-Products tons                                   |       |                                                                                                                                 |       |   |   |   |   |   |   |   |   |
| Produced                                             |       | 695                                                                                                                                  |       | 849 |   | 930 |   | 717 |   | 732 |   |
| Sold                                                 |       | 672                                                                                                                                  |       | 871 |   | 898 |   | 721 |   | 761 |   |

 

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

 

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(2)  Calculated by dividingthe Company’s long term debt, exclusive of the current maturities of such debt,by members’ investments.

 

(3)  Information for afiscal year relates to the crop planted and harvested in the preceding calendaryear (i.e., information for the fiscal year ended August 31, 2009 relatesto the crop of 2008).  Crop data reflectthe combined data of the Red River Valley crop and the Sidney crop.

 

**Item7.**            MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS

 

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

 

## **Liquidity and CapitalResources**

 

Under the Company’s Bylaws and Member GrowerContracts, payments for member-delivered sugarbeets, the principal raw materialused in producing the sugar and agri-products it sells, are subordinated to allmember business expenses.  In addition,the beet payments made to member growers and non-member growers are paid inthree payments over the course of a year, and the member payments are made netof any anticipated unit retain for the crop. These procedures have the effect of providing the Company with anadditional source of short-term financing.

 

Because sugar is sold throughout the year(while sugarbeets are processed primarily in the fall, winter and spring) andbecause substantial amounts of equipment are required for its operations, theCompany has utilized substantial outside financing on both a seasonal andlong-term basis to fund its operations. The majority of such financing has been provided by a consortium oflenders led by CoBank, ACB.

 

During the current national economic downturnand financial market instability, the Company, due to its strong financialposition and relationships with its lenders, has continued to secure thenecessary financing for its working capital requirements and capitalexpenditures.

 

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 31,2009 and a line of credit with Wells Fargo Bank for $1.0 million, againstwhich there was no outstanding balance as of August 31, 2009.  The Company’s commercial paper programprovides short-term borrowings of up to $320 million of which approximately$46.0 million was outstanding as of August 31, 2009.  The Company had $2.7 million of 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.

 

The Company also has long-term debtavailability through December 31, 2011, with CoBank, ACB of****$174.6 million, of which $40.3 million in loans and$70.8 million in long-term letters of credit were outstanding as of August 31,2009.  The unused long-term line ofcredit as of August 31, 2009, was $63.5 million.  In addition, the Company had long-term debtoutstanding, as of August 31, 2009, of $50 million from a privateplacement of Senior Notes that occurred in September of 1998; $1.4 millionfrom a private placement of Senior Notes that occurred in January of 2003;and $70.1 million from five separate issuances of Pollution Control andIndustrial Development Revenue Bonds.

 

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The Company had outstanding purchasecommitments totaling $5.7 million as of August 31, 2009, for equipment andconstruction contracts related to various capital projects.

 

As of August 31, 2009, Midwest hadoutstanding short-term debt with CoBank, ACB of $5.5 million, of which $3.2million was guaranteed by the Company.

 

The net cash provided by operations was $72.1million for the year ended August 31, 2009, as compared to $94.3 millionfor the year ended August 31, 2008. This decrease in the cash provided of $22.2 million was primarily theresult of the following:

 

·                  Reflected in the change inthe net cash provided by operating activities is a net decrease of $1.2 millionfrom the prior year which was the result of decreased revenue of $32.6 millionpartially offset by lower costs and expenses of $10.0 million, a reduction inthe member gross beet payment of $13.6 million and an increase in unit retainswithheld of $7.8 million primarily resulting from a $3.00 per ton unit retainfor the 2008 crop versus a $2.00 per ton unit retain in the previous year.  These changes were primarily due to thereduction in the tons of sugarbeets harvested and products produced partiallyoffset by increased product selling prices.

·                  The increase in cash usedrelated to the changes in amount due growers was $11.4 million. Although thetotal payment due to members for sugarbeets, net of unit retains was lower in2009, 83 percent of the total payment was issued to the growers during 2009 ascompared to 78 percent of the total payment being issued to the growers during2008.  This is due to differences betweenthe forecasted payments due to members for sugarbeets, net of unit retains,upon which the interim payments are based, and the actual payment as determinedat the end of the fiscal year.

·                  The decrease in cashprovided related to the changes in accounts receivable of $11.1 million was dueto increased collections in 2008 on a larger beginning of the year receivablebalance resulting from increased sales volume in 2007.

·                  The decrease in cashprovided related to the changes in inventories of $21.2 million is due to nobeginning inventory of unprocessed sugarbeets in 2009, a 14 percent increase inthe per hundredweight net realizable value of sugar inventory as of August 31,2009 as compared to August 31, 2008, a 172 percent increase in the tons ofpulp inventory as of August 31, 2009 as compared to August 31, 2008and a 68 percent increase in the per ton net realizable value of pulp inventoryas of August 31, 2009 as compared to August 31, 2008, offset by a 26percent decrease in the hundredweight of sugar inventory as of August 31,2009 as compared to August 31, 2008.

·                  The above decreases werepartially offset by increases in cash provided or decreases in cash usedrelated to changes in advances to related parties of $8.3 million due primarilyto the timing of the cash requirements of our marketing agents, otherliabilities of $14.6 million due to a higher beginning balance in 2008resulting from deferred net proceeds due to an early campaign start-up in August 2007.

 

The net cash used in investing activities was$49.8 million for the year ended August 31, 2009, as compared to $44.8million for the year ended August 31, 2008.  The increase of $5.0 million was primarilydue to a change in other assets of $4.0 million and an equity distribution fromCoBank LLC in 2008 of $1.8 million partially offset by decreased purchases ofproperty and equipment of $ .9 million.

 

The net cash used for financing activitieswas $22.3 million for the year ended August 31, 2009, as compared to $49.5million for the year ended August 31, 2008.  This decrease of $27.2 million was primarilydue to increased net proceeds from short-term debt of $40.4 million, increasedproceeds from long term debt of $74.3 million, partially offset by increasedpayments on long term debt of $80.8 

 

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million, increased distributions to minority interest of $2.2 millionand increased payments of unit retains of $4.5 million.

 

The Company anticipates thatthe funds necessary for working capital requirements and future capitalexpenditures will be derived from operations and unit retains along withshort-term and long-term borrowings.

 

The following tableprovides information regarding the Company’s contractual obligations as of August 31,2009:

 
| **(In Thousands)**                 | ** ** | **Total** | ** ** | **Less than  One Year** | ** ** | **One to  Three Years** | ** ** | **Four to Five  Years** | ** ** | **After Five  Years** | ** ** |
|------------------------------------|------------|-----------|------------|-------------------------|------------|-------------------------|------------|-------------------------|------------|-----------------------|------------|
| Long-Term Debt                     |       | $         | 161,862    |                    | $          | 18,789                  |       | $                       | 29,713     |                  | $          | 615 |   | $ | 112,745 |   |
| Interest on Fixed Rate  L-T Debt   |       | 57,781    |       | 5,318                   |       | 11,477                  |       | 7,564                   |       | 33,422                |       |
| Purchase Obligations               |       | 11,547    |       | 8,284                   |       | 3,095                   |       | 112                     |       | 56                    |       |
| Operating Lease  Obligations       |       | 13,443    |       | 1,497                   |       | 3,697                   |       | 2,106                   |       | 6,143                 |       |
| Other Long-Term  Obligations(1)    |       | 55,170    |       | 4,608                   |       | 8,033                   |       | 4,364                   |       | 38,165                |       |
| Pension Plan  Contributions(2)     |       | 4,300     |       | 4,300                   |       |                    |       |                    |       |                  |       |
| **Total  Contractual Obligations** |       | $         | 304,103    |                    | $          | 42,796                  |       | $                       | 56,015     |                  | $          | 14,761 |   | $ | 190,531 |   |

 

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(1) AccruedEmployee benefits of $1.9 million with corresponding offsetting assets andrequiring no future payments have been excluded from the amountspresented.  Other Long-Term Liabilitiesof $2.9 million, which relate to deferred revenue also requiring no futurepayments, have also been excluded from the table.

 

(2) The Companyexpects to make contributions of approximately $4.3 million to the definedbenefit 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**

 

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

 

The difficulty inapplying these policies arises from the assumptions, estimates and judgmentsthat have to be made currently about matters that are inherently uncertain,such as future economic conditions, operating results and valuations as well asmanagement intentions.  As the difficulty increases, the level ofprecision decreases, meaning that actual results can and probably will bedifferent from those currently estimated.

 

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

 

*InventoryValuation*

 

Sugar, pulp, molasses andother agri-product inventories are valued at estimated net realizablevalue.  The Company derives its estimatesfrom sales contracts, recent sales and evaluations of market 

 

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conditions and trends. Changes in market conditions may cause management’s estimates to differfrom actual results.

* *

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

 

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

 

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

 

*Intangible Assets and Amortization*

 

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

 

*Pension Plan and OtherPost-Retirement Benefits*

 

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

 

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

 

The significant actuarialassumptions used in the determination of the actuarial present value ofaccumulated pension plan benefits for fiscal 2009 were as follows: *Valuation Funding Method* - Entry age normal, frozen initialliability; *Life Expectancy* – RP-2000 MortalityTable; *Retirement Age –*graded rates from 1percent retiring at age 55 to 100 percent retired by age 70*;  Investment Return -*8.00 percentcompounded annually for funding*;  Discount* Rate- 6.55 percentcompounded annually;  *Salary Scale* - 3.5 percent compounded annually (Plan Aonly).

 

The significant actuarialassumptions used in the determination of the actuarial present value ofaccumulated post-retirement benefits for fiscal 2009 were as follows: *Healthcare Cost Trend* - a 10.0 percent annual rate ofincrease in the per capita cost of covered healthcare benefits for participantsunder age 65 was assumed for 2009.  Therate is assumed to decline to 7.0 percent over the next five years.  For participants age 65 and older, an 11.0percent annual rate of increase in the per capita cost of covered healthcarebenefits was assumed for 2009.  The rateis assumed to decline to 8.0 percent over the next five years*; Discount* Rate- 6.55 percent compounded annually.

 

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

 

19

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*Self-Insurance*

 

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

 

## **Results of Operations**

 

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

 

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

 

**Comparison of the Years Ended August 31, 2009and 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 tons of sugarbeetsper acre from approximately 422,000 acres. This represents a decrease in total tons harvested of approximately 14.1percent compared to the 2007 crop.  Thesugar content of the 2008 crop was 17.6 percent as compared to the 18.1 percentsugar content of the 2007 crop.  TheCompany produced a total of approximately 30.7 million hundredweight ofsugar from the 2008 crop, a decrease of approximately 16.2 percent compared tothe 2007 crop.

 

Revenue for the year ended August 31, 2009 was $1.2 billion, adecrease of $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      | %          |

 

The increases in selling prices for our products reflect strong marketsdue to supply and demand factors. The decrease in the volume of sugar soldreflects the impact of less product availability due to a 16.2 percent declinein sugar produced this year as compared to last year. The decreases in thevolumes of pulp and molasses sold were due in part to lower product availabilityresulting from an 11.5 percent decrease in pulp produced and a 65.8 percentdecrease in molasses produced this year as compared to last year. Lowerbeginning inventory levels for both pulp and molasses this year as compared toprior year also contributed to the reduction in the availability of theseproducts for sale.

 

20

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Cost of sales for the year ended August 31,2009, exclusive of payments to members for sugarbeets, increased $2.8 millionas compared to the year ended August 31, 2008.  This increase was primarily related to thefollowing:

 

·                  The change in the net realizablevalue of the product inventories from the beginning of the reporting period isrecorded on the balance sheet as either an increase or decrease to inventorieswith a corresponding dollar for dollar adjustment to cost of sales on thestatement of operations.  The decrease inthe net realizable value of product inventories for the year ended August 31,2009 was $13.0 million as compared to a decrease of $5.8 million for the yearended August 31, 2008 resulting in a $7.2 million unfavorable change inthe 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) |
|                                                                    |       |                                   |       |   |   |   |   |
| (Increase)/Decrease in the  Net Realizable Value of Product Inventories |       | $                                      | 13.0       |   | $ | 5.8 |   | $ | 7.2 |   |

 

----

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

(2) Thechange is primarily due to a 26 percent decrease in the hundredweight of sugarinventory as of August 31, 2009 as compared to August 31, 2008partially offset by a 14 percent increase in the per hundredweight netrealizable value of sugar inventory as of August 31, 2009 as compared to August 31,2008, a 172 percent increase in the tons of pulp inventory as of August 31,2009 as compared to August 31, 2008 and a 68 percent increase in the perton net realizable value of pulp inventory as of August 31, 2009 ascompared to August 31, 2008.

 

·                  Factoryoperating costs increased $9.2 million for the year ended August 31,2009, as compared to the year ended August 31, 2008 primarily due to highercosts associated with coke, chemicals, operating supplies, property taxes andmaintenance costs. These costs were partially offset by lower natural gascosts.

·                  An impairmentloss of $11.9 million related to the property and equipment at the Sidney,Montana facility was recognized in 2008 and included in cost of sales. Therewas no impairment loss in 2009.

·                  The costrecognized associated with the non-member sugarbeets decreased $18.8 millionfor the year ended August 31, 2009, when compared to last year.  This decrease was primarily due to a 56.6percent decrease in tons purchased.

·                  Due to lowerthan anticipated sugar production and inventory levels during the first quarterof this year, the Company’s sugar marketing agent, United Sugars Corporation,purchased and sold additional sugar to meet our customers’ needs.  As a result, the costs associated withpurchased sugar increased $14.2 million for the year ended August 31,2009, as compared to the year ended August 31, 2008.

·                  The cost ofbeet seed sold increased $4.0 million for the year ended August 31, 2009,as compared to the year ended August 31, 2008. This increase was due tohigher seed processing costs along with a 93.8 percent increase in the volumeof beet seed sold.

 

Selling, general and administrative expensesdecreased $23.4 million for the year ended August 31, 2009, as compared tothe year ended August 31, 2008. Selling expenses decreased $24.5 million primarily due to the decreasein the volumes of products sold and decreased transportation rates 

 

21

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resulting in decreased shipping and handling expenses.  General and administrative expenses increased$ 1.1 million due to general cost increases.

 

Interest expense decreased $4.7 million forthe year ended August 31, 2009, as compared to the year ended August 31,2008.  This reflects a decrease in theaverage borrowing levels and lower average interest rates for both short-termand long-term debt.

 

Other income, net increased $4.1 million forthe year ended August 31, 2009, as compared to the year ended August 31,2008.  This was due primarily to thereceipt of $4.8 million in November 2008 related to a legal settlement.

 

Non-member business activities resulted in again of $2.3 million for the year ended August 31, 2009, as compared to aloss of $4.8 million for the year ended August, 2008.  The change was primarily related to theimpairment loss recognized in 2008 for Sidney Sugars Incorporated.

 

Payments to members for sugarbeets together with unitretains declared, decreased by $13.6 million from $547.4 million in 2008 to$533.8 million in 2009.  This decreasewas primarily due to fewer tons harvested and a lower sugar content of thesugarbeets partially offset by increased product selling prices.

 

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

 

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

 

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

 

Revenue for the year ended August 31, 2008 was $1.2 billion, anincrease of $10.0 million from the year ended August 31, 2007.  The table below reflects the percentagechanges in product revenues, prices and volumes for the year ended August 31,2008, as compared to the year ended August 31, 2007.

 

22

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

 

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

 

Cost of sales for the year ended August 31,2008, exclusive of payments to members for sugarbeets, increased $54.7 millionas compared to the year ended August 31, 2007.  This increase was primarily related to thefollowing:

 

·                  The change inthe net realizable value of the product inventories from the beginning of thereporting period is recorded on the balance sheet as either an increase ordecrease to inventories with a corresponding dollar for dollar adjustment tocost of sales on the statement of operations. The decrease in the net realizable value of product inventories for theyear ended August 31, 2008 was $5.8 million as compared to an increase of$40.4 million for the year ended August 31, 2007 resulting in a $46.2 millionunfavorable change in the cost of sales between the two years as shown in thetable below:

 

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

 
| ** **                                                              | ** ** | **For the Years Ended August 31** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------------|------------|
| **(In Millions)**                                                       | ** ** | **2008**                               | ** ** | **2007** | ** ** | **Change** | ** ** |
| Beginning Product  Inventories at Net Realizable Value                  |       | $                                      | 156.4      |   | $ | 116.0 |   | $ | 40.4 | (1) |
|                                                                    |       |                                   |       |   |   |   |   |
| Ending Product Inventories  at Net Realizable Value                     |       | (150.6                                 | )          | (156.4 | ) | 5.8 | (2) |
|                                                                    |       |                                   |       |   |   |   |   |
| (Increase)/Decrease in the  Net Realizable Value of Product Inventories |       | $                                      | 5.8        |   | $ | (40.4 | ) | $ | 46.2 |   |

 

----

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

(2) Thechange was primarily due to lower quantities of products as of August 31,2008 as compared to August 31, 2007.

 

·                  An impairmentloss of $11.9 million related to the property and equipment at the Sidney,Montana facility was recognized in 2008 and included in cost of sales.

·                  The costrecognized associated with the non-member sugarbeets decreased $4.4 million forthe year ended August 31, 2008, when compared to the same period lastyear.  This decrease was primarily due toan 11.7 percent decrease in tons purchased.

 

Selling, general and administrative expensesincreased $20.8 million for the year ended August 31, 2008, as compared tothe year ended August 31, 2007. Selling expenses increased $22.6 million primarily due to the increasein the volumes of products sold and increased transportation rates resulting inincreased shipping and handling expenses. General and administrative expenses decreased $ 1.8 million due togeneral cost decreases.

 

23

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Interest expense decreased $5.5 million forthe year ended August 31, 2008, as compared to the year ended August 31,2007.  This reflects a decrease in theaverage borrowing levels and lower average interest rates for both short-termand long-term debt.

 

Non-member business activities resulted in aloss of $4.8 million for the year ended August 31, 2008, as compared to again of $2.3 million for the year ended August, 2007.  The decrease was primarily related to theimpairment loss for Sidney Sugars Incorporated partially offset by increasedincome from the activities of ProGold.

 

Payments to members for sugarbeets together with unitretains declared, decreased by $51.7 million from $599.1 million in 2007 to $547.4million in 2008.  This decrease wasprimarily due to lower sugar selling prices and fewer tons harvested partiallyoffset by increased agri-product selling prices.

 

## **2009 Crop and EstimatedFiscal Year 2010 Information**

 

This discussion contains the Company’s currentestimate of the results to be obtained from the Company’s processing of the2009 sugarbeet crop.  This discussionincludes forward-looking statements regarding the quantity of sugar to beproduced from the 2009 sugarbeet crop. These forward-looking statements are based largely upon the Company’sexpectations and estimates of future events; as a result, they are subject to avariety of risks and uncertainties.  Theactual results experienced by the Company could differ materially from the forward-lookingstatements contained herein.

 

The harvest of the Red River Valley and the Sidneysugarbeet crops grown during 2009 is estimated to produce a total of10.4 million tons of sugarbeets, or approximately 22.1 tons of sugarbeetsper acre from approximately 469,000 acres. This represents a decrease in total tons harvested of approximately 3.0percent compared to the 2008 crop.  Thesugar content of the 2009 crop is estimated to be 16.7 percent as compared tothe 17.6 percent sugar content of the 2008 crop.  The Company expects to produce a total ofapproximately 28.3 million hundredweight of sugar from the 2009 crop, adecrease of approximately 7.8 percent compared to the 2008 crop.

 

**Item7A.**                               QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

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

 

**Item8.**                                        FINANCIAL STATEMENTS

 

The consolidated financial statements of the Companyfor the fiscal years ended August 31, 2009, 2008 and 2007 have beenaudited by Eide Bailly LLP, an independent registered public accountingfirm.  Such consolidated financialstatements have been included herein in reliance upon the report of Eide BaillyLLP.  The consolidated financialstatements of the Company are included in Appendix A to this annual report.

