10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended February 29, 2008

Commission file number:  33-83868

AMERICAN CRYSTAL SUGAR COMPANY

(Exact name of registrant as specified in its charter)

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

101 North Third Street

Moorhead, Minnesota  56560

(Address of principal executive offices)

Telephone Number (218) 236-4400

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.

YES x NO o

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

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

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

YES o NO x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

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

AMERICAN CRYSTAL SUGAR COMPANY

FORM 10-Q

INDEX

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

American Crystal Sugar Company

Consolidated Balance Sheets

(Unaudited)

(In Thousands)

Assets

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

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.

* Derived from audited financial statements

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American Crystal Sugar Company

Consolidated Balance Sheets

(Unaudited)

(In Thousands)

Liabilities and Members’ Investments

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

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.

* Derived from audited financial statements

2

American Crystal Sugar Company

Consolidated Statements of Operations

(Unaudited)

(In Thousands)

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

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.

3

American Crystal Sugar Company

Consolidated Statements of Cash Flows

(Unaudited)

(In Thousands)

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

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.

4

AMERICAN CRYSTAL SUGAR COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS AND THREE MONTHS ENDED

February 29, 2008 and February 28, 2007

(Unaudited)

Note 1:  Basis of Presentation

The unaudited consolidated financial statements of American Crystal Sugar Company (the Company) contained herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.  Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America.  However, in the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included.

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

All material inter-company transactions have been eliminated.

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

The amount paid to shareholders for sugarbeets (member beet payment) depends on the future selling prices of sugar and agri-products as well as processing and other costs incurred during the remainder of the fiscal year associated with the 2007 Red River Valley sugarbeet crop (RRV crop).  The amount paid to non-member growers for sugarbeets (non-member beet payment) depends on the future selling prices of sugar and the related selling expenses associated with the 2007 Sidney Sugars sugarbeet crop (Sidney crop).  For the purposes of this report, the amount of the beet payments, future revenues and costs have been estimated.  Therefore, adjustments with respect to these estimates may be necessary in the future, as additional information becomes available.

These financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended August 31, 2007.

Note 2:  Recently Issued Accounting Pronouncements

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

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

The FASB has issued Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB  No. 51.  This Statement requires all entities to report noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial statements.  Its intention is to

5

eliminate the diversity in practice regarding the accounting for transactions between an entity and noncontrolling interests.  This statement becomes effective for the Company in the first quarter of fiscal 2010.

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

Note 3:  Inventories

The major components of inventories are as follows (In Thousands):

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

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

Note 4:  Short-Term Debt

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

As of February 29, 2008, the Company had outstanding commercial paper of $206.1 million at an average interest rate of 5.14% and maturity dates between March 3, 2008 and April 30, 2008.  In addition, the Company had an outstanding non-recourse loan with the CCC of $34.3 million, against which 1.5 million hundredweight of sugar was pledged as collateral.  The CCC loan carried an interest rate of 4.25% and a maturity date of September 30, 2008.  The Company had no outstanding short-term debt with CoBank, ACB as of February 29, 2008.  The Company had $2.1 million of short-term letters of credit outstanding as of February 29, 2008.  The unused seasonal line of credit as of February 29, 2008 was $182.8 million.

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

Note 5:  Interest Paid and Interest Capitalized

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

6

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

Note 6:  Accrued Continuing Costs

For interim reporting, the net proceeds from member business is based on the forecasted gross beet payment and the percentage of the tons of sugarbeets processed to the total estimated tons of sugarbeets to process for a given crop year.  The net proceeds from the operations of Sidney Sugars is based on the forecasted net income for the fiscal year and the percentage of the tons of non-member sugarbeets processed to the total estimated tons of non-member sugarbeets to process for a given fiscal year.

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

Note 7:  Net Periodic Pension and Post-Retirement Costs

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

Components of Net Periodic Pension Cost

(In Thousands)

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

Components of Net Periodic Post-Retirement Cost

(In Thousands)

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

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

7

Company expects to contribute and make benefit payments of approximately $3.7 million this fiscal year related to the Supplemental Executive Retirement Plans.

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

Note 8:  Members’ Investments

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

Note 9:  Shipping and Handling Costs

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

Note 10: ProGold Limited Liability Company

The Company is the controlling member of ProGold Limited Liability Company (ProGold), which owns a corn wet-milling plant in Wahpeton, 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 superseded and replaced the previous 10 year lease between ProGold and Cargill and provides that (1) Cargill will pay ProGold average annual rental payments equal to $21.9 million and (2) that the term of the lease be extended until December 31, 2017.