 

24

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**Item 9.**            CHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None

 

**Item 9A(T).**            CONTROLSAND PROCEDURES

 

**Evaluation of DisclosureControls and Procedures**

 

The Company’s chief executive officer andchief financial officer have reviewed and evaluated the effectiveness of theCompany’s disclosure controls and procedures (as defined in Rules 240.13a-15(e) and15d-15(e) promulgated under the Securities Exchange Act of 1934) as of August 31,2009.  Based on that review andevaluation, which included inquiries made to certain other employees of theCompany, the chief executive officer and chief financial officer have concludedthat the Company’s current disclosure controls and procedures, as designed andimplemented, are effective in ensuring that information relating to the Companyrequired to be disclosed in the reports the Company files or submits under theSecurities Exchange Act of 1934 is recorded, processed, summarized and reportedwithin the time periods specified in the Security and Exchange Commission’s rules andforms, including ensuring that such information is accumulated and communicatedto the Company’s management, including the chief executive officer and thechief financial officer, as appropriate to allow timely decisions regardingrequired disclosure.

 

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

 

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

 

All internal control systems, no matter howwell designed, have inherent limitations. Therefore, even those systemsdetermined to be effective can provide only reasonable assurance with respectto financial statement preparation and presentation.  Because of its inherent limitations, internalcontrol over financial reporting may not prevent or detect misstatements.  Also, because of changes in conditions, theeffectiveness of internal control may vary over time.

 

Management assessed theeffectiveness of the Company’s internal control over financial reporting as of August 31,2009, using criteria set forth by the Committee of Sponsoring Organizations ofthe Treadway Commission (COSO) in *InternalControl-Integrated Framework*and concluded that the Companymaintained effective internal control over financial reporting as of August 31,2009 based on these criteria.

 

This annual report does not include anattestation report of the Company’s registered public accounting firm regardinginternal control over financial reporting. Management’s report was not subject to attestation by the Company’sregistered public accounting firm pursuant to temporary rules of theSecurities and Exchange Commission that permit the Company to provide onlymanagement’s report in this annual report.

 

25

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**Changes in InternalControl over Financial Reporting**

 

There were no changes in the Company’sinternal control over financial reporting that occurred during the Company’smost recent fiscal quarter that may have materially affected, or are reasonablylikely to materially affect, the Company’s internal control over financialreporting.

 

# **PART III**

 

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

 

**Board of Directors**

 

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

 

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

 
| **Name and Address**                                                           | ** ** | **Age**    | ** ** | **Factory District** | ** ** | **Director  Since** | ** ** | **Term Expires  December** |
|--------------------------------------------------------------------------------|------------|------------|------------|----------------------|------------|---------------------|------------|----------------------------|
| ** **                                                                     | ** ** | ** ** | ** ** | ** **           | ** ** | ** **          | ** ** | ** **                 |
| Francis L. Kritzberger (Chairman)  RR 1, Box 22  Hillsboro, ND 58045 |       | 64         |       | Hillsboro            |       | 1996                |       | 2009                       |
| ** **                                                                     | ** ** | ** ** | ** ** | ** **           | ** ** | ** **          | ** ** | ** **                 |
| Neil C. Widner  (Vice-Chairman)  PO Box 47  Stephen, MN 56757        |       | 58         |       | Drayton              |       | 2000                |       | 2009                       |
| ** **                                                                     | ** ** | ** ** | ** ** | ** **           | ** ** | ** **          | ** ** | ** **                 |
| Donald S.  Andringa  422 4th Avenue NE  Crookston, MN 56716     |       | 55         |       | Crookston            |       | 2008                |       | 2011                       |
| ** **                                                                     | ** ** | ** ** | ** ** | ** **           | ** ** | ** **          | ** ** | ** **                 |
| William Baldwin  8244 144th Ave. NE  St Thomas, ND 58276        |       | 63         |       | Drayton              |       | 2004                |       | 2010                       |
| ** **                                                                     | ** ** | ** ** | ** ** | ** **           | ** ** | ** **          | ** ** | ** **                 |
| Richard Borgen  1544 Co. Highway 39  Perley, MN 56574                |       | 60         |       | Moorhead             |       | 1997                |       | 2009                       |
| ** **                                                                     | ** ** | ** ** | ** ** | ** **           | ** ** | ** **          | ** ** | ** **                 |
| John Brainard  204 6th St. W  Ada, MN 56510                     |       | 49         |       | Hillsboro            |       | 2005                |       | 2011                       |

 

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| Brian R.  Erickson  824 James Ave. SE  East Grand Forks, MN 56721 |       | 61         |       | East Grand Forks |       | 2005       |       | 2011       |
|-----------------------------------------------------------------------------|------------|------------|------------|------------------|------------|------------|------------|------------|
|                                                                        |       |       |       |             |       |       |       |       |
| Robert M. Green  220 Park St.  Saint Thomas, ND 58276             |       | 55         |       | Drayton          |       | 2005       |       | 2011       |
| ** **                                                                  | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** |
| John F. Gudajtes  15363 County Road 15  Minto, ND 58261           |       | 60         |       | East Grand Forks |       | 2003       |       | 2009       |
|                                                                        |       |       |       |             |       |       |       |       |
| Curtis E. Haugen  45508  300th St. NW  Argyle,  MN 56713          |       | 48         |       | East Grand Forks |       | 2001       |       | 2010       |
| ** **                                                                  | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** |
| William Hejl  15560 28th St. SE  Amenia, ND 58004                 |       | 54         |       | Moorhead         |       | 2007       |       | 2010       |
|                                                                        |       |       |       |             |       |       |       |       |
| Curtis Knutson  35545 290th St. SW  Fisher, MN 56723         |       | 51         |       | Crookston        |       | 2007       |       | 2010       |
|                                                                        |       |       |       |             |       |       |       |       |
| Dale Kuehl  12213 12th Avenue South  Glyndon, MN 56547       |       | 52         |       | Moorhead         |       | 2008       |       | 2011       |
| ** **                                                                  | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** |
| Jeff D. McInnes  16485 6th Street SE  Hillsboro, ND 58045    |       | 52         |       | Hillsboro        |       | 2001       |       | 2010       |
|                                                                        |       |       |       |             |       |       |       |       |
| Steve Williams  515 Thompson Ave.  Fisher, MN 56723               |       | 58         |       | Crookston        |       | 2006       |       | 2009       |

 

Below is the biographicalinformation on each Director.

 

**Francis L. Kritzberger.**  Mr. Kritzbergerhas been a director since 1996 and has served as Chairman since 2008.  Mr. Kritzberger has previously served asa director with the Company, from July 30, 1989 until July 30,1993.  Mr. Kritzberger has been afarmer since 1964.  Mr. Kritzbergerserves on the Board of Directors of United Sugars Corporation, the Board ofDirectors of Midwest Agri-Commodities Company, the Board of Governors ofProGold Limited Liability Company and is also on the Board of Directors of theNorth Dakota Council of Cooperatives.

 

**Neil C. Widner. **Mr. Widner has been a director since 2000 and hasserved as Vice-Chairman since 2007.  Mr. Widnerhas farmed near Stephen, Minnesota, since 1973. Mr. Widner serves on the Board of Directors of United SugarsCorporation, the Board of Governors of ProGold Limited Liability Company and asa director for the American Sugarbeet Growers Association.

 

**Donald S. Andringa.**Mr. Andringa was elected as adirector in 2008. Mr. Andringa has been a sugarbeet farmerfor 35 years with his farming operations near Crookston, Minnesota.  Mr. Andringa currently serves on theBoard of Directors of the Red River Valley Farmers Insurance Pool and the 

 

27

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AdvisoryBoard for the University of Minnesota-Crookston Northwest Research and OutreachCenter. Mr. Andringa previously served on Board of Directors of theCrookston Factory District Grower Association, the Red River Valley SugarbeetGrowers Association’s Executive Committee and the American Sugarbeet GrowersAssociation Board of Directors.

 

**William Baldwin. **Mr. Baldwin has been a director since 2004.  Mr. Baldwin has beenfarming in the Drayton Factory District since 1966 and is the President ofBaldwin Farms Incorporated.  Mr. Baldwinis the past President of the Red River Valley Sugarbeet Growers Association,served on the American Sugarbeet Growers Executive Committee and is currentlyserving on the Farm Service Agency, State Committee.

 

**Richard Borgen.**  Mr. Borgenhas been a director since 1997.  Mr. Borgenhas farmed east of Perley, Minnesota, since 1967 and has served as a directoron the Perley Co-op Elevator Board and the Norman County West school board.

 

**John Brainard.**  Mr. Brainardhas been a director since 2005.  Mr. Brainardhas been a sugarbeet grower since 1998.  Mr. Brainardcurrently serves as a directorof 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. Ericksonhas been a director since 2005.  Mr. Ericksonhas been a sugarbeet grower for over 20 years. Mr. Erickson currently serves on the Board of Directors of Midwest Agri-CommoditiesCompany. Mr. Erickson has served as a director and Chairman of the EastGrand Forks Economic Development and Housing Authority.

 

**Robert M. Green.**  Mr. Greenhas been a director since 2005.  Mr. Greenhas been a sugarbeet grower since 1976.  Mr. Greenalso serves as adirector for the American Sugarbeet Growers Association.  Mr. Green served 12 years as a directorof the Red River Valley Sugarbeet Growers Association.

 

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

 

**Curtis E. Haugen. **Mr. Haugen has been a director since 2001.  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 American SugarbeetGrowers Association and as a director and President of the Farmer’s Union OilCompany, Oslo, Minnesota.

 

**William A. Hejl.**  Mr. Hejlhas been a director since 2007.  Mr. Hejlhas farmed near Amenia, North Dakota since 1987.  Mr. Hejl currentlyserves as a director of the American Sugarbeet Growers Association and is amanager of the Rush River Water Resource District.  Mr. Hejl also served as President of theRed River Valley Sugarbeet Growers Association and as President of the WorldAssociation of Beet and Cane Growers.

 

**Curtis Knutson.**  Mr. Knutsonhas been a director since 2007.  Mr. Knutsonhas farmed near Fisher, Minnesota for 36 years. Mr. Knutson currently serves on the Polk County Extension Board.

 

**Dale Kuehl.**Mr. Kuehl was elected as a directorin 2008.  Mr. Kuehl has been asugarbeet farmer for 33 years with his farming operations near Glyndon,Minnesota.  Mr. Kuehl currentlyserves on the Boardof Governors of ProGold Limited Liability Company.  Mr. Kuehl previously served on theBoards of Directors of the Moorhead Factory District Grower Association, theRed River Valley Sugarbeet Growers Association, the American Sugarbeet GrowersAssociation, the International Sugarbeet Institute and the Red River ValleyCoop Power Association.

 

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**Jeff D. McInnes.**  Mr.McInnes has been a director since 2001.  Mr.McInnes co-manages a 4,000 acre farming operation near Hillsboro, NorthDakota.  Mr. McInnes is the founder andmanager of the Basement Traders Marketing Club, a grain marketing associationin Hillsboro.  Mr. McInnes serves on theBoard of Governors of ProGold Limited Liability Company.

 

**Steve Williams. **Mr. Williams has been a director since 2006.  Mr. Williams has farmed near Fisher,Minnesota since 1987.  Mr. Williamsserves on the Board of Directors of the American Sugarbeet Growers Associationand served as its President from 2006 to 2008. Mr. Williams is also a director of the Sugar Association and the HalstadCooperative Telephone Company.  Mr. Williamsserved as a director of the Red River Valley Sugarbeet Growers Association from1998 to 2007, and served as its Chairman from 2003 to 2007.

 

**AuditCommittee and Audit Committee Financial Expert**

 

The Audit Committee assists the Board of Directors in fulfilling itsoversight responsibilities relating to the Company’s financial reporting andcontrols, the annual independent audit of the Company’s consolidated financialstatements and the legal compliance and ethics programs as established bymanagement and the Board of Directors. The Audit Committee selects the independent public accountants, approvesthe fees and the scope and procedural plans of the audits of the Company’sconsolidated financial statements.  TheAudit Committee administers the Company’s employee complaint program and handles,on behalf of the full Board of Directors, any issues that arise under theCompany’s Code of Ethics.  The AuditCommittee has a charter that is available from the Company upon request.

 

As of August 31, 2009, the Board of Directors of the Company has determinedthat there 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.”

 

The Audit Committee has reviewed and discussed with management and EideBailly LLP our audited consolidated financials statements contained in ourAnnual Report on Form 10-K for the fiscal year ended August 31, 2009. The AuditCommittee also discussed with Eide Bailly LLP the matters required to bediscussed pursuant to SAS No. 61 (Codification of Statements of AuditingStandards, AU Section 380), which includes, among other items, matters relatedto the conduct of the audit of the Company’s consolidated financial statements.

 

The Audit Committee has received and reviewed the written disclosuresand the letter from Eide Bailly LLP required by the applicable requirements ofthe Public 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.

 

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Based on thereview and discussions referred to above, the Audit Committee recommended tothe Board that the audited financial statements be included in our AnnualReport on Form 10-K for our fiscal year ended August 31, 2009 for filing withthe Commission.

 

On August 31, 2009, the members of the Audit Committee were JohnBrainard (Committee Chair), Brian R. Erickson, Robert M. Green, William A.Hejl, Dale Kuehl and Donald S. Andringa.

 

**CompanyOfficers**

 

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

 
| **Name**            | ** ** | **Age** | ** ** | **Position**                                                                                  |
|---------------------|------------|---------|------------|-----------------------------------------------------------------------------------------------|
| David A. Berg       |       | 55      |       | President and  Chief Executive Officer                                                        |
| Thomas S. Astrup    |       | 40      |       | Vice  President-Finance and Chief Financial Officer                                           |
| Joseph J. Talley    |       | 49      |       | Chief Operating  Officer                                                                      |
| Brian F.  Ingulsrud |       | 46      |       | Vice  President-Administration                                                                |
| Teresa A. Warne     |       | 39      |       | Corporate  Controller, Chief Accounting Officer, Assistant Secretary and Assistant  Treasurer |
| Daniel C. Mott      |       | 50      |       | Secretary                                                                                     |
| Samuel S. M. Wai    |       | 55      |       | Treasurer and  Assistant Secretary                                                            |
| Mark L. Lembke      |       | 53      |       | Finance  Administration Manager, Assistant Secretary and Assistant Treasurer                  |
| David L.  Malmskog  |       | 52      |       | Director - Economic  Analysis, Assistant Secretary and Assistant Treasurer                    |
| Ronald K.  Peterson |       | 54      |       | Accounting &  Systems Manager, Assistant Secretary and Assistant Treasurer                |
| Lisa M. Maloy       |       | 45      |       | Treasury  Operations Manager and Assistant Secretary                                          |

 

**David A. Berg.**  Mr. Berg wasnamed the Company’s President in March 2007 and assumed the role as the Company’sChief Executive Officer in October 2007. Mr. Berg served as the Company’s Vice President-Operations and ChiefOperations Officer from January 2004 to March 2007.  Mr. Berg was the Company’s VicePresident-Agriculture during the period December 2000 to January 2004 and theCompany’s Vice President-Administration during the period from October 1998 to December2000.  Mr. Berg currently serves on theBoards of Directors of United Sugars Corporation, Midwest Agri-CommoditiesCompany and Sidney Sugars Incorporated.

** **

**Thomas S. Astrup**.  Mr. Astrupwas named the Company’s Vice President-Finance and Chief Financial Officer in May2007.  Mr. Astrup was named the ChiefOperating Officer and Chief Financial Officer of Sidney Sugars Incorporated in May2007.  Mr. Astrup served as the Company’sVice President-Agriculture from 2004 to 2007. Mr. Astrup was the Company’s Vice President-Administration from 2000 to2004 and the Company’s Corporate Controller, Assistant Treasurer and AssistantSecretary 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.

 

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**Joseph J. Talley.**  Mr.Talley was named the Company’s Chief Operating Officer in May 2007.  Mr. Talley was named as the Chairman of theBoard 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’s VicePresident-Finance from 1998 to 2003.  Mr.Talley also served as Chief Operating Officer of Sidney Sugars Incorporatedfrom 2002 to 2007.  He currently serveson the Board of Governors for ProGold Limited Liability Company.

** **

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

** **

**Teresa A. Warne. **Ms. Warne was named the Company’s CorporateController, Chief Accounting Officer, Assistant Treasurer and AssistantSecretary in March 2008.  Prior tojoining the Company, Ms. Warne was the Director of Accounting with CaribouCoffee Company at its corporate headquarters in Brooklyn Center Minnesota from2006 to 2008.  Ms. Warne previously wasemployed with Northwest Airlines where she held various financial positionsfrom 1999 to 2006.

** **

**Daniel C. Mott.**  Mr.Mott became the Company’s Secretary in 1999. Previously, he had served as Assistant Secretary since 1995.  Mr. Mott also serves as the Company’s GeneralCounsel.  He is a Shareholder in the lawfirm of Fredrikson & Byron, P.A.  Mr.Mott is not an employee of the Company.

** **

**Samuel S. M. Wai.**  Mr.Wai was named the Company’s Treasurer and Assistant Secretary in 1999.  Mr. Wai also serves as Treasurer of theAmerican Crystal Sugar Political Action Committee and on the Board of Directorsof the Institute of Cooperative Financial Officers.

** **

**Mark L. Lembke.**  Mr.Lembke was named the Company’s Assistant Secretary and Assistant Treasurer in1996 and also currently serves as the Company’s Finance Administration Manager.

** **

**Ronald K. Peterson.**  Mr.Peterson was named the Company’s Assistant Secretary and Assistant Treasurer in1993 and also currently serves as the Company’s Accounting and Systems Manager.

** **

**David L. Malmskog.**  Mr.Malmskog was named the Company’s Assistant Secretary and Assistant Treasurer in1998 and also currently serves as the Company’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.

** **

**Codeof Ethics**

 

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

 

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** **

**Item 11.         EXECUTIVE COMPENSATION**

** **

**Compensation Discussion andAnalysis**

** **

**Overview**

 

This compensation discussion and analysisaddresses the compensation paid to the individuals who served as our Presidentand Chief Executive Officer, Chief Financial Officer, Chief Operating Officerand Vice President of Administration for fiscal year 2009, all of whom areidentified on the Summary Compensation Table immediately following this report(Named Executive Officers).  Immediatelyfollowing this compensation discussion and analysis is the CompensationCommittee Report of the Board of Directors (the Committee Report).  Members of the Compensation Committee were intheir role for fiscal year 2009.

 

**Purposeand Philosophy**

 

We believe that strong leadership is a keycomponent of success.  To be successful,we must be able to attract, retain and motivate leaders with the skillsnecessary to excel in an integrated cooperative environment and understand keybusiness and technical matters related to the diverse business influences thatresult from growers and owners, marketing partnerships and activities,technical manufacturing processes, and government policy.  Our goal is to provide a competitivecompensation package to our Named Executive Officers combining total directcompensation, retirement income and other benefits.

 

Total direct compensation, which includesbase salary, short-term cash incentive compensation and long-term incentivecompensation, is measured against comparable companies in the market in whichwe compete.

 

We believe the market in which we compete forexecutive talent consists of companies with similar characteristics to theCompany, for example, manufacturing companies with similar revenues in similargeographies.  We further believe that themarket also includes privately owned businesses in general and exclusively asit relates to long-term incentive compensation because of the structure andnature of our business.  Therefore, wehave compared our compensation versus compensation data points for these typesof companies (our market).

 

Our management, on behalf of the CompensationCommittee and Board of Directors, retained Towers Perrin, an outsidecompensation consultant (Compensation Consultant), to prepare market-basedcompensation data comparing compensation information for our Named ExecutiveOfficers with that of executive officers in our market. ****This analysis uses marketdata from published national survey sources, including************Towers Perrin and Watson Wyatt.  In addition, pay data from the proxy materialsfrom a group of comparative companies is referenced.  This group of companies, together with thesurvey sources, represents the market in which we believe we compete forexecutive talent and includes:****

 

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**** ****

·                  Actuant Corporation

·                  Ameron International Corp.

·                  Arctic Cat Inc.

·                  Barnes Group Inc.

·                  Brady Corporation

·                  Constar International Inc.

·                  Donaldson Company, Inc.

·                  Gardner Denver, Inc.

·                  Graco Inc.

·                  Herman Miller, Inc.

·                  IDEX Corporation

·                  Imperial Sugar Company

·                  Magellan Midstream Partners,L.P.

·                  Milacron Inc.

·                  Mine Safety Appliances Co

·                  Minn-Dak Farmers Cooperative

·                  MSC Industrial Direct Co.

·                  OMNOVA Solutions Inc.

·                  Packaging Corporation ofAmerica

·                  Rayonier Inc.

·                  Schweitzer-Mauduit International, Inc.

·                  The Toro Company

·                  Thomas & BettsCorporation

 

This data was provided to the CompensationCommittee in September, 2008, and was utilized to establish market based paypractices for each of the Named Executive Officer positions.

 

Our base salary midpoint for our Presidentand Chief Executive Officer is projected to represent less than the median ofthe market and total direct compensation is projected to be near the lowerquartile 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.  The CompensationCommittee determined that total direct compensation as established was appropriateand reflects the compensation principles outlined in this report.

 

While market based information is importantin terms of setting pay practices, it is not the only factor considered whenmaking individual executive compensation decisions. Other factors consideredwhen making individual executive compensation decisions include individualroles and responsibilities, performance, reporting structure and internal payrelationships.

** **

**Process**

 

The Compensation Committee of the Board ofDirectors is responsible for annually reviewing and recommending to the Boardof Directors the base salary and performance objectives for the incentivecompensation (both short-term and long-term) of the President and ChiefExecutive Officer, as well as the performance objectives for long-term incentivecompensation for all Named Executive Officers. Board action on recommendations 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.

 

Our President and Chief Executive Officersets base salary and the annual performance objectives for the short-termincentive compensation for the other Named Executive Officers.  The prospective base salary and annualperformance objectives for the other Named Executive Officers are reviewed withthe Board of Directors prior to being finalized by the President and ChiefExecutive Officer.

 

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**Elementsof Compensation**

 

The elements of compensation paid to ourNamed Executive Officers for 2009 are as follows:

 

·                  Base salary

 

·                  Short-term cashincentive compensation

 

·                  Long-termincentive compensation

 

·                  Retirement andother benefits

 

·                  Perquisites

 

·                  Severance forour President and Chief Executive Officer

 

Each of the above are more completely described below.

** **

**BaseSalary**

 

The objective of the level of base salarypaid to our Named Executive Officers is to reflect individual roles andresponsibilities, performance, reporting structure, and internal payrelationships with respect to market competitiveness.  All established base salaries for fiscal year2009 for our Named Executive Officers were in accordance with our compensationphilosophy described earlier in this report.

 

The fiscal year 2009 base salary of ourPresident and Chief Executive Officer, Mr. Berg, was set by the Board ofDirectors in September, 2008 based on the comparable market data provided byour Compensation Consultant.

 

**Short-TermCash Incentive Compensation**

 

Our short-term cash incentive compensation isdesigned to reward the Named Executive Officers for their individualperformance and our financial performance for the most recently completedfiscal year.  Short-term cash incentivecompensation is paid in cash following the close of the fiscal year.

 

Short-term cash incentive compensationprovides an annual cash incentive opportunity, expressed as a percent of basesalary, for our Named Executive Officers who meet performance objectives.  For fiscal year 2009, our President and ChiefExecutive Officer had an opportunity to receive an additional 45% of his basesalary, and the other Named Executive Officers had an opportunity to receive anadditional 35% of their base salary, by meeting “target” performancelevels.  Actual awards are determinedbased on the different performance levels achieved by the Named ExecutiveOfficers.  The potential for short-termcash incentive compensation ranges from 0% for unsatisfactory performance to amaximum of 90% for outstanding performance for the Chief ExecutiveOfficer.  For our other Named ExecutiveOfficers, the potential for short-term cash incentive compensation ranges from0% for unsatisfactory performance to a maximum of 70% for outstandingperformance.

 

The President and Chief Executive Officer’sperformance objectives were weighted with 50% of the potential award based onour overall financial performance and 50% of the potential award based on

 

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the President and ChiefExecutive Officer’s individual performance objectives as established by theBoard of Directors.  For the other NamedExecutive Officers, annual performance objectives were determined by thePresident and Chief Executive Officer at the beginning of fiscal year 2009,with 40% based on our overall financial performance and 60% based on theachievement of individual performance objectives, including personaleffectiveness.  Our overall financialperformance objectives are based on the final gross beet payment for the fiscalyear and total on-farm profit.  Totalon-farm profit is equal to total gross beet payment minus the product of TotalHarvested Acres multiplied by On-Farm Costs per Acre.  On-Farm Cost per Acre is based on the RedRiver Valley Report from the Minnesota and North Dakota Farm BusinessManagement Education Program. For fiscal year 2009, the final gross beetpayment was below target and the total on-farm profit was at the outstandingperformance level.

 

The individual performance objectives of ourNamed Executive Officers are derived primarily from our strategic initiatives,which are comprised of ten general strategies:

 

·                  Trade andpolicy leadership

 

·                  Cost andrevenue management

 

·                  Agriculturalgold standards

 

·                  Beet storageexcellence

 

·                  Balanced andmaximized slice and recovery

 

·                  Maintenanceexcellence

 

·                  Product quality

 

·                  Safety

 

·                  Training

 

·                  Technology andautomation

 

Each Named ExecutiveOfficer, based on his area of responsibility, is tasked with objectives basedon our strategies.  As indicated above, Mr.Berg’s performance objectives for fiscal year 2009 were set by the Board ofDirectors.  The performance objectivesfor fiscal year 2009 for our other Named Executive Officers were set by Mr. Bergat the beginning of fiscal year 2009.

 

The Board of Directors rates the Presidentand Chief Executive Officer at the end of the fiscal year with respect to hisachievement of his performance objectives, and his short-term cash incentivecompensation for fiscal year 2009 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-term incentive compensation provides anincentive opportunity, expressed as a percent of base salary, for our NamedExecutive Officers as a group who meet performance objectives.  For fiscal year 2009, our President and ChiefExecutive Officer had an opportunity to receive an additional 40% of his basesalary and the other Named Executive Officers had an opportunity to receive anadditional 20% of their base salary assuming target performance levels.  Actual awards are determined based on theperformance level achieved by the Named Executive Officers as a group.  The potential for long-term 

 

35

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incentive compensationranges from 0% for unsatisfactory performance to a maximum of 80% foroutstanding performance for the President and Chief Executive Officer.  For our other Named Executive Officers, thepotential for long-term incentive compensation ranges from 0% forunsatisfactory performance to a maximum of 40% for outstandingperformance.  Unlike our short-term cashincentive compensation, long-term incentive compensation awards are based onthe performance level of our Named Executive Officers as a group.  Forty-five percent (45%) of the performanceobjectives were based on the fiscal year’s actual on-farm profit as compared tohistorical profit levels while the other 55% was based on an assessment made bythe Board of Directors regarding achievement of specific long-term performanceobjectives as established by the Board of Directors. For fiscal year 2009, thetotal on-farm profit was at the outstanding performance level.

 

Our 2005 Long-Term Incentive Plan (2005 Plan)sets forth long-term incentive compensation available to our Named ExecutiveOfficers.  Our 2005 Plan is designed toprovide financial incentive awards through deferred compensation to reward theNamed Executive Officers for long-term strategic performance and to encouragelong-term commitment to our organization. Originally, our long-term incentive compensation was set forth in our1999 Long-Term Incentive Plan (1999 Plan) which has been replaced by our 2005Plan.  Even though the 2005 Plan replacedthe 1999 Plan, vested awards under the 1999 Plan are still governed by the 1999Plan.  The 1999 Plan and the 2005 Planare substantially similar.

 

Under the 2005 Plan, a long-term incentiveaward may be granted to a Named Executive Officer in the form of contractrights, cash, or in a combination of both cash and contract rights (incentiveawards).  The value of any contractrights granted is determined by our Board of Directors.  To date, all incentive awards granted havebeen in the form of contract rights. Incentive awards vest over a three-year period, with the first vestingoccurring one year after the grant. Vested incentive awards may be redeemed at the discretion of the NamedExecutive Officer and must be redeemed upon certain other events causing atermination of employment.  Redemptionsare in the form of cash payments that may be deferred by the Named ExecutiveOfficer.  Named Executive Officersreceive a profit per acre payment for vested contract rights based on 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.

 

OnSeptember 23, 2009, 282.10 contract rights were granted to Named ExecutiveOfficers with respect to performance for the fiscal year ended August 31, 2009at a value of $2,200 per contract right. Correspondingly, the redemption value of the contract rights previouslygranted to the Named Executive Officers under the 1999 and 2005 Plans wereincreased from $1,750 to $2,200 per contract right.  Effective as of August 31, 2009, there were atotal of 1,296.24 contract rights issued and outstanding to the Named ExecutiveOfficers under the 1999 and 2005 Plans, of which 716.09 were vested.

 

**Retirementand other benefits**

 

Retirement benefits are an important tool inachieving overall compensation objectives because they provide a financialsecurity component and promote retention. Our Named Executive Officers participate in our retirement plans likeany other employee.  In addition, weprovide a Supplemental Executive Retirement Plan (SERP) for our Named ExecutiveOfficers, which is a non-qualified defined contribution and defined benefitplan designed to replace benefits executives would have received if not forlimits imposed by Code Section 401(a)(17) and 402(g).  The Named Executive Officers may elect todefer a portion of base salary by regular payroll deductions, and may alsodefer 100% of all short-term 

 

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incentive compensation and long-term incentive compensation awards orpayments related to any such awards.  Alllong term incentive deferrals are held in a long term incentive plan trust, allother deferrals are held in a SERP trust. Both have seven investment options and are subject to the claims of ourcreditors.  The pension component of theSERP is “unfunded” with all amounts to be paid from our general assets, to theextent available, when due.

 

Our Named Executive Officers participate inour fully insured long-term disability program for all nonunion employees toprovide income protection in the event of permanent disability.  The long-term disability plan is part of thecore benefits we provide.  The long-termdisability plan provides a benefit equal to 60% of base pay with a maximummonthly benefit of $10,000.  The NamedExecutive Officers pay tax on the value of the long-term disability premium,and as a result if they become disabled their benefit will not be taxable.  Other nonunion employees are not taxed on thevalue of their long-term disability premium; therefore if they become disabledtheir benefit will be taxable.  For theNamed Executive Officers, we impute the value of the premium to provide atax-free benefit to partially offset the impact of receiving a disabilitybenefit less than 60% of base pay because of the $10,000 monthly benefitlimitation.

 

**Perquisites**

 

Our Compensation Committee and the Board ofDirectors believe perquisites should be modest, reasonable in terms of cost,aligned with business needs and comparative to other salaried employees.  Named Executive Officers may receive some orall of the following perquisites while employed: car allowance, cell phone,minimum of 4 weeks annual vacation accrual, reimbursement for income taxpreparation and executive physicals. Additionally, the President and Chief Executive Officer is provided witha country club membership.   The abovedescribed perquisites cease upon retirement or separation of service with us.

 

**Severance**

 

If we 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 Executive Officers in conjunction with any termination ofemployment with us, including without limitation resignation, severance,retirement or constructive termination of employment by the Company.  Furthermore, there are no such plans orarrangements providing for payments to any of the Named Executive Officers inconjunction with a change of control or change in such Named Executive Officer’sresponsibilities.

 

**EmploymentAgreements**

 

We entered into an employment agreement with Mr.Berg effective March 21, 2007.  Theagreement provides that Mr. Berg shall serve as an “at will” employee at thepleasure of the Board of Directors.  Theagreement also includes a two-year non-compete/non-solicitation agreement with Mr.Berg.  Mr. Berg received a gross basesalary for serving as President with this base salary increasing at the time Mr.Berg assumed the position of President and Chief Executive Officer.  Thereafter, the agreement grants the Board ofDirectors the authority to establish Mr. Berg’s base salary each year, and alsoprovides that he may participate in other benefit plans offered to allemployees.

 

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**CompensationCommittee Report**

 

The Compensation Committee of the Company’sBoard of Directors has reviewed and discussed the Compensation Discussion andAnalysis required by Item 402(b) of Regulation S-K with management and, basedon such review and discussion, the Compensation Committee recommended to theBoard of Directors that the Compensation Discussion and Analysis be included inthis Form 10-K.

 

Members of the Compensation Committee, all of whom are members of theBoard of Directors:

Jeff D. McInnes, Chairman

John Brainard

Brian R. Erickson

John F. Gudajtes

Curtis E. Haugen

Steve Williams

 

**Summary Compensation Table**

 

The followingtable summarizes the compensation of the Named Executive Officers for thefiscal years ended August 31, 2009, 2008 and 2007.  The Named Executive Officers are the Company’sChief Executive Officer, Chief Financial Officer and the two other most highlycompensated executive officers of the Company.

 

**2009 SUMMARY COMPENSATION TABLE**

 
| **Name  and  Principal Position**                                      | ** ** | **Year** | ** ** | **Salary  (2)** | ** ** | **Non-Equity  Short-  Term Incentive  Plan  Compensation (2)** | ** ** | **Non-Equity  Long-  Term Incentive  Plan  Compensation  (2),(3)** | ** ** | **Non-Equity  Long-  Term Incentive   Plan  Compensation  (2),(4)** | ** ** | **Non-Equity  Long-  Term Incentive  Plan  Compensation  (2),(5)** | ** ** | **Change  in Pension  Value and  Nonqualified  Deferred  Compensation  (NQDC) Earnings  (6)** | ** ** | **All  Other  Compensation (7)** | ** ** | **Total** | ** ** |
|------------------------------------------------------------------------|------------|----------|------------|-----------------|------------|----------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|----------------------------------|------------|-----------|------------|
| David A. Berg - President and Chief Executive Officer  **(1)**         |       | 2009     |       | $               | 508,108    |                                                           | $          | 316,575                                                            |       | $                                                                   | 343,354    |                                                               | $          | 148,829                                                                                       |       | $                                | 87,469     |      | $          | 154,366 |   | $ | 41,311 |   | $ | 1,600,012 |   |
|                                                                   | 2008       |     | $          | 401,169         |       | $                                                              | 256,662    |                                                               | $          | 244,493                                                             |       | $                                                                  | (93,112    | )                                                                                             | $          | 59,076                           |       | $         | 52,415     |   | $ | 26,052 |   | $ | 946,755 |   |
|                                                                   | 2007       |     | $          | 278,308         |       | $                                                              | 147,744    |                                                               | $          | 97,089                                                              |       | $                                                                  | 43,960     |                                                                                          | $          | 69,123                           |       | $         | 60,817     |   | $ | 24,705 |   | $ | 721,746 |   |
|                                                                   |       |     |       |            |       |                                                           |       |                                                               |       |                                                                |       |                                                               |       |                                                                                          |       |                             |       |      |       |
| Thomas S. Astrup - Vice President-Finance and Chief  Financial Officer |       | 2009     |       | $               | 259,902    |                                                           | $          | 135,638                                                            |       | $                                                                   | 86,218     |                                                               | $          | 113,639                                                                                       |       | $                                | 67,348     |      | $          | 37,373 |   | $ | 16,043 |   | $ | 716,160 |   |
|                                                                   | 2008       |     | $          | 239,400         |       | $                                                              | 114,792    |                                                               | $          | 78,453                                                              |       | $                                                                  | (72,697    | )                                                                                             | $          | 44,693                           |       | $         | 6,513      |   | $ | 15,463 |   | $ | 426,617 |   |
|                                                                   | 2007       |     | $          | 227,769         |       | $                                                              | 123,058    |                                                               | $          | 79,281                                                              |       | $                                                                  | 33,990     |                                                                                          | $          | 50,872                           |       | $         | 23,052     |   | $ | 13,693 |   | $ | 551,715 |   |
|                                                                   |       |     |       |            |       |                                                           |       |                                                               |       |                                                                |       |                                                               |       |                                                                                          |       |                             |       |      |       |
| Joseph J. Talley - Chief 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 |   |
|                                                                   | 2007       |     | $          | 267,308         |       | $                                                              | 123,917    |                                                               | $          | 93,242                                                              |       | $                                                                  | 24,130     |                                                                                          | $          | 24,599                           |       | $         | 47,562     |   | $ | 24,762 |   | $ | 605,520 |   |
|                                                                   |       |     |       |            |       |                                                           |       |                                                               |       |                                                                |       |                                                               |       |                                                                                          |       |                             |       |      |       |
| Brian F. Ingulsrud - Vice 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 |   |
|                                                                   | 2007       |     | $          | 200,769         |       | $                                                              | 108,956    |                                                               | $          | 70,196                                                              |       | $                                                                  | 11,507     |                                                                                          | $          | 6,585                            |       | $         | 28,455     |   | $ | 13,925 |   | $ | 440,393 |   |

 

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(1)   Mr. Berg was named Presidentin March 2007 and assumed the role as the Company’s Chief Executive officer in October2007.

(2)   Amounts shown are not reducedto reflect the Named Executive Officers’ elections, if any, to defercompensation into the Supplemental Executive Retirement Plan (SERP).

(3)   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.

(4)   Represents the change invalue of the outstanding contract rights granted to the executives in prioryears.  Contract rights vest equally overa three year period.  For furtherinformation regarding the Long-Term Incentive Plan, see “CompensationDiscussion and Analysis” within this Form 10-K.

(5)   Represents theProfit-Per-Acre payments that were earned in the fiscal year, which was theyear performance targets were achieved.

 

38

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

 

**Changein Pension Value and Nonqualified Deferred Compensation 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                 |       | $                | 63,696     |                    | $          | 89,263                                                                    |       | $         | 1,407      |   | $ | 154,366 |   |
|                                                                   |       |             |       |                    |       |                                                                      |       |      |       |
| Thomas S. Astrup - Vice  President-Finance and Chief Financial Officer |       | $                | 22,437     |                    | $          | 14,581                                                                    |       | $         | 355        |   | $ | 37,373 |   |
|                                                                   |       |             |       |                    |       |                                                                      |       |      |       |
| Joseph J. Talley - Chief  Operating Officer                            |       | $                | 36,069     |                    | $          | 31,839                                                                    |       | $         | 6,500      |   | $ | 74,408 |   |
|                                                                   |       |             |       |                    |       |                                                                      |       |      |       |
| Brian F. Ingulsrud - Vice  President-Administration                    |       | $                | 43,005     |                    | $          | 18,764                                                                    |       | $         | 72         |   | $ | 61,841 |   |

 

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(A) Represents the change in the present valueof the accumulated benefits provided by the plan or agreement.

(B)  Interest is considered to be preferential ifthe rate paid to the executive exceeds 120% of the applicable long-term federalrate under the Interal Revenue Code. Amounts reported reflect only the interest that exceeds 120% of theapplicable long-term federal rate.

 

(7)   Includes the imputed value ofCompany 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).

 

**Grants ofPlan-Based Awards**

 

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

 

**Grants of Plan-Based Awards Table**

 
| **Name and Principal**                                                 | ** ** | ** **      | ** ** | ** **       | ** ** | **Units**   | ** ** | **Estimated  Future Payouts UnderNon-  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                   |       | 8/31/2009       |       | 9/23/2009        |       | 156.07      |       |                                                                                                 |       | $                                                                          | 343,354    |                                                                             |       |   | $ | 0 |   | $ | 236,250 |   | $ | 472,500 |   |   |   | $ | 60,469 |   |   |   |
|                                                                   |       |            |       |             |       |        |       |                                                                                                 |       |                                                                       |       |                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Thomas S. Astrup - Vice President-Finance and Chief  Financial Officer |       | 8/31/2009       |       | 9/23/2009        |       | 39.19       |       |                                                                                                 |       | $                                                                          | 86,218     |                                                                             |       |   | $ | 0 |   | $ | 92,271 |   | $ | 184,541 |   |   |   | $ | 15,184 |   |   |   |
|                                                                   |       |            |       |             |       |        |       |                                                                                                 |       |                                                                       |       |                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Joseph J. Talley - Chief Operating Officer                             |       | 8/31/2009       |       | 9/23/2009        |       | 51.13       |       |                                                                                                 |       | $                                                                          | 112,486    |                                                                             |       |   | $ | 0 |   | $ | 120,400 |   | $ | 240,800 |   |   |   | $ | 19,810 |   |   |   |
|                                                                   |       |            |       |             |       |        |       |                                                                                                 |       |                                                                       |       |                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Brian F. Ingulsrud - Vice President-Administration                     |       | 8/31/2009       |       | 9/23/2009        |       | 35.71       |       |                                                                                                 |       | $                                                                          | 78,562     |                                                                             |       |   | $ | 0 |   | $ | 84,112 |   | $ | 168,224 |   |   |   | $ | 13,836 |   |   |   |

 

39

----

 

----

(1)   The “Target” amountsrepresent contract rights at the 8/31/2009 stated value of $2,200 per contractright.  These rights vest to theexecutive 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, 2009.

(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 2009. PPA payments are only paid on vested contract rights.  Theoretically the minimum payment could be $0and there is no maximum.