Note 11: Segment Reporting

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

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

8

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

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

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

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

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

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

Note 12: Income Taxes

On September 1, 2007, the Company adopted the provisions of the Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109.  This Interpretation clarifies the accounting for uncertainty in income taxes recognized 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 are recognized in the consolidated statements of operations or in the consolidated balance sheets.  The Company is no longer subject to U.S. Federal or state income tax examinations by tax authorities for fiscal years 2004 and earlier.

Note 13: Environmental Matters

The Company’s Crookston, East Grand Forks and Moorhead, Minnesota factories have experienced hydrogen sulfide emissions from their water treatment ponds that have exceeded permissible limits.  On July 19, 2007, the Company received a notice of violation from the Minnesota Pollution Control Agency (MPCA) related to emissions that occurred in fiscal 2005 and 2006.  The Company’s Crookston, East Grand Forks and Moorhead, Minnesota factories also experienced hydrogen sulfide emissions from their water treatment ponds in fiscal 2007 that exceeded permissible limits.  A penalty assessment is currently under consideration by the MPCA.  While it is likely that the Company may be assessed penalties and/or fines related to these occurrences, as of the date of this report none have been assessed.  Any potential penalties and/or fines, while possibly significant, are not expected to be material to the Company.

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

The Company is also addressing the following environmental matters:

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

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

·In July 2007, the Company received Compliance Monitoring Survey-Letters of Warning from the MPCA for the East Grand Forks and Moorhead, Minnesota factories.

·In November 2007, the Company received a Compliance Monitoring Survey-Letter of Warning from the MPCA for the Crookston Minnesota factory.

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

Corrective actions have been taken related to these occurrences.  While the Company may be assessed penalties for these occurrences, as of the date of this report none have been assessed.   Any potential penalties assessed are not expected to be material to the Company.

Note 14: Legal Matters

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

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

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

Overview

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

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The harvest of the Red River Valley and Sidney sugarbeet crops grown during 2007 and to be processed during fiscal 2008 produced a total of 12.5 million tons of sugarbeets, or approximately 23.6 tons of sugarbeets per acre from approximately 529,000 acres.  This represents a decrease in total tons harvested of approximately 3.0 percent compared to the 2006 crop.  The sugar content of the 2007 crop is 18.1 percent as compared to the 18.2 percent sugar content of the 2006 crop.  The Company expects to produce a total of approximately 35.8 million hundredweight of sugar from the 2007 crop, a decrease of approximately 3.8 percent compared to the 2006 crop.  Due to the limits imposed by government sugar marketing allocations, it is anticipated that approximately 2.3 million hundredweight of sugar produced from the 2007 crop will not be permitted to be sold during the time period of October 1, 2007 to September 30, 2008.

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

Comparison of the Six Months Ended February 29, 2008 and February 28, 2007

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

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

The substantial increases in the volumes of molasses and betaine sold are primarily due to increased availability of saleable product resulting from higher beginning inventory levels as of September 1, 2007 as compared to the inventory levels as of September 1, 2006.

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

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

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Change in the Net Realizable Value of Product Inventories

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

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

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

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

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

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

Comparison of the Three Months Ended February 29, 2008 and February 28, 2007

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

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

The substantial increases in the volumes of molasses and betaine sold are primarily due to increased availability of saleable product resulting from higher beginning inventory levels as of December 1, 2007 as compared to the inventory levels as of December 1, 2006.

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

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

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lower natural gas consumption along with processing 1.6 percent less sugarbeets during the second quarter of fiscal 2008 as compared to the same period last year.  The cost recognized associated with the non-member sugarbeets decreased $4.0 million for the three months ended February 29, 2008, when compared to the three months ended February 28, 2007.  This decrease was primarily due to an 18.6 percent decrease in tons processed along with a lower per ton estimated grower payment this year resulting from a lower projected sugar net selling price.  At the end of each reporting period, product inventories are recorded at their net realizable value.  The change in the net realizable value of the product inventories from the beginning of the reporting period is recorded on the balance sheet as either an increase or decrease to inventories with a corresponding dollar for dollar adjustment to cost of sales on the statement of operations.  The increase in the net realizable value of product inventories for the three months ended February 29, 2008 was $107.8 million as compared to an increase of $100.0 million for the previous year’s three month period ended February 28, 2007 resulting in a $7.8 million favorable change in the cost of sales between the two quarters as shown in the table below:

Change in the Net Realizable Value of Product Inventories

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

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

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

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

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

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

Pending Legislation

On July 27, 2007, the U.S. House of Representatives passed the Farm, Nutrition, and Bioenergy Act of 2007.  On December 14, 2007, the U.S. Senate passed the Food and Energy Security Act of 2007.  Negotiations are currently underway in an attempt to reconcile these bills.  The resulting legislation, if signed into law, would replace the Farm Security and Rural Investment Act of 2002.  The Company has no way to predict the outcome, but the impact could be material and significant.