 

**Pension Benefits**

 

The table belowreflects information 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) |       | 22                                      |       | $                                              | 363,076    |                                   | — |
|                                                                   |       |                                        |       |                                    |       |                                           |       |                                   |
|                                                                   |       | Supplemental Executive Retirement Plan (2)  |       | 22                                      |       | $                                              | 276,874    |                                   | — |
|                                                                   |       |                                        |       |                                    |       |                                           |       |                                   |
| Thomas S. Astrup - Vice  President-Finance and Chief Financial Officer |       | Retirement Plan A For Employees of ACSC (2) |       | 15                                      |       | $                                              | 90,623     |                                   | — |
|                                                                   |       |                                        |       |                                    |       |                                           |       |                                   |
|                                                                   |       | Supplemental Executive Retirement Plan (2)  |       | 15                                      |       | $                                              | 35,916     |                                   | — |
|                                                                   |       |                                        |       |                                    |       |                                           |       |                                   |
| Joseph J. Talley - Chief  Operating Officer                            |       | Retirement Plan A For Employees of ACSC (2) |       | 15                                      |       | $                                              | 168,083    |                                   | — |
|                                                                   |       |                                        |       |                                    |       |                                           |       |                                   |
|                                                                   |       | Supplemental Executive Retirement Plan (2)  |       | 15                                      |       | $                                              | 124,054    |                                   | — |
|                                                                   |       |                                        |       |                                    |       |                                           |       |                                   |
| Brian F. Ingulsrud - Vice  President-Administration                    |       | Retirement Plan A For Employees of ACSC (2) |       | 18                                      |       | $                                              | 160,749    |                                   | — |
|                                                                   |       |                                        |       |                                    |       |                                           |       |                                   |
|                                                                   |       | Supplemental Executive Retirement Plan (2)  |       | 18                                      |       | $                                              | 26,126     |                                   | — |

 

----

(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.

 

40

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**Non-Qualified Deferred Compensation**

 

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

 
| **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                  |       | $                                                     | 11,882     |                                                   | $          | 22,113                                            |       | $                                              | (45,424    | )                                                | —     |   | $ | 508,027 |   |
|                                                                   |       |                                                  |       |                                                   |       |                                              |       |                                           |       |                                             |       |
| Thomas S. Astrup - Vice  President-Finance and Chief Financial Officer |       | —                                                |       | $                                                      | 5,154      |                                              | $          | 2,290                                          |       | —                                           |       | $ | 62,910 |   |
|                                                                   |       |                                                  |       |                                                   |       |                                              |       |                                           |       |                                             |       |
| Joseph J. Talley - Chief  Operating Officer                            |       | $                                                     | 29,979     |                                                   | $          | 10,188                                            |       | $                                              | 37,548     |                                             | —     |   | $ | 881,239 |   |
|                                                                   |       |                                                  |       |                                                   |       |                                              |       |                                           |       |                                             |       |
| Brian F. Ingulsrud - Vice  President-Administration                    |       | —                                                |       | $                                                      | 3,894      |                                              | $          | 527                                            |       | —                                           |       | $ | 12,974 |   |

 

----

(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 interestincluded here as well as in the NQDC column of the Summary Compensation Tableare as follows: Mr. Berg - $1,407, Mr. Astrup - $355, Mr. Talley - $6,500, and Mr.Ingulsrud - $72.  Executives have theoption of investing funds in an S&P 500 index fund or in a money marketfund guaranteeing interest at prime as of January 2 of each calendar year.  The 2009, 2008 and 2007 calendar year rateswere 3.25%, 7.25%,  and 8.25%,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**

 

On March 21, 2007, the Company and Mr. Berg entered into an agreementregarding Mr. Berg’s employment by the Company. The agreement provides that Mr. Berg shall serve as an “at will”employee at the pleasure of the Board of Directors.  The agreement also contains the provision ofa two-year non-compete/non-solicitation agreement with Mr. Berg, grants theBoard of Directors the authority to establish Mr. Berg’s base compensation eachyear, and also provides that he may participate in otherincentive compensation and benefit programs available to the Company’sexecutive officers.

 

If Mr. Berg is terminated without cause, hewill be eligible for severance pay equal to two times his then current basesalary.  The present value of Mr. Berg’s Supplemental ExecutiveRetirement Plan was approximately $277,000 as of August 31, 2009.

 

**Compensation of Directors**

 

The Board of Directorsmeets monthly.  For fiscal year 2009, theCompany provided its directors with compensation consisting of (i) a payment of$600 per month, (ii) a per diem payment of $300 for each day spent on Companyactivities, including board meetings and other Company functions, and (iii) reimbursementof expenses associated with director responsibilities.  The Chairman of the Board of 

 

41

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Directors receivedpayments of $2,100 per month and a per diem in the amount of $300 for each dayspent on Company activities.  The monthlycompensation paid to directors and the Chairman increases by $25 per month eachfiscal year.

 

Under the terms ofthe Board of Directors Deferred Compensation Plan, members of the Board ofDirectors can elect to defer receipt of their monthly and per diemcompensation.  This is an annualirrevocable election made prior to January 1 of each calendar year the fees areto be paid.  The amounts are deferreduntil the earliest of the board member’s withdrawal from the Board ofDirectors, the board member’s death or attainment of age 65. Two payment options are available at the election of theparticipant.  Payments can be received ina single lump sum or in equal installments over a period of up to ten years.  The Board of Directors, at its discretion,can elect to distribute the remaining balance at any time.  Interest is earned on the amounts deferredbased on the five year Treasury bond rate. Currently, there is one member who has elected to participate in thisplan.  The amount deferred, as of August 31,2009, was approximately $129,000.

 

The table belowreflects director compensation for the year ended August 31, 2009.

 

42

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| **Name**                                                 | ** ** | **Fees  Earned (1)** | ** ** | **Non-Equity  Incentive Plan  Compensation** | ** ** | **Change  in Pension  Value and NQDC  Earnings** | ** ** | **All  Other  Compensation** | ** ** | **Total** | ** ** |
|----------------------------------------------------------|------------|----------------------|------------|----------------------------------------------|------------|--------------------------------------------------|------------|------------------------------|------------|-----------|------------|
| Francis L. Kritzberger,  Director, Chairman of the Board |       | $                    | 29,050     |                                         | N/A        |                                             | N/A        |                         | N/A        |      | $          | 29,050 |   |
|                                                     |       |                 |       |                                         |       |                                             |       |                         |       |      |       |
| Neil Widner,  Director,Vice-Chairman of the Board        |       | $                    | 31,600     |                                         | N/A        |                                             | N/A        |                         | N/A        |      | $          | 31,600 |   |
|                                                     |       |                 |       |                                         |       |                                             |       |                         |       |      |       |
| Donald S. Andringa,  Director (3)                        |       | $                    | 20,700     |                                         | N/A        |                                             | N/A        |                         | N/A        |      | $          | 20,700 |   |
|                                                     |       |                 |       |                                         |       |                                             |       |                         |       |      |       |
| Michael A. Astrup, Director  (2)                         |       | $                    | 63,000     |                                         | N/A        |                                             | N/A        |                         | N/A        |      | $          | 63,000 |   |
|                                                     |       |                 |       |                                         |       |                                             |       |                         |       |      |       |
| William Baldwin, Director                                |       | $                    | 26,650     |                                         | N/A        |                                             | N/A        |                         | N/A        |      | $          | 26,650 |   |
|                                                     |       |                 |       |                                         |       |                                             |       |                         |       |      |       |
| Richard Borgen, Director                                 |       | $                    | 15,800     |                                         | N/A        |                                             | N/A        |                         | N/A        |      | $          | 15,800 |   |
|                                                     |       |                 |       |                                         |       |                                             |       |                         |       |      |       |
| John Brainard, Director                                  |       | $                    | 17,650     |                                         | N/A        |                                             | N/A        |                         | N/A        |      | $          | 17,650 |   |
|                                                     |       |                 |       |                                         |       |                                             |       |                         |       |      |       |
| Brian Erickson, Director                                 |       | $                    | 24,250     |                                         | N/A        |                                             | N/A        |                         | N/A        |      | $          | 24,250 |   |
|                                                     |       |                 |       |                                         |       |                                             |       |                         |       |      |       |
| Robert Green, Director                                   |       | $                    | 28,150     |                                         | N/A        |                                             | N/A        |                         | N/A        |      | $          | 28,150 |   |
|                                                     |       |                 |       |                                         |       |                                             |       |                         |       |      |       |
| John Gudajtes, Director                                  |       | $                    | 22,750     |                                         | N/A        |                                             | N/A        |                         | N/A        |      | $          | 22,750 |   |
|                                                     |       |                 |       |                                         |       |                                             |       |                         |       |      |       |
| Curtis Haugen, Director                                  |       | $                    | 29,100     |                                         | N/A        |                                             | N/A        |                         | N/A        |      | $          | 29,100 |   |
|                                                     |       |                 |       |                                         |       |                                             |       |                         |       |      |       |
| William Hejl, Director                                   |       | $                    | 14,650     |                                         | N/A        |                                             | N/A        |                         | N/A        |      | $          | 14,650 |   |
|                                                     |       |                 |       |                                         |       |                                             |       |                         |       |      |       |
| Curtis Knutson, Director                                 |       | $                    | 24,700     |                                         | N/A        |                                             | N/A        |                         | N/A        |      | $          | 24,700 |   |
|                                                     |       |                 |       |                                         |       |                                             |       |                         |       |      |       |
| Dale Kuehl, Director (3)                                 |       | $                    | 18,300     |                                         | N/A        |                                             | N/A        |                         | N/A        |      | $          | 18,300 |   |
|                                                     |       |                 |       |                                         |       |                                             |       |                         |       |      |       |
| Jeff McInnes, Director                                   |       | $                    | 15,100     |                                         | N/A        |                                             | N/A        |                         | N/A        |      | $          | 15,100 |   |
|                                                     |       |                 |       |                                         |       |                                             |       |                         |       |      |       |
| Ronald Reitmeier, Director  (2)                          |       | $                    | 5,800      |                                         | N/A        |                                             | N/A        |                         | N/A        |      | $          | 5,800 |   |
|                                                     |       |                 |       |                                         |       |                                             |       |                         |       |      |       |
| Steve Williams, Director                                 |       | $                    | 34,450     |                                         | N/A        |                                             | N/A        |                         | N/A        |      | $          | 34,450 |   |

 

----

(1)   Consists of fees of $600 permonth to Directors and $2,100 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 of2008.

(3)   Term began in December of2008.

 

**Item12.    SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT**

** **

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

 

43

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a group, the directorsgenerally own approximately 2 to 3 percent of the outstanding Preferred Stock.

 

**Item13.    CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS**

** **

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

 

**Item14.    PRINCIPAL ACCOUNTANT FEES ANDSERVICES**

** **

The following table presents fees for professional audit servicesrendered by Eide Bailly LLP for the audits of the Company’s and consolidatedcompanies’ annual financial statements for the years ended August 31, 2009 and2008 and fees for other services rendered by Eide Bailly LLP during thoseperiods.

 

 

| **(In Thousands)** | ** ** | **2009** | ** ** | **2008** | ** ** |
|--------------------|------------|----------|------------|----------|------------|
| Audit Fees         |       | $        | 129        |     | $          | 133 |   |
| Audit-Related Fees |       | 36       |       | 24       |       |
| Tax Fees           |       | 32       |       | 51       |       |
| All Other Fees     |       | 16       |       | —   |       |
| Total              |       | $        | 213        |     | $          | 208 |   |

 

**Audit Fees.** The Audit Fees set forth above include the aggregate fees billed by EideBailly LLP to the Company for audit services related to the audit of theCompany’s and consolidated companies’ annual financial statements and review ofthe statements included in the Company’s quarterly reports on Form 10-Q forfiscal 2009 and fiscal 2008.

 

**Audit-Related Fees.** The Audit-Related Fees set forth above include the aggregatefees billed by Eide Bailly LLP to the Company and consolidated companies forassurance and related services provided by Eide Bailly LLP related to theperformance of the audit or review of the Company’s financial statements forfiscal 2009 and fiscal 2008.  Theseservices included benefit plan audits.

 

**Tax Fees.** The Tax Fees set forth above include the aggregate fees billed by Eide BaillyLLP to the Company and consolidatedcompanies forprofessional services rendered by Eide Bailly for tax compliance, tax adviceand tax planning for fiscal 2009 and fiscal 2008.  These services include taxreturn preparation, tax planning and tax research.

 

**All Other Fees.** All Other Fees set forth above include the aggregate fees billed by EideBailly LLP to the Company and consolidated companies for professional services provided byEide Bailly LLP to the Company and consolidated companiesfor fiscal 2009 and fiscal 2008.  There were noother fees paid to Eide Bailly LLP for fiscal 2008.

 

The Company’s Audit Committeepre-approves all professional services provided by Eide Bailly LLP to theCompany.  The Audit Committee approved all****of the services and the fees billed for such services to theCompany.  The Audit Committee makes itsdecisions on the approval of services with due consideration given tomaintaining the independence of the principal accountant.  Noneof the hours

 

44

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expended on the audit of the 2009 financialstatements were attributed to work performed by persons who were not employedfull time on a permanent basis by Eide Bailly LLP.

 

45

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# **PART III**

# ** **

**Item 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**

** **

(a)           Documents filed as part of this report

 

1.             ConsolidatedFinancial Statements

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Operations for the YearsEnded August 31, 2009, 2008 and 2007

Consolidated Balance Sheets as of August 31, 2009 and 2008

Consolidated Statements of Changes in Members’Investments and Comprehensive Income for the Years Ended August 31, 2009, 2008and 2007

Consolidated Statements of Cash Flows for the YearsEnded August 31, 2009, 2008 and 2007

Notes to the Consolidated Financial Statements

 

2.             FinancialStatement Schedules

None

 

3.             The exhibits to this Annual Report on Form10-K are listed in the Exhibit Index on pages E-1 to E-4 of this report

 

(b)           Exhibits

 

The response to this portion of Item 15 is included as a separatesection of this Annual Report on Form 10-K.

 

46

----

** **

**SIGNATURES**

** **

Pursuant to the requirements of Section 13 or 15of the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized, on November 4, 2009.

 
|   | AMERICAN CRYSTAL  SUGAR COMPANY |
|--------|---------------------------------|
|   | By:                             | /s/ DAVID A. BERG |
|   |                            | *President and Chief Executive Officer* |
|   |                            | * * |
|   | Dated: November 4, 2009    |

 

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

 
| **Signature**               | ** ** | **Title**                                   | ** ** | **Date**               |
|-----------------------------|------------|---------------------------------------------|------------|------------------------|
| ** **                  | ** ** | ** **                                  | ** ** | ** **             |
| /s/ DAVID A.  BERG          |       | President and  Chief Executive Officer      |       | November 4,  2009 |
|                        |       | (Principal  Executive Officer)              |       |                   |
| /s/ THOMAS S.  ASTRUP       |       | Vice  President-Finance and Chief Financial |       | November 4,  2009 |
|                        |       | Officer  (Principal Financial Officer)      |       |                   |
| /s/ TERESA A.  WARNE        |       | Corporate  Controller                       |       | November 4,  2009 |
|                        |       | (Principal  Accounting Officer)             |       |                   |
| /s/ FRANCIS L.  KRITZBERGER |       | Director  (Chairman)                        |       | November 4,  2009 |
|                        |       |                                        |       |                   |
| /s/ NEIL C. WIDNER          |       | Director  (Vice-Chairman)                   |       | November 4,  2009 |
|                        |       |                                        |       |                   |
| /s/ DONALD S.  ANDRINGA     |       | Director                                    |       | November 4,  2009 |
|                        |       |                                        |       |                   |
| /s/ WILLIAM  BALDWIN        |       | Director                                    |       | November 4,  2009 |
|                        |       |                                        |       |                   |
| /s/ RICHARD  BORGEN         |       | Director                                    |       | November 4,  2009 |
|                        |       |                                        |       |                   |
| /s/ JOHN  BRAINARD          |       | Director                                    |       | November 4,  2009 |
|                        |       |                                        |       |                   |
| /s/ BRIAN R.  ERICKSON      |       | Director                                    |       | November 4,  2009 |
|                        |       |                                        |       |                   |
| /s/ ROBERT M.  GREEN        |       | Director                                    |       | November 4,  2009 |
|                        |       |                                        |       |                   |
| /s/ JOHN F.  GUDAJTES       |       | Director                                    |       | November 4,  2009 |
|                        |       |                                        |       |                   |
| /s/ CURTIS E.  HAUGEN       |       | Director                                    |       | November 4,  2009 |
|                        |       |                                        |       |                   |
| /s/ WILLIAM A.  HEJL        |       | Director                                    |       | November 4,  2009 |
|                        |       |                                        |       |                   |
| /s/ CURTIS  KNUTSON         |       | Director                                    |       | November 4,  2009 |
|                        |       |                                        |       |                   |
| /s/ DALE KUEHL              |       | Director                                    |       | November 4,  2009 |
|                        |       |                                        |       |                   |
| /s/ JEFF D.  MCINNES        |       | Director                                    |       | November 4,  2009 |
|                        |       |                                        |       |                   |
| /s/ STEVE  WILLIAMS         |       | Director                                    |       | November 4,  2009 |

** **

**47**

----

** **

**APPENDIX A**

** **

**INDEX TO THE CONSOLIDATEDFINANCIAL STATEMENTS**

 
| **AMERICAN  CRYSTAL SUGAR COMPANY**                                                                                                                | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| CONSOLIDATED FINANCIAL STATEMENTS:                                                                                                                 |       |
| Report  of Independent Registered Public Accounting Firm                                                                                           | A-2        |
| Consolidated  Statements of Operations for the Years Ended August 31, 2009, 2008 and  2007                                                    | A-3        |
| Consolidated  Balance Sheets as of August 31, 2009 and 2008                                                                                   | A-4        |
| Consolidated Statements of Changes in Members’  Investments and Comprehensive Income for the Years Ended August 31,  2009, 2008 and 2007 | A-6        |
| Consolidated Statements of Cash Flows for the Years  Ended August 31, 2009, 2008 and 2007                                                     | A-7        |
| Notes to the Consolidated Financial Statements                                                                                                     | A-8        |

 

A-1

----

** **

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

** **

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

Moorhead, Minnesota

 

We have audited the accompanying consolidated balance sheets of **American Crystal Sugar Company****andSubsidiaries**as of August 31, 2009 and 2008, and the relatedconsolidated statements of operations, changes in members’ investments andcomprehensive income, and cash flows for the years ended August 31, 2009,2008, and 2007.  These consolidatedfinancial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these consolidated financial statements based on our audits.

 

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

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of **AmericanCrystal Sugar Company and Subsidiaries** as of August 31, 2009and 2008, and the results of their operations and their cash flows for theyears ended August 31, 2009, 2008, and 2007, in conformity with accountingprinciples generally accepted in the United States of America.

 

 

/s/ EIDE BAILLY LLP

 

Minneapolis,Minnesota

November 4, 2009

 

A-2

----

 

**American Crystal Sugar Company**

**Consolidated Statements of Operations**

**Forthe Years Ended August 31**

**(InThousands)**
| ** **                                                         | ** ** | **2009**    | ** **    | **2008** | ** ** | **2007**  | ** ** |
|--------------------------------------------------------------------|------------|-------------|---------------|----------|------------|-----------|------------|
| **Net Revenue**                                                    | ** ** | **$**       | **1,200,229** |     | $          | 1,232,832 |       | $ | 1,222,857 |   |
|                                                               |       |        |          |     |       |      |       |
| **Cost of Sales**                                                  | ** ** | **405,714** |          | 402,928  |       | 348,274   |       |
|                                                               |       |        |          |     |       |      |       |
| **Gross Proceeds**                                                 | ** ** | **794,515** |          | 829,904  |       | 874,583   |       |
|                                                               |       |        |          |     |       |      |       |
| **Selling, General and Administrative  Expenses**                  | ** ** | **244,174** |          | 267,539  |       | 246,785   |       |
|                                                               |       |        |          |     |       |      |       |
| **Operating Proceeds**                                             | ** ** | **550,341** |          | 562,365  |       | 627,798   |       |
|                                                               |       |        |          |     |       |      |       |
| **Other Income (Expense):**                                        |       |        |          |     |       |      |       |
| Interest Income                                                    | ** ** | **209**     |          | 740      |       | 781       |       |
| Interest Expense, Net                                              | ** ** | **(10,058** | **)**         | (14,750  | )          | (20,281   | )          |
| Other, Net                                                         | ** ** | **3,943**   |          | (165     | )          | 33        |       |
|                                                               |       |        |          |     |       |      |       |
| **Total Other Expense**                                            | ** ** | **(5,906**  | **)**         | (14,175  | )          | (19,467   | )          |
|                                                               |       |        |          |     |       |      |       |
| **Proceeds Before Minority Interest  and****Income Tax Expense**   |       | **544,435** |          | 548,190  |       | 608,331   |       |
|                                                               |       |        |          |     |       |      |       |
| **Minority Interest**                                              | ** ** | **(6,103**  | **)**         | (6,896   | )          | (5,636    | )          |
|                                                               |       |        |          |     |       |      |       |
| **Income Tax (Expense)/Benefit**                                   | ** ** | **(2,181**  | **)**         | 1,399    |       | (1,303    | )          |
|                                                               |       |        |          |     |       |      |       |
| **Net Proceeds Resulting from Member  and****Non-Member Business** |       | **$**       | **536,151**   |     | $          | 542,693   |       | $ | 601,392 |   |
|                                                               |       |        |          |     |       |      |       |
| **Distributions of Net Proceeds:**                                 |       |        |          |     |       |      |       |
| Credited/(Charged) to Members’ Investments:                   |       |        |          |     |       |      |       |
| Non-Member Business Income/(Loss)                                  | ** ** | **$**       | **2,309**     |     | $          | (4,787    | )          | $ | 2,286 |   |
| Unit Retains Declared to Members                                   | ** ** | **31,024**  |          | 23,260   |       | 35,705    |       |
| Net Credit to Members’ Investments                            | ** ** | **33,333**  |          | 18,473   |       | 37,991    |       |
| Payments to Members for Sugarbeets,Net of Unit Retains Declared    |       | **502,818** |          | 524,220  |       | 563,401   |       |
| **Total**                                                          | ** ** | **$**       | **536,151**   |     | $          | 542,693   |       | $ | 601,392 |   |

 

The AccompanyingNotes are an Integral Part of These Consolidated Financial Statements.

 

A-3

----

 

**American Crystal Sugar Company**

**Consolidated Balance Sheets**

**August 31**

**(InThousands)**

** **

**Assets**

 
| ** **                                     | ** ** | **2009**     | ** **  | **2008** | ** ** |
|------------------------------------------------|------------|--------------|-------------|----------|------------|
| **Current Assets:**                            |       |         |        |     |       |
| Cash and Cash Equivalents                      | ** ** | **$**        | **127**     |     | $          | 128 |   |
| Receivables:                                   |       |         |        |     |       |
| Trade                                          | ** ** | **61,665**   |        | 66,149   |       |
| Members                                        | ** ** | **4,480**    |        | 2,535    |       |
| Other                                          | ** ** | **2,565**    |        | 2,767    |       |
| Advances to Related Parties                    | ** ** | **22,744**   |        | 20,391   |       |
| Inventories                                    | ** ** | **181,311**  |        | 188,328  |       |
| Prepaid Expenses                               | ** ** | **864**      |        | 1,163    |       |
|                                           |       |         |        |     |       |
| **Total Current Assets**                       | ** ** | **273,756**  |        | 281,461  |       |
|                                           |       |         |        |     |       |
| **Property and Equipment:**                    |       |         |        |     |       |
| Land and Land Improvements                     | ** ** | **67,011**   |        | 60,110   |       |
| Buildings                                      | ** ** | **116,907**  |        | 112,170  |       |
| Equipment                                      | ** ** | **892,678**  |        | 877,113  |       |
| Construction in Progress                       | ** ** | **14,522**   |        | 5,322    |       |
| Less Accumulated Depreciation                  | ** ** | **(737,182** | **)**       | (703,134 | )          |
|                                           |       |         |        |     |       |
| **Net Property and Equipment**                 | ** ** | **353,936**  |        | 351,581  |       |
|                                           |       |         |        |     |       |
| **Net Property and Equipment Held for  Lease** | ** ** | **111,015**  |        | 120,001  |       |
|                                           |       |         |        |     |       |
| **Other Assets:**                              |       |         |        |     |       |
| Investments in CoBank, ACB                     | ** ** | **10,111**   |        | 9,946    |       |
| Investments in Marketing Cooperatives          | ** ** | **135**      |        | 4,152    |       |
| Pension Asset                                  | ** ** | **—**   |        | 35,101   |       |
| Other Assets                                   | ** ** | **12,305**   |        | 11,057   |       |
|                                           |       |         |        |     |       |
| **Total Other Assets**                         | ** ** | **22,551**   |        | 60,256   |       |
|                                           |       |         |        |     |       |
| **Total Assets**                               | ** ** | **$**        | **761,258** |     | $          | 813,299 |   |

 

The AccompanyingNotes are an Integral Part of These Consolidated Financial Statements.

 

A-4

----

 

**American Crystal Sugar Company**

**ConsolidatedBalance Sheets**

**August 31**

**(InThousands)**

** **

**Liabilitiesand Members’ Investments**

 
| ** **                                                  | ** ** | **2009**    | ** **  | **2008** | ** ** |
|-------------------------------------------------------------|------------|-------------|-------------|----------|------------|
| **Current Liabilities:**                                    |       |        |        |     |       |
| Short-Term Debt                                             | ** ** | **$**       | **45,989**  |     | $          | 15,297 |   |
| Current Maturities of Long-Term Debt                        | ** ** | **18,789**  |        | 20,991   |       |
| Accounts Payable                                            | ** ** | **35,381**  |        | 35,836   |       |
| Advances Due to Related Parties                             | ** ** | **1,863**   |        | 3,343    |       |
| Other Current Liabilities                                   | ** ** | **34,034**  |        | 27,286   |       |
| Amounts Due Growers                                         | ** ** | **87,218**  |        | 120,933  |       |
|                                                        |       |        |        |     |       |
| **Total Current Liabilities**                               | ** ** | **223,274** |        | 223,686  |       |
|                                                        |       |        |        |     |       |
| **Long-Term Debt, Net of Current  Maturities**              | ** ** | **143,073** |        | 157,801  |       |
|                                                        |       |        |        |     |       |
| **Accrued Employee Benefits**                               | ** ** | **46,458**  |        | 33,805   |       |
|                                                        |       |        |        |     |       |
| **Other Liabilities**                                       | ** ** | **8,925**   |        | 6,892    |       |
|                                                        |       |        |        |     |       |
| **Total Liabilities**                                       | ** ** | **421,730** |        | 422,184  |       |
|                                                        |       |        |        |     |       |
| **Commitments and Contingencies**                           |       |        |        |     |       |
|                                                        |       |        |        |     |       |
| **Minority Interest in ProGold  Limited Liability Company** | ** ** | **54,950**  |        | 59,839   |       |
|                                                        |       |        |        |     |       |
| **Members’ Investments:**                              |       |        |        |     |       |
| Preferred Stock                                             | ** ** | **38,275**  |        | 38,275   |       |
| Common Stock                                                | ** ** | **28**      |        | 28       |       |
| Additional Paid-In Capital                                  | ** ** | **152,261** |        | 152,261  |       |
| Unit Retains                                                | ** ** | **181,601** |        | 174,506  |       |
| Equity Retention                                            | ** ** | **—**  |        | 1,155    |       |
| Accumulated Other Comprehensive Income (Loss)               | ** ** | **(63,705** | **)**       | (8,984   | )          |
| Retained Earnings (Accumulated Deficit)                     | ** ** | **(23,882** | **)**       | (25,965  | )          |
|                                                        |       |        |        |     |       |
| **Total Members’ Investments**                         | ** ** | **284,578** |        | 331,276  |       |
|                                                        |       |        |        |     |       |
| **Total Liabilities and Members’  Investments**        | ** ** | **$**       | **761,258** |     | $          | 813,299 |   |

 

The AccompanyingNotes are an Integral Part of These Consolidated Financial Statements.

 

A-5

----

 

**American Crystal Sugar Company**

**Consolidated Statements of Changes inMembers’ Investments and Comprehensive Income**

**Forthe Years Ended August 31**

**(InThousands)**

 
| ** **                                                  | ** ** | ** **    | ** ** | ** ** | ** ** | ** **     | ** ** | ** **  | ** **  | ** **    | ** ** | **Accumulated**   | ** ** | **Retained**     | ** ** | ** **  | ** ** | ** **        | ** ** |
|-------------------------------------------------------------|------------|---------------|------------|------------|------------|----------------|------------|-------------|-------------|---------------|------------|-------------------|------------|------------------|------------|-------------|------------|-------------------|------------|
| ** **                                                  | ** ** | ** **    | ** ** | ** ** | ** ** | **Additional** | ** ** | ** **  | ** **  | ** **    | ** ** | **Other**         | ** ** | **Earnings**     | ** ** | ** **  | ** ** | **Annual**        | ** ** |
| ** **                                                  | ** ** | **Preferred** | ** ** | **Common** | ** ** | **Paid-In**    | ** ** | **Unit**    | ** **  | **Equity**    | ** ** | **Comprehensive** | ** ** | **(Accumulated** | ** ** | ** **  | ** ** | **Comprehensive** | ** ** |
| ** **                                                  | ** ** | **Stock**     | ** ** | **Stock**  | ** ** | **Capital**    | ** ** | **Retains** | ** **  | **Retention** | ** ** | **Income (Loss)** | ** ** | **Deficit)**     | ** ** | **Total**   | ** ** | **Income (Loss)** | ** ** |
| **Balance, August 31, 2006**                           |       | $             | 38,275     |       | $          | 29             |       | $           | 152,261     |          | $          | 153,961           |       | $                | 2,694      |        | $          | (500              | )          | $ | (23,464 | ) | $ | 323,256 |   |   |   |
| Non-Member Business Income                                  |       | —        |       | —     |       | —         |       | —      |        | —        |       | —            |       | 2,286            |       | 2,286       |       | $                 | 2,286      |   |
| Pension Minimum Liability Adjustment                        |       | —        |       | —     |       | —         |       | —      |        | —        |       | 500               |       | —           |       | 500         |       | 500               |       |
| SFAS 158 Unrecognized Prior Service Costs                   |       | —        |       | —     |       | —         |       | —      |        | —        |       | (5,266            | )          | —           |       | (5,266      | )          | (5,266            | )          |
| SFAS 158 Unrecognized Gain/(Loss)                           |       | —        |       | —     |       | —         |       | —      |        | —        |       | (3,317            | )          | —           |       | (3,317      | )          | (3,317            | )          |
| Forward Contract Foreign Currency Gain                      |       | —        |       | —     |       | —         |       | —      |        | —        |       | 31                |       | —           |       | 31          |       | 31                |       |
| Unit Retains Withheld from Members                          |       | —        |       | —     |       | —         |       | 35,705      |        | —        |       | —            |       | —           |       | 35,705      |       | —            |       |
| Payments of Unit Retains and Equity Retention to  Members   |       | —        |       | —     |       | —         |       | (19,303     | )           | (7            | )          | —            |       | —           |       | (19,310     | )          | —            |       |
| Stock Issued, Net                                           |       | —        |       | —     |       | —         |       | —      |        | —        |       | —            |       | —           |       | —      |       | —            |       |
|                                                        |       |          |       |       |       |           |       |        |        |          |       |              |       |             |       |        |       |              |       |
| **Balance, August 31, 2007**                           |       | 38,275        |       | 29         |       | 152,261        |       | 170,363     |        | 2,687         |       | (8,552            | )          | (21,178          | )          | 333,885     |       | $                 | (5,766     | ) |
| Non-Member Business Loss                                    |       | —        |       | —     |       | —         |       | —      |        | —        |       | —            |       | (4,787           | )          | (4,787      | )          | $                 | (4,787     | ) |
| SFAS 158 Unrecognized Prior Service Costs                   |       | —        |       | —     |       | —         |       | —      |        | —        |       | 1,317             |       | —           |       | 1,317       |       | 1,317             |       |
| SFAS 158 Unrecognized Gain/(Loss)                           |       | —        |       | —     |       | —         |       | —      |        | —        |       | (224              | )          | —           |       | (224        | )          | (224              | )          |
| OCI of Equity Method Investees                              |       | —        |       | —     |       | —         |       | —      |        | —        |       | (1,491            | )          | —           |       | (1,491      | )          | (1,491            | )          |
| Forward Contract Foreign Currency Loss                      |       | —        |       | —     |       | —         |       | —      |        | —        |       | (34               | )          | —           |       | (34         | )          | (34               | )          |
| Unit Retains Withheld from Members                          |       | —        |       | —     |       | —         |       | 23,260      |        | —        |       | —            |       | —           |       | 23,260      |       | —            |       |
| Payments of Unit Retains and Equity Retention to  Members   |       | —        |       | —     |       | —         |       | (19,117     | )           | (1,532        | )          | —            |       | —           |       | (20,649     | )          | —            |       |
| Stock Issued, Net                                           |       | —        |       | (1         | )          | —         |       | —      |        | —        |       | —            |       | —           |       | (1          | )          | —            |       |
|                                                        |       |          |       |       |       |           |       |        |        |          |       |              |       |             |       |        |       |              |       |
| **Balance, August 31, 2008**                           |       | 38,275        |       | 28         |       | 152,261        |       | 174,506     |        | 1,155         |       | (8,984            | )          | (25,965          | )          | 331,276     |       | $                 | (5,219     | ) |
| Non-Member Business Income                                  | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **—**        | ** ** | **2,309**        | ** ** | **2,309**   | ** ** | **$**             | **2,309**  | ** ** |
| SFAS 158 Unrecognized Prior Service Costs                   | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **1,644**         | ** ** | **—**       | ** ** | **1,644**   | ** ** | **1,644**         | ** ** |
| SFAS 158 Unrecognized Gain/(Loss)                           | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **(51,624**       | **)**      | **—**       | ** ** | **(51,624** | **)**      | **(51,624**       | **)**      |
| SFAS 158 Measurement Date Adjustment                        | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **—**        | ** ** | **(226**         | **)**      | **(226**    | **)**      | **(226**          | **)**      |
| OCI of Equity Method Investees                              | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **(4,755**        | **)**      | **—**       | ** ** | **(4,755**  | **)**      | **(4,755**        | **)**      |
| Forward Contract Foreign Currency Gain                      | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **14**            | ** ** | **—**       | ** ** | **14**      | ** ** | **14**            | ** ** |
| Unit Retains Withheld from Members                          | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **31,024**  | ** **  | **—**    | ** ** | **—**        | ** ** | **—**       | ** ** | **31,024**  | ** ** | **—**        | ** ** |
| Payments of Unit Retains and Equity Retention****to Members | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **(23,929** | **)**       | **(1,155**    | **)**      | **—**        | ** ** | **—**       | ** ** | **(25,084** | **)**      | **—**        | ** ** |
| Stock Issued, Net                                           | ** ** | **—**    | ** ** | **—** | ** ** | **—**     | ** ** | **—**  | ** **  | **—**    | ** ** | **—**        | ** ** | **—**       | ** ** | **—**  | ** ** | **—**        | ** ** |
| ** **                                                  | ** ** | ** **    | ** ** | ** ** | ** ** | ** **     | ** ** | ** **  | ** **  | ** **    | ** ** | ** **        | ** ** | ** **       | ** ** | ** **  | ** ** | ** **        | ** ** |
| **Balance, August 31, 2009**                           | ** ** | **$**         | **38,275** | ** ** | **$**      | **28**         | ** ** | **$**       | **152,261** | ** **    | **$**      | **181,601**       | ** ** | **$**            | **—** | ** **  | **$**      | **(63,705**       | **)**      | **$** | **(23,882** | **)** | **$** | **284,578** | ** ** | **$** | **(52,638** | **)** |

 

The AccompanyingNotes are an Integral Part of These Consolidated Financial Statements.

 

A-6

----

 

**American Crystal Sugar Company**

**Consolidated Statements of Cash Flows**

**Forthe Years Ended August 31**

**(InThousands)**

 
| ** **                                                            | ** ** | **2009**     | ** **  | **2008** | ** ** | **2007** | ** ** |
|-----------------------------------------------------------------------|------------|--------------|-------------|----------|------------|----------|------------|
| **Cash  Provided By (Used In) Operating Activities:**                 |       |         |        |     |       |     |       |
| Net Proceeds Resulting  from Member and Non-Member Business           | ** ** | **$**        | **536,151** |     | $          | 542,693  |       | $ | 601,392 |   |
| Payments To/Due Members  for Sugarbeets, Net of Unit Retains Declared | ** ** | **(502,818** | **)**       | (524,220 | )          | (563,401 | )          |
| Add (Deduct) Non-Cash  Items:                                         |       |         |        |     |       |     |       |
| Depreciation and  Amortization                                        | ** ** | **55,046**   |        | 58,197   |       | 57,481   |       |
| Impairment Loss                                                       | ** ** | **—**   |        | 11,867   |       | —   |       |
| Income/(Loss) from Equity  Method Investees                           | ** ** | **(636**     | **)**       | 221      |       | (333     | )          |
| Loss on the Disposition of  Property and Equipment                    | ** ** | **1,049**    |        | 504      |       | 995      |       |
| Non-Cash Portion of  Patronage Dividend from CoBank, ACB              | ** ** | **(165**     | **)**       | (121     | )          | (182     | )          |
| Deferred Gain Recognition                                             | ** ** | **(108**     | **)**       | (197     | )          | (197     | )          |
| Minority Interest in  ProGold Limited Liability Company               | ** ** | **6,103**    |        | 6,896    |       | 5,636    |       |
| Changes in Assets and  Liabilities:                                   |       |         |        |     |       |     |       |
| Receivables                                                           | ** ** | **2,741**    |        | 13,837   |       | 373      |       |
| Inventories                                                           | ** ** | **7,017**    |        | 28,235   |       | (41,802  | )          |
| Prepaid Expenses                                                      | ** ** | **312**      |        | 7        |       | 3,251    |       |
| Non-Current Pension Asset/Liability                                   | ** ** | **634**      |        | (113     | )          | (3,757   | )          |
| Advances To/Due to Related  Parties                                   | ** ** | **(3,833**   | **)**       | (12,126  | )          | (2,916   | )          |
| Accounts Payable                                                      | ** ** | **(1,399**   | **)**       | (173     | )          | 9,428    |       |
| Other Liabilities                                                     | ** ** | **5,697**    |        | (8,894   | )          | 7,541    |       |
| Amounts Due Growers                                                   | ** ** | **(33,715**  | **)**       | (22,327  | )          | 19,612   |       |
| **Net Cash  Provided By Operating Activities**                        | ** ** | **72,076**   |        | 94,286   |       | 93,121   |       |
|                                                                  |       |         |        |     |       |     |       |
| **Cash  Provided By (Used In) Investing Activities:**                 |       |         |        |     |       |     |       |
| Purchases of Property and  Equipment                                  | ** ** | **(45,479**  | **)**       | (47,380  | )          | (60,806  | )          |
| Purchases of Property and  Equipment Held for Lease                   | ** ** | **(2,331**   | **)**       | (1,358   | )          | (859     | )          |
| Proceeds from the Sale of  Property and Equipment                     | ** ** | **18**       |        | 57       |       | 88       |       |
| Investments in Crystech,  LLC                                         | ** ** | **—**   |        | —   |       | (1,539   | )          |
| Equity Distribution from  CoBank, ACB                                 | ** ** | **—**   |        | 1,802    |       | 1,693    |       |
| Investments in Marketing  Cooperatives                                | ** ** | **6**        |        | (8       | )          | (186     | )          |
| Changes in Other Assets                                               | ** ** | **(1,978**   | **)**       | 2,041    |       | (207     | )          |
| **Net Cash  (Used In) Investing Activities**                          | ** ** | **(49,764**  | **)**       | (44,846  | )          | (61,816  | )          |
|                                                                  |       |         |        |     |       |     |       |
| **Cash  Provided By (Used In) Financing Activities:**                 |       |         |        |     |       |     |       |
| Net Proceeds from  (Payments on) Short-Term Debt                      | ** ** | **30,692**   |        | (9,683   | )          | 19,680   |       |
| Proceeds from Issuance of  Long-Term Debt                             | ** ** | **100,092**  |        | 25,818   |       | 20,897   |       |
| Long-Term Debt Repayment                                              | ** ** | **(117,021** | **)**       | (36,227  | )          | (52,695  | )          |
| Distributions to Minority  Interest                                   | ** ** | **(10,992**  | **)**       | (8,792   | )          | —   |       |
| Changes in Common Stock                                               | ** ** | **—**   |        | (1       | )          | —   |       |
| Payment of Unit Retains  and Equity Retention                         | ** ** | **(25,084**  | **)**       | (20,649  | )          | (19,310  | )          |
| **Net Cash  (Used In) Financing Activities**                          | ** ** | **(22,313**  | **)**       | (49,534  | )          | (31,428  | )          |
| **(Decrease)  In Cash and Cash Equivalents**                          | ** ** | **(1**       | **)**       | (94      | )          | (123     | )          |
| **Cash and  Cash Equivalents, Beginning of Year**                     | ** ** | **128**      |        | 222      |       | 345      |       |
|                                                                  |       |         |        |     |       |     |       |
| **Cash and  Cash Equivalents, End of Year**                           | ** ** | **$**        | **127**     |     | $          | 128      |       | $ | 222 |   |

 

**Non-Cash Investing Activities:**Purchases ofProperty and Equipment include the changes in accounts payable related to thesepurchases of $944,000; ($2,989,000) and $2,450,000 for the years ended August 31,2009, 2008 and 2007, respectively.