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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 Mexico expired on January 1, 2008.  Early in the current calendar year, there has been no indication of an influx of sugar from Mexico.  However, market conditions for sugar and other sweeteners could change and excessive imports of Mexican sugar could cause material harm to the United States sugar market.  The Company has no way to predict the extent to which Mexico will take advantage of its export opportunities.

Regional and Bilateral Free Trade Agreements

The United States government is pursuing an aggressive agenda on international trade.  It is seeking to negotiate new free trade agreements with a number of countries and regions that are major producers of sugar.  The Company believes these agreements, if they reach fruition, could negatively impact the Company’s profitability.  If increases in guaranteed access or reductions in sugar tariffs are included in these agreements, excess sugar from these regions could enter the U.S. market and put pressure on domestic sugar prices.

On December 14, 2007, the U.S. President signed the U.S.-Peru Free Trade Agreement.  This agreement establishes a duty-free Tariff Rate Quota (TRQ), in addition to that provided under the World Trade Organization (WTO), for those sugar and sugar-containing products for which overall TRQ’s under the U.S. sugar import program are in operation.  This TRQ is set at 9,000 metric tons in year 1 of the agreement and rises to 11,250 metric tons in year 15; after year 15 the in-quota quantity grows by 180 metric tons per year. Eligibility for this TRQ, however, is limited to the amount of Peru’s trade surplus in sugar. In addition to the TRQ described above, a duty-free TRQ of 2,000 metric tons has been established for specialty sugars.  This TRQ does not increase and is not subject to the “net exporter” provision described above.

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

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

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

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

The Doha Round negotiations of the WTO continue to be pursued by the U.S. Administration and some of its international counterparts.  It is unclear at this time whether negotiations will be completed.  If the negotiations are completed, the outcome of any negotiated arrangement could have significant adverse consequences for the Company.

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

15

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

The impact of the various trade agreements on the Company cannot be assessed at this time due to the uncertainty concerning the terms of the agreements and whether they will ultimately be implemented.  It is possible, however, that the passage of various trade agreements could have a material adverse effect on the Company through a reduction in acreage that can be planted by the Company’s shareholders and by the growers for Sidney Sugars Incorporated, and/or a reduction in sugar selling prices, and a corresponding reduction in the beet payment to the shareholders and the Company earnings.  Although the magnitude of the impact cannot be determined at this time, the Company estimates that for every additional 500,000 tons of sugar entering the U.S. market and therefore reducing the overall allotment quantity (and assuming no other variables change), the Company may need to reduce planted acres by approximately 30,000, which would negatively impact shareholder profits.

Environmental

The Company’s Crookston, East Grand Forks and Moorhead, Minnesota factories have experienced hydrogen sulfide emissions from their water treatment ponds that have exceeded permissible limits.  On July 19, 2007, the Company received a notice of violation from the Minnesota Pollution Control Agency (MPCA) related to emissions that occurred in fiscal 2005 and 2006.  The Company’s Crookston, East Grand Forks and Moorhead, Minnesota factories also experienced hydrogen sulfide emissions from their water treatment ponds in fiscal 2007 that exceeded permissible limits.  A penalty assessment is currently under consideration by the MPCA.  While it is likely that the Company may be assessed penalties and/or fines related to these occurrences, as of the date of this report none have been assessed.  Any potential penalties and/or fines, while possibly significant, are not expected to be material to the Company.

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

The Company is also addressing the following environmental matters:

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

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

·In July 2007, the Company received Compliance Monitoring Survey-Letters of Warning from the MPCA for the East Grand Forks and Moorhead, Minnesota factories.

·In November 2007, the Company received a Compliance Monitoring Survey-Letter of Warning from the MPCA for the Crookston Minnesota factory.

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

Corrective actions have been taken related to these occurrences.  While the Company may be assessed penalties for these occurrences, as of the date of this report none have been assessed.   Any potential penalties assessed are not expected to be material to the Company.

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Liquidity and Capital Resources

Under the Company’s Bylaws and Member Grower Contracts, payments for member-delivered sugarbeets, the principal raw material used in producing the sugar and agri-products it sells, are subordinated to all member business expenses.  In addition, the beet payments made to member growers and non-member growers are paid in three payments over the course of a year, and the member payments are made net of any anticipated unit retain for the crop.  These procedures have the effect of providing the Company with an additional source of short-term financing.  This financing arrangement may result in an additional source of liquidity and reduced need for outside financing in comparison to a similar business operated on a non-cooperative basis.

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

The Company has long-term debt availability with CoBank, ACB of $174.8 million, of which $55.3 million in loans and $69.5 million in long-term letters of credit were outstanding as of February 29, 2008.  The unused long-term line of credit as of February 29, 2008, was $50.0 million.  In addition, the Company had long-term debt outstanding, as of February 29, 2008, of $50 million from a private placement of Senior Notes that occurred in September of 1998; $5.5 million from a private placement of Senior Notes that occurred in January of 2003; $67.1 million from ten separate issuances of Pollution Control and Industrial Development Revenue Bonds; and a term loan with Bank of North Dakota of $.8 million.

The Company also has a seasonal line of credit with a consortium of lenders led by CoBank, ACB of $390 million, against which there was no outstanding balance as of February 29, 2008 and a line of credit with Wells Fargo Bank for $1 million, against which there was no outstanding balance as of February 29, 2008.  The Company’s commercial paper program provides short-term borrowings of up to $325 million of which approximately $206.1 million was outstanding as of February 29, 2008.  The Company had $2.1 million of short-term letters of credit outstanding as of February 29, 2008.  Any borrowings under the commercial paper program along with outstanding short-term letters of credit will act to reduce the available credit under the CoBank, ACB seasonal line of credit by a commensurate amount.  The unused short-term line of credit as of February 29, 2008, was $182.8 million.  In addition, the Company had an outstanding non-recourse loan with the CCC, as of February 29, 2008, of $34.3 million, against which 1.5 million hundredweight of sugar was pledged as collateral.

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

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

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

17

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

The net cash used in investing activities was $18.3 million for the six months ended February 29, 2008, as compared to $22.3 million for the six months ended February 28, 2007.  The decrease of $4.0 million was primarily related to decreased purchases of property and equipment of $1.4 million and changes in other assets of $2.6 million.

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

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

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk of loss to future earnings, to fair values or to future cash flows that may result from changes in the price of a financial instrument.  The value of a 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-risk sensitive financial instruments, including long term debt.

The Company does not believe that there is any material market risk exposure with respect to interest rates, exchange rates, commodity prices, equity prices and other market changes that would require disclosure under this item.

Item 4.   Controls and Procedures

The Company’s chief executive officer and chief financial officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 240.13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934) as of February 29, 2008.  Based on that review and evaluation, which included inquiries made to certain other employees of the Company, the chief executive officer and chief financial officer have concluded that the Company’s current disclosure controls and procedures, as designed and implemented, are effective in ensuring that information relating to the Company required to be disclosed in the reports the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such information is accumulated and communicated to the Company’s management, including the chief executive officer and the chief financial officer, as appropriate to allow timely decisions regarding required disclosure.  There were no changes in the Company’s internal controls over financial reporting that occurred during the Company’s most recent fiscal quarter that may have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

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

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

Item 1A.  Risk Factors.

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

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3.  Defaults Upon Senior Securities

None

Item 4.  Submission of Matters to a Vote of Security Holders

None.

Item 5.  Other Information.

None.

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Item 6. Exhibits

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

20

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

21

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

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

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

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SIGNATURES

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

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

23

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

	I, David A. Berg, certify that:
1.	I have reviewed this report on Form 10-Q of American Crystal Sugar Company (the registrant);
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have:
	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c)	disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and.
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
	a)	all significant deficiencies and material weaknesses in the design or operation of the internal controls over financial reporting which are likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

April 14, 2008	/s/ DAVID A. BERG
	David A. Berg
	President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

	I, Thomas S. Astrup, certify that:
1.	I have reviewed this report on Form 10-Q of American Crystal Sugar Company (the registrant);
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have:
	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c)	disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and.
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
	a)	all significant deficiencies and material weaknesses in the design or operation of the internal controls over financial reporting which are likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

April 14, 2008	/s/ THOMAS S. ASTRUP
	Thomas S. Astrup
	Vice President-Finance and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATE PURSUANT TO SECTION 906

OF SARBANES – OXLEY ACT OF 2002

The undersigned, David A. Berg, Chief Executive Officer of American Crystal Sugar Company, (the “Company”), does hereby certify that to his knowledge:

1.     The Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 29, 2008 (the “Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.     Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

The foregoing certification is being furnished solely pursuant to 18 U.S.C. §1350 and is not being filed as part of the Report or as a separate disclosure document.

IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed this 14th day of April, 2008.

By:	/s/ DAVID A. BERG
Name: David A. Berg
Title: President and Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATE PURSUANT TO SECTION 906

OF SARBANES – OXLEY ACT OF 2002

The undersigned, Thomas S. Astrup, Chief Financial Officer of American Crystal Sugar Company, (the “Company”), does hereby certify that to his knowledge:

1.   The Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 29, 2008 (the “Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.   Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

The foregoing certification is being furnished solely pursuant to 18 U.S.C. §1350 and is not being filed as part of the Report or as a separate disclosure document.

IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed this 14th day of April, 2008.

By:	/s/ THOMAS S. ASTRUP
Name: Thomas S. Astrup
Title: Vice President-Finance and Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.