 

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

 

A-7

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**American Crystal Sugar Company**

**Notes tothe Consolidated Financial Statements**

 

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

 

*Organization*

 

American Crystal Sugar Company (Company) is aMinnesota agricultural cooperative corporation which processes and marketssugar 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 “patronage business” as defined by the Internal Revenue Code, andthe net proceeds therefrom are credited to members’ investments in the form ofunit retains or distributed to members in the form of payments forsugarbeets.  Members are paid the netamounts realized from the current year’s production less member operating costsdetermined in conformity with accounting principles generally accepted in theUnited States of America.

 

*Basis ofPresentation*

 

The Company’s consolidated financial statements arecomprised of American Crystal Sugar Company, its wholly-owned subsidiariesSidney Sugars Incorporated (Sidney Sugars) and Crab Creek Sugar Company (CrabCreek), and ProGold Limited Liability Company (ProGold), a limited liabilitycompany in which the Company holds a 51 percent ownership interest.

 

On May 1, 2007, the Company acquired CIT CapitalUSA Inc.’s  50 percent ownership interestin Crystech, LLC (Crystech) resulting in the Company’s 100 percent ownership ofCrystech.  Due to the Company’s resultingcontrolling ownership interest in Crystech, effective May 1, 2007, theCompany began to include Crystech in its consolidated financialstatements.  Effective May 31, 2007,Crystech was dissolved with all assets and liabilities transferred to theCompany.

 

Certain reclassifications have been made tothe August 31, 2008 and 2007, consolidated financial statements to conformwith the August 31, 2009, presentation. These reclassifications had no effect on previously reported results ofoperations or Members’ Investments.

 

All material inter-company transactions have beeneliminated.

 

*Revenue Recognition*

 

Revenue from the sale of sugar, agri-products and seedis recorded when the product is delivered to the customer.  Operating lease revenue is recognized asearned ratably over the term of the lease.

 

*OperatingLease*

 

ProGold owns a corn wet milling facility which itleases under an operating lease.  On November 6,2007, ProGold entered into an amended operating lease agreement with Cargill,Incorporated that superseded and replaced the previous ten year leaseagreement.  Payments are to be receivedmonthly under the lease, 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.

 

A-8

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*Cash and Cash Equivalents*

 

The Company considers all highly liquid investmentswith a maturity of three months or less when purchased to be cashequivalents.  The Company places itstemporary cash investments with high credit quality financialinstitutions.  At times, such investmentsmay be in excess of the applicable insurance limit.

 

*Accounts Receivable and CreditPolicies*

 

The Company grants credit, individually and throughits marketing cooperatives, to its customers, which are primarily companies inthe food processing industry located throughout the United States.

 

Trade receivables areuncollateralized customer obligations due under normal trade terms requiring paymentwithin 15 to 90 days from the invoice date. The receivables are non-interest bearing.  Trade receivables are stated at the amountbilled to the customer.  Payments oftrade receivables are allocated to the specific invoices identified on thecustomer’s remittance advice or, if unspecified, are applied to the earliestunpaid invoices.

 

Ongoing credit evaluationsof customers’ financial condition are performed and the Company maintains areserve for potential credit losses.  Thecarrying amount of trade receivables is reduced by a valuation allowance thatreflects the Company’s best estimate of the amounts that will not be collected.

 

*Inventories*

 

Sugar, pulp, molasses and other agri-productsinventories are valued at estimated net realizable value.  Maintenance parts and supplies and sugarbeetseed inventories are valued at the lower of average cost or market.  Sugarbeets are valued at the projected grossper-ton beet payment related to that year’s crop.

 

*Net Property and Equipment*

 

Property and equipment are recorded at cost lessimpairment under FAS No. 144.  SeeNote 4 to the consolidated financial statements.  Indirect costs and construction periodinterest are capitalized as a component of the cost of qualified assets.  Property and equipment are depreciated forfinancial reporting purposes principally using straight-line methods withestimated useful lives ranging from 3 to 33 years.

 

*NetProperty and Equipment Held for Lease*

 

Net property and equipment held for lease are statedat cost.  Depreciation on assets placedin service is provided using the straight-line method with estimated usefullives ranging from 5 to 40 years.

 

*Impairmentof Long Lived Assets*

 

The Company reviews its long lived assets forimpairment whenever events indicate that the carrying amount of the asset maynot be recoverable.  An impairment lossis recorded when the sum of the future cash flows is less than the carryingamount of the asset.  An impairment lossis measured as the amount by which the carrying amount of the asset exceeds itsfair value. An impairment loss of approximately $11.9 million was recognized in2008.  No additional impairment wasrecognized in 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.

 

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*Related Parties*

 

The following organizations are considered relatedparties for financial reporting purposes: United Sugars Corporation (United)and Midwest Agri-Commodities Company (Midwest).

 

*Investments*

 

Investments in CoBank, ACB are stated at cost plusunredeemed patronage refunds received in the form of capital stock.  Investments in marketing cooperatives areaccounted for using the equity method. Investments in Crystech, prior to its dissolution (see note 7), wereaccounted for using the equity method.

 

*Members’ Investments*

 

Preferred and Common Stock - The ownership of commonand preferred stock is restricted to a “farm operator” as defined by the bylawsof the Company.  Each shareholder may ownonly one share of common stock and is entitled to one vote in the affairs ofthe Company.  Each shareholder isrequired to grow a specified number of acres of sugarbeets in proportion to theshares of preferred stock owned.  Thepreferred shares are non-voting.  Alltransfers of stock must be approved by the Company’s Board of Directors and anyshareholder desiring to sell stock must first offer it to the Company forrepurchase at its par value.  The Companyhas never exercised this repurchase option for preferred stock.  The Company’s articles of incorporation donot allow dividends to be paid on either the common or preferred stock.

 

Unit Retains - The bylaws authorize the Company’sBoard of Directors to require additional direct capital investments by membersin the form of a variable unit retain per ton of up to a maximum of 10 percentof the weighted average gross per ton beet payment.  All refunds and retirements of unit retainsmust be approved by the Board of Directors.

 

Equity Retention — The Payment-In-Kind (PIK)Certificate Purchase Agreement authorizes the Company to require additionaldirect capital investments by members participating in the PIK program. Theamount of the equity contribution is calculated per hundredweight of PIKcertificates and is approximately equivalent (on a Company-wide average basis)to the unit retain declared by the Company on the corresponding year’ssugarbeet crop.  All refunds andretirements of equity retains must be approved by the Board of Directors. Allremaining Equity Retentions were refunded during 2009.

 

Accumulated Other Comprehensive Income (Loss) -Accumulated Other Comprehensive Income (Loss) represents the cumulative netincrease (decrease) in equity related to the recording of the over-funded orunder-funded status of defined benefit postretirement plans, the Company’sportion of the other comprehensive income(loss) of equity method investees andthe gain or loss related to foreign currency forward 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.

 

Retained Earnings (Accumulated Deficit) - Retainedearnings represents the cumulative net income (loss) resulting from non-memberbusiness, the 2009 pension measurement date adjustment and, for years prior to1996, the difference between member income as determined for financialreporting purposes and for federal income tax reporting purposes.

 

A-10

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*Interest Expense, Net*

 

The Company earns patronage dividends from CoBank, ACBbased on the Company’s share of the net income earned by CoBank, ACB.  These patronage dividends are applied againstinterest expense.

 

*Income Taxes*

 

The Company is a non-exempt cooperative for federalincome tax purposes.  As such, theCompany is subject to corporate income taxes on its net income from non-membersources.  The provision for income taxesrelates to the results of operations from non-member business, state incometaxes and certain other permanent differences between financial and income taxreporting. The Company also has various temporary differences between financialand income tax reporting, most notable of which is depreciation.

 

Deferred tax assets, less any applicable valuationallowance, and deferred tax liabilities are included in the financialstatements at currently enacted income tax rates applicable to the period inwhich the deferred tax assets and liabilities are expected to be realized orsettled.

 

*Accounting Estimates*

 

The preparation of the financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  Actual results coulddiffer from those estimates.

 

*Business Risk*

 

The financial results of the Company’s operations maybe directly and materially affected by many factors, including prevailingprices of sugar and agri-products, the Company’s ability to market its sugarcompetitively, the weather, government programs and regulations, and operatingcosts.

 

*Concentration and Sources ofLabor*

 

Substantially all of the hourly employees at the Company’s factories,including full-time and seasonal employees, are represented by the Bakery,Confectionery, Tobacco Workers and Grain Millers (BCTGM) AFL-CIO, and arecovered by collective bargaining agreements expiring July 31, 2011 for theRed River Valley factory employees and April 30, 2012 for the Sidney,Montana, factory employees.  Office,clerical and management employees are not unionized, except for certain officeemployees at the Moorhead and Crookston, Minnesota, and Hillsboro, NorthDakota, factories who are covered by the collective bargaining agreement withthe BCTGM.

 

*Shipping and Handling Costs*

 

The costs incurred for the shipping and handling ofproducts sold are classified in the consolidated financial statements as aselling expense on the Consolidated Statements of Operations. Shipping andhandling costs were $159.7 million, $185.8 million and $166.0 million for theyears ended August 31, 2009, 2008 and 2007, respectively.

 

*Deferred Costs and Product Values*

 

All costs incurred prior to the end of the Company’sfiscal year that relate to receiving and processing the subsequent year’ssugarbeet crop are deferred.  Similarly,the net realizable values of products produced prior to the end of the Company’sfiscal year that relate to the subsequent year’s 

 

A-11

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sugarbeet crop are deferred.  The net result of these deferred costs andproduct values are recorded in the Company’s consolidated balance sheet in “OtherCurrent Liabilities.”  There were nodeferred costs and product values as of August 31, 2009 or 2008.  Deferred costs and product values were $4.1million as of August 31, 2007.

 

*Recently Issued AccountingPronouncements*

 

The Financial Accounting Standards Board (FASB) has issued FASB StaffPositions (FSP) 157-2, which delays the effective date of the application ofStatement No. 157, *Fair Value Measurements*(SFAS157) for the Company to the first quarter of fiscal 2010 for all non-financialassets and non-financial liabilities that are recognized or disclosed at fairvalue in the financial statements on a nonrecurring basis.  The Company does not expect that the adoptionof this statement will have a material effect on the Company’s financialstatements.

 

The FASB has issued Statement No. 160, *NoncontrollingInterests in Consolidated Financial Statements — an amendment of ARB  No. 51*.  This statement requires all entities toreport noncontrolling (minority) interests in subsidiaries as equity in theconsolidated financial statements*.*  Itsintention is to eliminate the diversity in practice regarding the accountingfor transactions between an entity and noncontrolling interests.  This statement becomes effective forthe Company in the first quarter of fiscal 2010.  At that time, the Company will be required ona retrospective basis to report the minority interest in ProGold as a componentof equity.

 

The FASB has issued statement No. 141R, *Business Combinations.* This statement replaces FASB Statement No. 141, *Business Combinations. *This Statement retains thefundamental requirements in Statement 141 that the acquisition method ofaccounting (which Statement 141 called the *purchasemethod*) be used for all business combinations and for an acquirer tobe identified for each business combination. This Statement defines the acquirer as the entity that obtains controlof one or more businesses in the business combination and establishes theacquisition date as the date that the acquirer achieves control.  The FASB also released FSP No. FAS141(R)-1,*Accounting for Assets Acquired andLiabilities Assumed in a Business Combination That Arise from Contingencies,*to address some of the application issues under SFAS No. 141(R) *Business Combinations*. FSP No. FAS141(R)-1 deals with the initial recognition and measurement of an assetacquired or a liability assumed in a business combination that arises from acontingency provided the asset or liability’s fair value on the date ofacquisition can be determined. When the fair value can’t be determined, the FSPrequires using the guidance under SFAS No. 5,*Accounting for Contingencies* and FASB Interpretation (FIN) No. 14,*Reasonable Estimation of the Amount of a Loss*.These statements become effective for the Company in fiscal 2010.  The Company does not expect that the adoptionof these statements will have a material effect on the Company’s financialstatements.

 

The FASB has issued FSP FAS 142-3, *Determination of the Useful Life of Intangible Assets. *This FSP amends the factors thatshould be considered in developing renewal or extension assumptions used todetermine the useful life of a recognized intangible asset under FASB StatementNo. 142, *Goodwill and Other IntangibleAssets*.  The intent of thisFSP is to improve the consistency between the useful life of a recognizedintangible asset under Statement 142 and the period of expected cash flows usedto measure the fair value of the asset under FASB Statement No. 141(revised 2007), *Business Combinations,*andother U.S. generally accepted accounting principles (GAAP).  This FSP becomes effective for the Company inFiscal 2010.  The Company does not expectthat the adoption of this FSP will have a material effect on the Company’sfinancial statements.

 

The FASB has issued FSP FAS 132(R)-1 *Employers’ Disclosures about Postretirement Benefit Plan Assets.*  This FSP amends FASB Statement No. 132(revised 2003), *Employers’ Disclosures about*

 

A-12

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*Pensions and Other Postretirement Benefits,* to provideguidance on an employer’s disclosure about plan assets of a defined benefitpension plan or other postretirement plan. This FSP becomes effective for the Company in fiscal 2010.  The Company does not expect that the adoptionof this FSP will have a material effect on the Company’s financial statements.

 

The FASB has issued statement No. 166, *Accountingfor Transfers of Financial Assets an amendment of FASB Statement No.140.*This statement improves the relevance, representational faithfulness, andcomparability of the information that a reporting entity provides in itsfinancial reports about a transfer of financial assets; the effects of atransfer on its financial position, financial performance, and cash flows; anda transferor’s continuing involvement in transferred financial assets.  This statement becomes effective for theCompany in fiscal 2011.  The Company doesnot expect that the adoption of this statement will have a material effect onthe Company’s financial statements.

 

The FASB has issued statement No. 167, *Amendmentsto FASB Interpretation No 46(R).* This statement amends certainrequirements of FASB Interpretation No. 46 (revised December 2003), *Consolidation of Variable Interest Entities,*toimprove financial reporting by enterprises involved with variable interestentities and to provide more relevant and reliable information to users offinancial statements. This statement becomes effective for the Company infiscal 2011.  The Company does not expectthat the adoption of this statement will have a material effect on the Company’sfinancial statements.

 

The FASB has issued statement No. 168, *The FASBAccounting Standards Codification and the Hierarchy of Generally AcceptedAccounting Principles.** *This statement replaces StatementNo.162 and establishes the *FASB AccountingStandards CodificationTM* (Codification) as the source ofauthoritative accounting principles recognized by the FASB to be applied bynongovernmental entities in the preparation of financial statements inconformity with GAAP.  Rules andinterpretive releases of the Securities and Exchange Commission (SEC) underauthority of federal securities laws are also sources of authoritative GAAP forSEC registrants.  All guidance contained in the Codification carries an equal level ofauthority.  This statement becomeseffective for the Company for the first quarter of fiscal 2010.  The Company does not expect that the adoptionof this statement will have a material effect on the Company’s financialstatements.

 

The FASB has issued Accounting Standards Update (ASU) No. 2009-05,*Fair Value Measurements and Disclosures (Topic820). *This ASU providesamendments to Subtopic 820-10, Fair Value Measurements and Disclosures —Overall, for the fair value measurement of liabilities.  This ASU provides clarification: of themeasurement techniques required in circumstances in which a quoted price in anactive market for the identical liability is not available; of the requirementsrelated to restrictions that prevent a transfer of a liability; and of therequirements for certain Level 1 fair value measurement situations.  This ASU becomes effective for the Companyfor the first quarter of 2010.  TheCompany does not expect that the adoption of this ASU will have a materialeffect on the Company’s financial statements.

 

**(2) RECEIVABLES:**

 

There was no single customer attributable to theCompany that accounted for 10 percent or more of the Company’s totalreceivables as of August 31, 2009 or August 31, 2008 or thataccounted for 10 percent or more of the revenues of the Company for the yearsended August 31, 2009, 2008 or 2007.

 

A-13

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

 

The major components ofinventories as of August 31, 2009 and 2008 are as follows:

 
| **(In Thousands)**                                                     | ** ** | **2009**   | ** **  | **2008** | ** ** |
|------------------------------------------------------------------------|------------|------------|-------------|----------|------------|
| Refined Sugar, Pulp, Molasses, Other Agri-Products  and Sugarbeet Seed | ** ** | **$**      | **138,039** |     | $          | 151,741 |   |
| Maintenance Parts and Supplies                                         | ** ** | **43,272** |        | 36,587   |       |
| Total Inventories                                                      | ** ** | **$**      | **181,311** |     | $          | 188,328 |   |

 

**(4) NETPROPERTY AND EQUIPMENT:**

 

Indirect costs capitalized were $1.1 million, $1.1million and $1.2 million in 2009, 2008 and 2007, respectively.  Construction period interest capitalized was$ .4 million, $ .9 million and $ 1.1 million in 2009, 2008 and 2007,respectively. Depreciation expense was $43.1 million, $44.4 million and $43.6million in 2009, 2008 and 2007, respectively. The Company had outstandingcommitments totaling $5.7 million as of August 31, 2009, for equipment andconstruction contracts related to various capital projects.

 

In 2008, an impairment loss of $11.9 million related to property andequipment at the Sidney, Montana facility was recognized.  Sidney Sugars contracts with sugarbeetgrowers in the Sidney, Montana area.  Thesugarbeet growers are not owners of Sidney Sugars and therefore have norequirement to grow sugarbeets on an annual basis.  Due to the high alternative crop pricescompared to contracted sugarbeet prices in 2008, many growers chose to growalternative crops.  Total harvested 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 property and equipment at the Sidney,Montana facility is used in the sugar segment.

 

As of August 31, 2009, the fair value of the property andequipment to be held and used at the Sidney, Montana facility was againdetermined based on numerous scenarios which were weighted according to theirrespective probability of occurring.  Theharvested acres for the 2009 crop (fiscal 2010) have increased to approximately25,000 acres and sugar net selling prices are higher than historicalaverages.  These scenarios are based onjudgments regarding anticipated cash flows, future expected income/lossexperience, current economic conditions and other factors.  Based on this analysis, no additionalimpairment of the fair value of the property and equipment was indicated.  The fair value of assets is a significantestimate and it is at least reasonably possible that a change in the estimatecould occur in the near term.

 

**(5) NETPROPERTY AND EQUIPMENT HELD FOR LEASE:**

 

ProGold owns a corn wet-milling facility thatit leases under an operating lease which runs through December 31,2017.  Under the terms of the operating lease, the lesseemanages all aspects of the operations of the ProGold corn wet-milling facility.

 

Net Property and Equipment Held for Lease are stated at cost, net ofaccumulated depreciation. Depreciation expense was $11.2 million, $11.1 millionand $11.1 million in 2009, 2008 and 2007, respectively.  The components of Net Property and EquipmentHeld for Lease as of August 31, 2009 and 2008 are shown below:

 

A-14

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| **(In Thousands)**                        | ** ** | **2009**     | ** **  | **2008** | ** ** |
|-------------------------------------------|------------|--------------|-------------|----------|------------|
| Land and Land Improvements                | ** ** | **$**        | **7,937**   |     | $          | 7,937 |   |
| Buildings                                 | ** ** | **41,242**   |        | 41,201   |       |
| Equipment                                 | ** ** | **202,962**  |        | 202,326  |       |
| Construction in Progress                  | ** ** | **1,649**    |        | 451      |       |
| Less Accumulated Depreciation             | ** ** | **(142,775** | **)**       | (131,914 | )          |
|                                      | ** ** | ** **   |        |     |       |
| Net Property and Equipment Held for Lease | ** ** | **$**        | **111,015** |     | $          | 120,001 |   |

 

Future minimum payments to be received under the lease are as follows:

 
| **Fiscal year ending  August 31, (In Thousands)** | ** ** | ** ** | ** ** |
|--------------------------------------------------------|------------|------------|------------|
| 2010                                                   |       | $          | 21,500     |   |
| 2011                                                   |       | 21,500     |       |
| 2012                                                   |       | 21,500     |       |
| 2013                                                   |       | 21,500     |       |
| 2014                                                   |       | 21,500     |       |
| Thereafter                                             |       | 71,667     |       |
|                                                   |       |       |       |
| Total                                                  |       | $          | 179,167    |   |

 

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

 

The Company has a 65 percent ownership interest and a33 1/3 percent voting interest in United. The investment is accounted for using the equity method.  Substantially all sugar products produced aresold by United as an agent for the Company. The amount of sales and related costs to be recognized by each owner ofUnited is allocated based on its pro rata share of sugar production for theyear.  The owners provide United withcash advances on an ongoing basis for operating and marketing expenses incurredby United.  The Company had outstanding advancesto United of $21.6 million and $20.0 million as of August 31, 2009 and2008, respectively.  The Company providesadministrative services for United and is reimbursed for costs incurred.  The Company was reimbursed $ .9 million, $1.0million and $1.2 million for services provided during 2009, 2008 and 2007,respectively.

 

The Company has a 55 percent ownership interest and a25 percent voting interest in Midwest. The investment is accounted for using the equity method.  Substantially all sugarbeet pulp, molassesand other agri-products produced are sold by Midwest as an agent for theCompany.  The amount of sales and relatedcosts to be recognized by each owner of Midwest is allocated based on its prorata share of production for each product for the year.  The owners provide Midwest with cash advanceson an ongoing basis for operating and marketing expenses incurred byMidwest.  The Company had outstandingadvances due to Midwest of $1.9 million and $3.3 million as of August 31,2009 and 2008, respectively.  The Companyprovides administrative services for Midwest and is reimbursed for costsincurred.  The Company was reimbursed$133,000, $141,000 and $129,000 for services provided during 2009, 2008 and2007, respectively.  The owners ofMidwest are guarantors of the short-term line of credit Midwest has withCoBank, ACB.  As of August 31, 2009,Midwest had outstanding short-term debt with CoBank, ACB of $5.5 million, ofwhich $3.2 million was guaranteed by the Company.

 

The Company has performed acomplete analysis of the conditions set forth in FIN 46(R) and hasdetermined that its investments in United and Midwest do not meet the criteriaof Variable Interest Entities and therefore such entities are not consolidatedin the Company’s Consolidated Financial Statements.

 

A-15

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

 

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

 

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

 

The Company performed a complete analysis ofthe conditions set forth in FIN 46(R) and determined that its investmentin Crystech, LLC did not meet the criteria of a Variable Interest Entity andtherefore, prior to May 1, 2007, Crystech, LLC was not consolidated in theCompany’s Consolidated Financial Statements.

 

The Company had a tolling services agreement with Crystech whereby theCompany paid for tolling services for processing sugarbeet molasses deliveredto Crystech with title and risk of loss throughout the process maintained bythe Company.

 

On a cumulative basis, the Company received an annualallocation of Crystech’s net income equal to 7.5 percent of the initial valueof the Preferred Equity contribution by the Company.  Following is summary financial informationfor Crystech prior to consolidation:

 
| **(In Thousands)** | ** ** | **For the Eight   Months Ended   April 30, 2007** | ** ** |
|--------------------|------------|--------------------------------------------------------|------------|
| Revenue            |       | $                                                      | 9,841      |   |
| Operating Expenses |       | 8,624                                                  |       |
| Other Expenses     |       | 455                                                    |       |
| Net Income         |       | $                                                      | 762        |   |

 

A-16

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

 

The long-term debtoutstanding as of August 31, 2009 and 2008 is summarized below:

 
| **(In Thousands)**                                                                                                                                                                                                                                            | ** ** | **2009**    | ** **  | **2008** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|-------------|----------|------------|
| Term Loans from CoBank, ACB, due in varying amounts  through fiscal 2012, interest at fixed rates of 3.66% to 5.69%, with senior  lien on substantially all non-current assets                                                                                | ** ** | **$**       | **40,293**  |     | $          | 53,293 |   |
| 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                                                                        | ** ** | **51,429**  |        | 54,286   |       |
| Pollution Control and Industrial Development Revenue  Bonds, due in varying amounts through fiscal 2022, interest at fixed rates of  5.40% to 5.94% and varying rates of .39% to .69% as of August 31, 2009,  substantially secured by letters of credit | ** ** | **70,140**  |        | 70,413   |       |
| Term Loan from the Bank of North Dakota                                                                                                                                                                                                                       | ** ** | **—**  |        | 800      |       |
|                                                                                                                                                                                                                                                          | ** ** | ** **  |        |     |       |
| Total Long-Term Debt                                                                                                                                                                                                                                          | ** ** | **161,862** |        | 178,792  |       |
| Less Current Maturities                                                                                                                                                                                                                                       | ** ** | **(18,789** | **)**       | (20,991  | )          |
| Long-Term Debt, Net of Current Maturities                                                                                                                                                                                                                     | ** ** | **$**       | **143,073** |     | $          | 157,801 |   |

 

Minimum annual principal payments for the next five years are asfollows:

 
| **(In Thousands)** | ** ** | ** ** | ** ** |
|--------------------|------------|------------|------------|
| 2010               |       | $          | 18,789     |   |
| 2011               |       | $          | 12,022     |   |
| 2012               |       | $          | 17,412     |   |
| 2013               |       | $          | 280        |   |
| 2014               |       | $          | 300        |   |

 

The Company has a long-term debt line of creditthrough December 31, 2011, with CoBank, ACB of $174.6 million, of which$40.3 million in loans and $70.8 million in long-term letters of credit wereoutstanding as of August 31, 2009. The unused long-term line of credit as of August 31, 2009 was $63.5million.

 

The short-term debtoutstanding as of August 31, 2009 and 2008 is summarized below:

 
| **(In Thousands)**                                                                    | ** ** | **2009** | ** ** | **2008** | ** ** |
|---------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Commercial Paper, at fixed interest rates of .70% to  .75%, due 9/1/09 through 9/3/09 | ** ** | **$**    | **45,989** |     | $          | 15,297 |   |
|                                                                                       |            |          |            |          |            |  |  |

 

During the year ended August 31, 2009, theCompany borrowed from CoBank, ACB, the Commodity Credit Corporation (CCC) andissued commercial paper to meet its short-term borrowing requirements.  The Company has 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 $46.0million 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 thecommercial paper program along with outstanding short-term letters of 

 

A-17

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creditwill act to reduce the available credit under the CoBank, ACB seasonal line ofcredit by a commensurate amount.  Theunused short-term line of credit as of August 31, 2009, was $272.3million.

 

Maximum borrowings, average borrowing levels andaverage interest rates for short-term debt for the years ended August 31,2009 and 2008, follow:

 
| **(In Thousands, Except  Interest Rates)** | ** ** | **2009** | ** **  | **2008** | ** ** |
|--------------------------------------------|------------|----------|-------------|----------|------------|
| Maximum Borrowings                         | ** ** | **$**    | **261,004** |     | $          | 288,355 |   |
| Average Borrowing Levels                   | ** ** | **$**    | **134,945** |     | $          | 156,444 |   |
| Average Interest Rates                     | ** ** | **1.98** | **%**       | 4.27     | %          |

 

The terms of the loan agreements contain prepaymentpenalties along with certain covenants related to, among other matters, the:level of working capital; ratio of term liabilities to members’ investments;current ratio; level of term debt to net funds generated; and investment inCoBank, ACB stock in amounts prescribed by the bank.  Substantially all non-current assets arepledged to the senior lenders to provide security to support the Company’sseasonal and long-term financing.  As of August 31,2009, the Company was in compliance with the terms of the loan agreements.

 

Interest paid, net of amounts capitalized, was $10.7million, $14.9 million and $20.7 million for the years ended August 31,2009, 2008 and 2007, respectively.

 

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

 

The Company is party to operating leases for such items as rail cars,computer hardware and vehicles.  Cargill,Incorporated has assumed responsibility for the payments on a rail car leasefor the duration of that lease. Operating lease expense was $ 2.0 million, $ .9 million and $ 2.6million for years ended August 31, 2009, 2008 and 2007, respectively.  Future minimum payments under theseobligations are as follows:

 
| **Fiscal year ending  August 31, (In Thousands)** | ** ** | ** ** | ** ** |
|--------------------------------------------------------|------------|------------|------------|
| 2010                                                   |       | $          | 1,497      |   |
| 2011                                                   |       | 1,313      |       |
| 2012                                                   |       | 1,242      |       |
| 2013                                                   |       | 1,142      |       |
| 2014                                                   |       | 1,053      |       |
| Thereafter                                             |       | 7,196      |       |
| Total                                                  |       | $          | 13,443     |   |

 

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

 

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

 

Substantially all employees who meet eligibility requirements of age,date of hire and length of service are covered by a Company-sponsoredretirement plan.  As of August 31,2009, the pension plans were funded as required by the funding standards setforth by the Employee Retirement Income Security Act (ERISA).  The Company also has non-qualifiedsupplemental executive retirement plans for certain employees.

 

Employees of the Company who are not members of a collective bargainingunit and who are newly hired, or rehired, and employees who transfer from aunion position to a nonunion position on or 

 

A-18

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after September 1,2007 are not eligible for participation in the defined benefit pensionplan.  These employees participate in adefined contribution plan as described later in this note.

 

The Investment Committee has theresponsibility of managing the operations and administration of the Company’sretirement plans and trust.  TheInvestment Committee has an investment policy for the pension plan assets thatestablishes target asset allocations as shown below.  The Investment Committee is committed todiversification to reduce the risk of large losses.  To that end, the Investment Committee hasadopted policies requiring that each asset class will be diversified and equityexposure will be limited to 85% of the total portfolio value. The stated goalis for each component of the plan to earn a rate of return greater than itscorresponding benchmark.  Progress of theplan against its return objectives will be measured over a full market cycle.

 

The following schedule reflectsthe percentage of pension plan assets by asset class as of the latestmeasurement date, August 31, 2009:

 

**Percentageof Pension Plan Assets by Asset Class as of August 31, 2009**

 
| **Asset Class**   | ** ** | **Target Range** | ** ** | **Actual Allocation** | ** ** |
|-------------------|------------|------------------|------------|-----------------------|------------|
| Large U.S. Stocks |       | 20.0%-40.0%      |       | 26.1                  | %          |
| Small U.S. Stocks |       | 17.5%-27.5%      |       | 23.1                  | %          |
| Non-U.S. Stocks   |       | 17.5%-27.5%      |       | 23.9                  | %          |
| U.S. Bonds        |       | 15.0%-35.0%      |       | 26.5                  | %          |
| Cash              |       | 0.0%-5.0%        |       | 0.4                   | %          |

 

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

 

The development of the discountrate was based on a bond matching model whereby a hypothetical portfolio ofbonds with an “AA” or better rating by a nationally recognized debt ratingagency was constructed to match the expected benefit payments under the Company’spension plans through the year 2038.  Thereinvestment rate for benefit cash flow occurring after 2038 was discountedback to the year 2038 at a rate consistent with the yields on long-termzero-coupon bonds. The resulting present value was treated as additionalbenefit cash flow for the year 2038 and consistently applied as any otherbenefit cash flow during the bond matching process.

The Company has a medical plan and a Medicaresupplement plan which are available to union retirees and certain non-unionretirees.  The costs of these plans areshared by the Company and plan participants.  The Company’s post-retirement plan forcertain non-union employees currently coordinates with Medicare’s medicalcoverage and provides tiered prescription drug coverage.  The Company has determined that this plan isactuarially equivalent to Medicare Part D and therefore qualifies for theFederal subsidy provision in the Medicare Prescription Drug, Improvement, andModernization Act of 2003.  Thisprovision allows the Company to receive a subsidy of 28 percent of the dollarsspent providing prescription drug coverage beginning in calendar year 2006.

 

A-19

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The assumptions used in the measurement of theCompany’s benefit obligations are shown below:

 

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

 
| ** **                                            | ** ** | **Pension** | ** ** | **Post-Retirement** | ** ** |
|-------------------------------------------------------|------------|-------------|------------|---------------------|------------|
| ** **                                            | ** ** | **2009**    | ** ** | **2008**            | ** ** | **2009** | ** ** | **2008** | ** ** |
| Discount  Rate                                        | ** ** | **6.55**    | **%**      | 7.04                | %          | **6.55** | **%** | 7.04 | % |
| Expected  Return on Plan Assets                       | ** ** | **8.00**    | **%**      | 8.00                | %          | **N/A** |   | N/A |   |
| Rate of Compensation Increase  (Non-Union  Plan Only) | ** ** | **3.5**     | **%**      | 3.5                 | %          | **N/A** |   | N/A |   |

 

The following schedule reflects the expectedpension and post-retirement benefit payments during each of the next five yearsand the aggregate for the following five years:

 
| ** **         | ** ** | **Expected Benefit Payments** | ** ** |
|--------------------|------------|-------------------------------|------------|
| **(In Thousands)** | ** ** | **Pension**                   | ** ** | **Post-Retirement** | ** ** |
| 2010               |       | $                             | 5,638      |   | $ | 785 |   |
| 2011               |       | 6,198                         |       | 1,082 |   |
| 2012               |       | 6,757                         |       | 1,410 |   |
| 2013               |       | 7,425                         |       | 1,680 |   |
| 2014               |       | 8,099                         |       | 1,974 |   |
| 2015-2019          |       | 52,509                        |       | 13,701 |   |
| Total              |       | $                             | 86,626     |   | $ | 20,632 |   |

 

The Company expects to makecontributions of approximately $4.3 million to the defined benefit pensionplans during the next fiscal year.  TheCompany expects to make contributions in the next fiscal year of approximately$99,000 related to Supplemental Executive Retirement Plans.  The Company also expects tocontribute approximately $785,000 to the post-retirement plans during the nextfiscal year.

 

In accordance with Statement No. 158, Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans—an amendment of FASBStatements No. 87, 88, 106, and 132(R) which required the Company infiscal 2009 to change the annual measurement date of the funded status of thepension plans from May 31 to August 31, the Company has recorded adirect charge of approximately $226,000 to retained earnings representing ameasurement date adjustment of 3/15ths of the pension cost for the period of June 1,2008 to August 31, 2009.  Theremaining 12/15ths of this pension cost was expensed and recognized duringfiscal 2009.

 

The following schedules provide the components ofthe Net Periodic Pension and Post-Retirement Costs for the years ended August 31,2009, 2008 and 2007:

 

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

 
| **(In  Thousands)**                            | ** ** | **2009**    | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------------------------------|------------|-------------|------------|----------|------------|----------|------------|
| Service  Cost                                  | ** ** | **$**       | **4,197**  |     | $          | 3,763    |       | $ | 3,533 |   |
| Interest  Cost                                 | ** ** | **10,673**  |       | 8,154    |       | 7,907    |       |
| Expected  Return on Plan Assets                | ** ** | **(15,456** | **)**      | (12,965  | )          | (10,908  | )          |
| Multiple  Employer Adjustment                  | ** ** | **—**  |       | —   |       | (131     | )          |
| Settlement  Loss                               | ** ** | **—**  |       | 242      |       | —   |       |
| Retained  Earnings Measurement Date Adjustment | ** ** | **(226**    | **)**      | —   |       | —   |       |
| Amortization  of Prior Service Costs           | ** ** | **1,644**   |       | 1,317    |       | 2,912    |       |
| Amortization  of Net (Gain) Loss               | ** ** | **70**      |       | (199     | )          | 433      |       |
| Net  Periodic Pension Cost                     | ** ** | **$**       | **902**    |     | $          | 312      |       | $ | 3,746 |   |

 

A-20

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***Components of Net Periodic Post-Retirement Cost***

 
| **(In  Thousands)**                | ** ** | **2009**  | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------------------|------------|-----------|------------|----------|------------|----------|------------|
| Service  Cost                      | ** ** | **$**     | **968**    |     | $          | 1,076    |       | $ | 1,102 |   |
| Interest  Cost                     | ** ** | **1,887** |       | 1,864    |       | 1,923    |       |
| Settlement  Gain                   |       | —    |       | (5       | )          | —   |       |
| Amortization  of Net (Gain) Loss   | ** ** | **(675**  | **)**      | (225     | )          | (19      | )          |
| Net  Periodic Post-Retirement Cost | ** ** | **$**     | **2,180**  |     | $          | 2,710    |       | $ | 3,006 |   |

 

In fiscal 2007, the Company changed the estimated amortization periodfor prior service costs.  It wasdetermined that the period in which the Company expects to realize economicbenefits from plan amendments granting retroactive benefits was shorter thanthe remaining service period of active employees.  Therefore, the amortization period waschanged from the remaining service period of active employees to the lesser ofseven years or the length of the union contract that included the benefitchange.

 

For measurement purposes, a 10.0 percent annual rateof increase in the per capita cost of covered healthcare benefits forparticipants under age 65 was assumed for 2009. The rate is assumed to decline to 7.0 percent over the next fiveyears.  For participants age 65 andolder, an 11.0 percent annual rate of increase in the per capita cost ofcovered healthcare benefits was assumed for 2009.  The rate is assumed to decline to 8.0 percentover the next five years.

 

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

 
| **(In Thousands)**                                                                                  | ** ** | **1% Increase** | ** ** | **1% Decrease** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|-----------------|------------|-----------------|------------|
| Effect on total service and interest cost components  of net periodic post-retirement benefit costs |       | $               | 390        |            | $          | (327 | ) |
| Effect on the accumulated post-retirement benefit  obligation                                       |       | $               | 3,311      |            | $          | (2,810 | ) |

 

The following schedules set forth a reconciliation ofthe changes in the plans’ benefit obligation and fair value of assets for theyears ending August 31, 2009 and 2008 and a statement of the funded statusand amounts recognized in the Balance Sheets and Accumulated OtherComprehensive Income as of August 31, 2009 and 2008:

 

A-21

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| ** **                               | ** ** | **Pension** | ** **  | **Post-Retirement** | ** ** |
|------------------------------------------|------------|-------------|-------------|---------------------|------------|
| **(In  Thousands)**                      | ** ** | **2009**    | ** **  | **2008**            | ** ** | **2009** | ** ** | **2008** | ** ** |
| ***Change in Benefit  Obligation***      | ** ** | ** **  |        |                | ** ** | ** ** |   |   |   |
| Obligation at the Beginning of  the Year | ** ** | **$**       | **123,703** |                | $          | 132,851 | ** ** | **$** | **27,193** |   | $ | 29,643 |   |
| Retained  Earnings Adjustment            | ** ** | **2,974**   |        | —              | ** ** | **—** |   | — |   |
| Service Cost                             | ** ** | **3,358**   |        | 3,763               | ** ** | **968** |   | 1,076 |   |
| Interest Cost                            | ** ** | **8,538**   |        | 8,154               | ** ** | **1,887** |   | 1,864 |   |
| Plan Participant Contributions           | ** ** | **—**  |        | —              | ** ** | **448** |   | 464 |   |
| Medicare Part D Subsidy             | ** ** | **—**  |        | —              | ** ** | **82** |   | 58 |   |
| Settlement (Gain) Loss                   | ** ** | **—**  |        | 242                 | ** ** | **—** |   | — |   |
| Transfers                                | ** ** | **—**  |        | (1,414              | )          | **—** |   | — |   |
| Actuarial (Gain) Loss                    | ** ** | **10,094**  |        | (11,742             | )          | **(917** | **)** | (3,855 | ) |
| Benefits Paid                            | ** ** | **(6,290**  | **)**       | (8,151              | )          | **(933** | **)** | (2,057 | ) |
| Obligation at the End of the  Year       | ** ** | **$**       | **142,377** |                | $          | 123,703 | ** ** | **$** | **28,728** |   | $ | 27,193 |   |

 
| ***Change in Plan Assets***              |       |        | ** **  |   |       |       |       |   |       |
|------------------------------------------|------------|-------------|-------------|--------|------------|------------|------------|--------|------------|
| Fair Value at the Beginning of  the Year | ** ** | **$**       | **156,525** |   | $          | 164,613    | ** ** | **$**  | **—** |   | $ | — |   |
| Retained  Earnings Adjustment            | ** ** | **3,091**   |        | — | ** ** | **—** |       | — |       |
| Actual Return on Plan Assets             | ** ** | **(29,477** | **)**       | (2,186 | )          | **—** |       | — |       |
| Plan Participant Contributions           | ** ** | **—**  |        | — | ** ** | **448**    |       | 464    |       |
| Medicare Part D Subsidy             | ** ** | **—**  |        | — | ** ** | **82**     |       | 58     |       |
| Transfers                                | ** ** | **—**  |        | (1,414 | )          | **—** |       | — |       |
| Employer Contributions                   | ** ** | **124**     |        | 3,663  | ** ** | **403**    |       | 1,535  |       |
| Benefits Paid                            | ** ** | **(6,290**  | **)**       | (8,151 | )          | **(933**   | **)**      | (2,057 | )          |
| Fair Value at the End of the  Year       | ** ** | **$**       | **123,973** |   | $          | 156,525    | ** ** | **$**  | **—** |   | $ | — |   |

 
| ***Funded Status***                  |       |   |        |   |   |   |       |   |        |
|--------------------------------------|------------|--------|-------------|--------|--------|--------|------------|--------|-------------|
| Funded Status as of  August 31, | ** ** | **$**  | **(18,404** | **)**  | $      | 32,822 | ** ** | **$**  | **(28,728** | **)** | $ | (27,193 | ) |
| Net Amount Recognized                | ** ** | **$**  | **(18,404** | **)**  | $      | 32,822 | ** ** | **$**  | **(28,728** | **)** | $ | (27,193 | ) |

 
| ***Amounts Recognized in  the Balance Sheets*** |       |        | ** **  |   |   |        |       |    |        |
|-------------------------------------------------|------------|-------------|-------------|--------|--------|-------------|------------|---------|-------------|
| Noncurrent Assets                               | ** ** | **$**       | **—**  |   | $      | 35,101      | ** ** | **$**   | **—**  |   | $ | — |   |
| Current Liabilities                             | ** ** | **(5,257**  | **)**       | (115   | )      | **(785**    | **)**      | (720    | )           |
| Noncurrent Liabilities                          | ** ** | **(13,147** | **)**       | (2,164 | )      | **(27,943** | **)**      | (26,473 | )           |
| Net Amount Recognized                           | ** ** | **$**       | **(18,404** | **)**  | $      | 32,822      | ** ** | **$**   | **(28,728** | **)** | $ | (27,193 | ) |

 
| ***Prior Service Cost Recognized in******Accumulated Other Comprehensive Income*** |       |       |       |   |       |       |   |   |       |
|------------------------------------------------------------------------------------|------------|------------|------------|--------|------------|------------|--------|--------|------------|
| Prior  Service Cost Beginning of the Year                                          | ** ** | **$**      | **(3,949** | **)**  | $          | (5,266     | )      | **$**  | **—** |   | $ | — |   |
| Recognized in Periodic Cost                                                        | ** ** | **1,644**  |       | 1,317  | ** ** | **—** |   | — |       |
| Amount Arising During the Year                                                     | ** ** | **—** |       | — | ** ** | **—** |   | — |       |
| Prior Service Cost End of the  Year                                                | ** ** | **$**      | **(2,305** | **)**  | $          | (3,949     | )      | **$**  | **—** |   | $ | — |   |

 
| ***Accumulated Gain (Loss) Recognized in******Accumulated Other Comprehensive Income*** |       |        |        |   |       |     |   |   |      |
|-----------------------------------------------------------------------------------------|------------|-------------|-------------|--------|------------|----------|--------|--------|-----------|
| Accumulated  Gain (Loss) Beginning of the Year                                          | ** ** | **$**       | **(10,950** | **)**  | $          | (7,100   | )      | **$**  | **7,409** |   | $ | 3,783 |   |
| Recognized in Periodic Cost                                                             | ** ** | **70**      |        | 199    | ** ** | **(675** | **)**  | (225   | )         |
| Amount Arising During the Year                                                          | ** ** | **(51,936** | **)**       | (3,651 | ** ** | **917**  |   | 3,851  |      |
| Accumulated Gain (Loss) End of  the Year                                                | ** ** | **$**       | **(62,816** | **)**  | $          | (10,950  | )      | **$**  | **7,651** |   | $ | 7,409 |   |

 

The estimated amounts that will be amortized from Accumulated OtherComprehensive Income at August 31, 2009 into net periodic benefit cost infiscal 2010 are as follows:

 
| ** **              | ** ** | **Pension** | ** ** | **Post-  Retirement** | ** ** |       |   |       |   |
|-------------------------|------------|-------------|------------|-----------------------|------------|------------|--------|------------|--------|
| Prior  Service (Cost)   |       | $           | (1,316     | )                     | $          | —     |   | ** ** |   |   |   |
| Accumulated Gain (Loss) |       | (6,940      | )          | 687                   |       | ** ** |   |       |   |
| Total                   |       | $           | (8,256     | )                     | $          | 687        |   | ** ** |   |   |   |

 

The accumulated pension benefit obligation was $134.1 million and$116.7 million as of August 31, 2009 and 2008, respectively.

 

A-22

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*1999Long-Term Incentive Plan*

 

During 2005, the grantingof additional contract rights under the 1999 Long-Term Incentive Plan (1999Plan) was discontinued with the adoption of the 2005 Long-Term Incentive Plan(2005 Plan).  All vested contract rightsas of December 31, 2004, remained in the 1999 Plan while all unvestedcontract rights were transferred to the 2005 Plan.  The value of the contract rights remaining inthe 1999 Plan is determined by the Board of Directors.  During 2009, 75.00 vested contract rightswere exercised.  As of August 31,2009, there were 70.45 vested contract rights remaining in the 1999 Plan.  At August 31, 2009, the Board ofDirectors increased the value of these contract rights from $1,750 to $2,200per contract right.

 

*2005 Long-Term Incentive Plan*

 

The 2005 Long-TermIncentive Plan provides deferred 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 of Directors.  During 2009, 131.54 vested contract rights wereexercised.  In 2009, 282.10 contractrights were granted at a stated value of $2,200 per contract right.  At August 31, 2009, the Board ofDirectors increased the value of the 943.70 contract rights previously grantedfrom $1,750 to $2,200 per contract right. As of August 31, 2009, there were 1,225.79 contract rights issuedand outstanding at a stated value of $2,200 per contract right, of which 645.64were vested.

 

*DefinedContribution Plans*

 

The Company has qualified401(k) plans for all eligible employees. The plans provide for immediate vesting of benefits.  Participants may contribute a percentage oftheir gross earnings each pay period as provided in the 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, $1.9million and $2.0 million for the years ended August 31, 2009, 2008 and2007, respectively.

 

Employees of the Companywho are not members of a collective bargaining unit and who are newly hired, orrehired, and employees who transfer from a union position to a nonunionposition on or after September 1, 2007 are no longer eligible forparticipation in the defined benefit pension plan but receive a 4% non-electiveCompany Contribution to a defined contribution plan.  The Company Contribution has a six yearvesting schedule.  The Company’sContributions to this plan totaled $87,000 and $29,000 for the years ended August 31,2009 and 2008, respectively.

 

**(11)****MEMBERS’ INVESTMENTS:**

 

The followingschedule details the Preferred Stock and Common Stock as of August 31,2009, 2008 and 2007:

 
| ** **           | ** ** | **Par**   | ** ** | **Shares**     | ** ** | **Shares Issued**     | ** ** |
|----------------------|------------|-----------|------------|----------------|------------|-----------------------|------------|
| ** **           | ** ** | **Value** | ** ** | **Authorized** | ** ** | **& Outstanding** | ** ** |
| Preferred Stock:     |       |      |       |           |       |                  |       |
| August 31, 2009 |       | $         | 76.77      |           | 600,000    |                  | 498,570    |   |
| August 31, 2008 |       | $         | 76.77      |           | 600,000    |                  | 498,570    |   |
| August 31, 2007 |       | $         | 76.77      |           | 600,000    |                  | 498,570    |   |
|                 |       |      |       |           |       |                  |       |
| Common Stock:        |       |      |       |           |       |                  |       |
| August 31, 2009 |       | $         | 10.00      |           | 4,000      |                  | 2,812      |   |
| August 31, 2008 |       | $         | 10.00      |           | 4,000      |                  | 2,839      |   |
| August 31, 2007 |       | $         | 10.00      |           | 4,000      |                  | 2,878      |   |

 

A-23

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**(12)****SEGMENT REPORTING:**

 

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

 

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

 
| ** **                           | ** ** | **For the Year Ended August 31, 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 |   |
| Net Proceeds                         |       | $                                           | 529,799    |   | $ | 6,352 |   | $ | 536,151 |   |
|                                 |       |                                        |       |   |   |   |   |
| 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 | ) |
| Net Proceeds                         |       | $                                           | 535,516    |   | $ | 7,177 |   | $ | 542,693 |   |
|                                 |       |                                        |       |   |   |   |   |
| Capital Additions                    |       | $                                           | 44,391     |   | $ | 1,358 |   | $ | 45,749 |   |

 

A-24

----

 
| ** **                           | ** ** | **For the Year Ended August 31, 2007** | ** ** |
|--------------------------------------|------------|---------------------------------------------|------------|
| **(In Thousands)**                   | ** ** | **Sugar**                                   | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from External  Customers |       | $                                           | 1,197,914  |   | $ | 24,943 |   | $ | 1,222,857 |   |
| Gross Proceeds                       |       | $                                           | 861,386    |   | $ | 13,197 |   | $ | 874,583 |   |
|                                 |       |                                        |       |   |   |   |   |   |   |   |
| Depreciation and  Amortization       |       | $                                           | 46,384     |   | $ | 11,097 |   | $ | 57,481 |   |
| Interest Income                      |       | $                                           | 745        |   | $ | 36 |   | $ | 781 |   |
| Interest Expense                     |       | $                                           | 18,680     |   | $ | 1,601 |   | $ | 20,281 |   |
| Income from Equity Method  Investees |       | $                                           | 367        |   | $ | — |   | $ | 367 |   |
| Other Income/(Expense),  Net         |       | $                                           | (713       | ) | $ | (8 | ) | $ | (721 | ) |
| Net Proceeds                         |       | $                                           | 595,526    |   | $ | 5,866 |   | $ | 601,392 |   |
|                                 |       |                                        |       |   |   |   |   |
| Capital Additions                    |       | $                                           | 63,256     |   | $ | 859 |   | $ | 64,115 |   |

 
| ** **                   | ** ** | **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 |   |

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

 

**(13)****FAIR VALUE OF FINANCIALINSTRUMENTS:**

 

Fair value is defined as the price that would be received for an assetor paid to transfer a liability (an exit price) in the principal or mostadvantageous market for the asset or liability in an orderly transactionbetween market participants on 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.

 

*Long-Term Debt, Inclusive of Current Maturities* - Based upon current borrowing rateswith similar maturities, the fair value of the long-term debt is approximately$162.6 million in comparison to the carrying value of $161.9 million.

 

*Investments in CoBank, ACB and Investments inMarketing Cooperatives* - The Company believes it is not practical to estimate the fair valueof these investments without incurring excessive costs because there is noestablished market for these securities and equity interests, and it isinappropriate to estimate future cash flows which are largely dependent onfuture earnings of these organizations.

 

A-25

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

 

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

 

The Company had no unrecognized tax benefits on September 1,2007.  No interest or penalties arerecognized in the consolidated statements of operations or in the consolidatedbalance sheets.  The Company is no longersubject to U.S. Federal income tax examinations by tax authorities for fiscalyears 2006 and earlier.  The Company isno longer subject to state income tax examinations by tax authorities forfiscal years 2005 and earlier.

 

Total income tax payments (refunds) were $1.8 million;($33,000); and ($119,000) for the years ended August 31, 2009, 2008 and2007, respectively.

 

As of August 31, 2009, the Company hadaccumulated approximately $7.3 million of net operating loss carry-forwards forincome tax reporting purposes.  The netoperating loss carry-forwards expire in the years 2018 through 2022.  The Company’s net deferred tax liabilityincluded in Other Liabilities on the Company’s Balance Sheets as of August 31,2009 and 2008 is reflected below:

 
| **(In Thousands)**                                                            | ** ** | **2009**   | ** ** | **2008** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------------|------------|------------|------------|----------|------------|------------|------------|
| Deferred Tax Assets related to non-patronage source temporary  differences    | ** ** | **$**      | **11,096** |     | $          | 14,048     |       |   |   |
| Deferred Tax Liability related to non-patronage source temporary  differences | ** ** | **16,535** |       | 18,019   |       |       |       |
|                                                                          | ** ** | ** ** |       |     |       |       |       |
| Net Deferred Tax Liability                                                    | ** ** | **$**      | **5,439**  |     | $          | 3,971      |       |   |   |

 

Income taxexpense/(benefit) for the years ended August 31, 2009, 2008 and 2007 is asfollows:

 
| **(In Thousands)**                 | ** ** | **2009**  | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------------------|------------|-----------|------------|----------|------------|----------|------------|
| Current Income Taxes               | ** ** | **$**     | **713**    |     | $          | 653      |       | $ | 403 |   |
| Deferred Income Taxes              | ** ** | **1,468** |       | (2,052   | )          | 900      |       |
|                               |       |      |       |     |       |     |       |
| Total Income Tax Expense/(Benefit) | ** ** | **$**     | **2,181**  |     | $          | (1,399   | )          | $ | 1,303 |   |

 

A reconciliation of the Company’s effective tax ratesfor the years ended August 31, 2009, 2008 and 2007 is shown below:

 
| ** **                            | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| 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                   | ** ** | **(40.6**  | **)%**     | (41.7    | )%         | (40.8    | )%         |
| Other, net                            | ** ** | **—** |       | (.2      | )%         | —   |       |
| Effective tax rate                    | ** ** | **0.4**    | **%**      | (0.9     | )%         | 0.2      | %          |

 

A-26

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

 

The Company is subject to extensive federal and stateenvironmental laws and regulations with respect to water and air quality, solidwaste disposal and odor and noise control. The Company conducts an ongoing compliance program designed to meetthese environmental laws and regulations. The Company believes that it is in substantial compliance withapplicable environmental laws and regulations. From time to time, however, the Company may be involved ininvestigations or determinations regarding matters that may arise in theordinary course of business.  The Companyworks closely with all affected government agencies to resolve environmentalissues that arise and believes they will be resolved without any adverse effecton the Company.

 

The Company’s sugar manufacturing process isenergy intensive and generates carbon dioxide and other “Greenhouse Gases”(GHGs).  Several bills have beenintroduced in the United States Senate and House of Representatives that wouldregulate GHGs and carbon dioxide emissions to reduce the impact of globalclimate change.  The Company believes itis likely that industries generating GHGs, including the Company, will besubject to either federal or state regulation relating to climate changepolicies in the relatively near future. These policies, if adopted, will increase the Company’s energy and otheroperating costs.  Depending on how thesepolicies address imports, the domestic sugar market may have a competitivedisadvantage with imported sugar.  Thesepolicies could have a significant negative impact on the Company’s beet paymentto shareholders if the Company is not able to pass the increased costs on tothe Company’s customers****.  On June 26,2009, the United States House of Representatives passed H.R. 2454, the AmericanClean Energy and Security Act.  This billcreates a system for regulating emissions of GHG’s and also creates a marketfor emission allowances or credits. It is uncertain whether the steps necessaryto move this bill or similar bills through the legislative process will becompleted this year.****

 

On November 25, 2008, the Companyentered into a stipulation agreement with the Minnesota Pollution ControlAgency (MPCA) related to hydrogen sulfide emissions from its Crookston, EastGrand Forks and Moorhead, Minnesota factories. As part of the stipulation agreement, the Company has agreed to makecertain capital expenditures over the next three years and implement specifiedchanges in operating procedures to contain hydrogen sulfide emissions at theMinnesota factories.  The requiredcapital expenditures are currently estimated to be approximately $12 million.

 

Including the expenditures related to theMPCA stipulation agreement, the Company has identified capital expenditures forenvironmental related projects over the next three years at the Company’sfactory locations of approximately $15.8 million.

 

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

 

On February 11, 2009,the Ninth Circuit Court of Appeals (the Court) issued its decision in the caseof *Amalgamated Sugar Co, LLC v. Thomas Vilsack;Department of Agriculture*, a case that involved Amalgamated Sugar’schallenge of a decision by the USDA to transfer certain sugar marketingallocations to the Company.  The Courtreversed the lower court’s decision which confirmed the USDA’s transfer of themarketing allocations, and remanded the case back to the lower court forfurther action.  On May 19, 2009,the USDA announced, subject to further proceedings, that it was redistributinga portion of the Company’s sugar marketing allocations to other sugar beetprocessors in response to legal proceedings contesting the transfer of certainsugar marketing allocations to the Company. To protect the Company’s interests in the marketing allocations, theCompany appealed the Court’s decision to the U.S. Supreme Court.  The U.S. Supreme Court has since deniedhearing the case, essentially putting an end to the case.  As a result, the Company will experience anet reduction of marketing allocations of approximately 1 million CWT.  The Company does not believe that the loss of

 

A-27

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thesemarketing allocations will have a material impact on the Company’s plantedacres going forward, assuming average crop yield, crop quality and continueddomestic consumption trends.

 

On September 21, 2009the U.S. District Court (District Court) ruled against the USDA finding thatthe USDA violated federal law by failing to prepare an Environmental ImpactStatement before deregulating Roundup Ready® sugarbeets. The District Court has determined that the USDA now needs to prepare afull Environmental Impact Statement.  Theactual direct impact of the decision on sugarbeet producers and the Companywill become more defined during the “remedy phase” of the case, which willoccur over the next several months.

 

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

 

The Company has evaluated events through November 4, 2009, thedate that the financial statements were issued, for potential recognition ordisclosure in the August 31, 2009 financial statements.

** **

**A-28**

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** **

**EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-KFOR FISCAL YEAR ENDED AUGUST 31, 2009**

 
| **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

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| ++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              |

 

E-2

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| ++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 |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                |   |                                                                                                                                  |
| ++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.                                             |   | Filed herewith electronically                                                                                                         |
|    |   |                                                                                                                                                |   |                                                                                                                                  |
| 10.18   |   | Amended and Restated Uniform Member Marketing  Agreement between the Registrant and Midwest Agri-Commodities Company dated  September 1, 2009. |   | Filed herewith electronically                                                                                                         |
|    |   |                                                                                                                                                |   |                                                                                                                                  |
| 10.19   |   | Amended and Restated Member Control Agreement  between Registrant and Golden Growers Cooperative dated September 1,  2009.                     |   | Filed herewith electronically                                                                                                         |
|    |   |                                                                                                                                                |   |                                                                                                                                  |
| 21.1    |   | List of  Subsidiaries of the Registrant                                                                                                             |   | Filed herewith  electronically                                                                                                        |
|    |   |                                                                                                                                                |   |                                                                                                                                  |
| 31.1    |   | Rule 13a-14(a)/15(d)-14(a) Certification  of the Chief Executive Officer                                                                  |   | Accompanying herewith electronically                                                                                                  |
|    |   |                                                                                                                                                |   |                                                                                                                                  |
| 31.2    |   | Rule 13a-14(a)/15(d)-14(a) Certification  of the Chief Financial Officer                                                                  |   | Accompanying herewith electronically                                                                                                  |
|    |   |                                                                                                                                                |   |                                                                                                                                  |
| 32.1    |   | Section 1350 Certification of the Chief  Executive Officer                                                                                     |   | Accompanying herewith electronically                                                                                                  |
|    |   |                                                                                                                                                |   |                                                                                                                                  |
| 32.2    |   | Section 1350 Certification of the Chief  Financial Officer                                                                                     |   | Accompanying herewith electronically                                                                                                  |

 

E-3

----

 

----

+              Confidentialtreatment under Rule 24b-2 of the Securities and Exchange Act of 1934, asamended, has been granted with respect to designated portions of this document.

 

++           Amanagement contract or compensatory plan required to be filed with this report.

 

E-4

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