UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended August 31, 2011

or

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

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

AMERICAN CRYSTAL SUGAR COMPANY

(Exact name of registrant as specified in its charter)

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

NONE

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

NONE

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

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

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 (or for such shorter period that the Registrant was required to file such reports), 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES o NO o

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

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 the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company in Rule 12b-2 of the Exchange Act.

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

As of November 17, 2011, 2,780 shares of the Registrant’s Common Stock and 498,570 shares of the Registrant’s Preferred Stock were outstanding.  There is no established public market for the Registrant’s Common Stock or Preferred Stock.  Although there is a limited, private market for shares of the Registrant’s stock, the Registrant does not obtain information regarding the transfer price in transactions between its members and therefore is unable to estimate the aggregate market value of the Registrant’s shares held by non-affiliates.

DOCUMENTS INCORPORATED BY REFERENCE

NONE

PART I

This report contains forward-looking statements and information based upon assumptions by American Crystal Sugar Company’s management, including assumptions about risks and uncertainties faced by the Company.  These forward-looking statements 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 prove incorrect or should unanticipated circumstances arise, the Company’s actual results could materially differ from those anticipated by such forward-looking statements.  The differences could be caused by a number of factors or combination of factors, including, but not limited to, those factors influencing the Company and its business which are described in this report in the “Risk Factors” section below.  Readers are urged to consider these factors when evaluating any forward-looking statement.  The Company undertakes no obligation to update any forward-looking statements in this report to reflect future events or developments.

Item 1.                                        BUSINESS

GENERAL

The Company is a Minnesota 308A agricultural cooperative corporation owned by approximately 2,800 sugarbeet growers in the Minnesota and North Dakota portions of the Red River Valley.  The Red River Valley forms a band approximately 35 miles wide on either side of the North Dakota and Minnesota border and extending approximately 200 miles south from the border of the United States and Canada.  The Company was organized in 1973 by sugarbeet growers to acquire the business and assets of the American Crystal Sugar Company, then a publicly held New Jersey corporation in operation since 1899.  By owning and operating five sugarbeet processing facilities in the Red River Valley, the Company provides its shareholders (members) with the ability to process their sugarbeets into sugar and agri-products such as: molasses; sugarbeet pulp; and by-products of the molasses desugarization process, betaine and concentrated separated by-product (CSB).  The Company’s Board of Directors establishes sugarbeet acreage planting requirements in the Red River Valley (Red River Valley crop) each year based on factory processing capacity, expected crop quality, government regulations and other factors.  The total authorized acres to be planted are allocated ratably to each preferred share held by the members. The Company processed sugarbeets from approximately 414,000 acres for the 2010 Red River Valley crop and expects to process sugarbeets from approximately 442,000 acres for the 2011 Red River Valley crop.

The Company, through its wholly-owned subsidiary, Sidney Sugars Incorporated (Sidney Sugars), owns two additional sugarbeet processing facilities.  At the Sidney, Montana, facility, the Company processed non-member sugarbeets from approximately 31,000 acres for the 2010 crop and expects to process from approximately 29,000 acres for the 2011 crop.  The Torrington, Wyoming, facility has been leased on a long-term basis to another sugar producer.

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

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) pursuant to a 10 year lease between ProGold and Cargill that runs through December 31, 2017. The lease provides that Cargill pay ProGold average annual rental payments equal to $21.9 million

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

Operating Segments

The Company has identified two reportable operating 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.  For financial information by segment see Note 12 of “Notes to the Consolidated Financial Statements.”

Principal Products Produced

The Company is engaged primarily in the production and marketing of sugar from sugarbeets.  Total sugar sales accounted for 89.9 percent, 88.1 percent and 85.6 percent of the Company’s consolidated total revenues for the years ended August 31, 2011, 2010 and 2009, respectively.  United Sugars Corporation, the Company’s sugar marketing agent, sells sugar primarily to industrial users such as confectioners, breakfast cereal manufacturers and bakeries.  For the fiscal year ended August 31, 2011, 88.4 percent (by weight) of the sugar was sold to industrial users.  The remaining portion is marketed by United Sugars Corporation to wholesalers and retailers under the “Crystal Sugar” and various private labels for household consumption.  With regard to brand name sales, the Company licenses the use of the “Crystal Sugar” trademark to United Sugars Corporation.

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

The Company also sells agri-products such as: molasses; sugarbeet pulp; betaine and concentrated separated by-product (CSB), by-products of the molasses desugarization process; and sugarbeet seed.  Substantially all of the Company’s agri-products are marketed through Midwest Agri-Commodities Company, a common marketing agency.  Sugarbeet pulp is marketed to livestock feed mixers and livestock feeders in the United States and foreign markets.  A large proportion of the Company’s pulp production is exported to Japan and Europe.  The market for sugarbeet pulp is affected by the availability and quality of competitive feedstuffs and foreign exchange rates.  Sugarbeet molasses is marketed primarily to yeast manufacturers, livestock feed mixers and livestock feeders.  Total agri-product sales accounted for 7.6 percent of the Company’s consolidated total revenues during fiscal 2011, of which export agri-product sales accounted for 3.4 percent of total revenues.  Agri-products sales accounted for 8.7 percent and 10.4 percent of the Company’s consolidated total revenues in fiscal 2010 and fiscal 2009, respectively, while agri-product export sales accounted for 3.8 percent and 4.8 percent of the Company’s total revenues in fiscal 2010 and fiscal 2009, respectively.

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

The Company’s total annual sugar and agri-product production is influenced by the amount and the quality of sugarbeets grown by its members and non-members, the processing capacity of the Company’s plants, by its ability to store harvested sugarbeets and by government programs and regulations.

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Raw Materials

The Company purchases all of its Red River Valley sugarbeets from members under contract with the Company.  All members are party to a five year contract for the 2008 through 2012 crop years which will automatically renew for additional five-year terms unless terminated by one of the parties at the end of the current term.  In addition, each member has an annual contract with the Company specifying the number of acres the member is obligated to grow during that year.  Each member is required to have a five-year contract and an annual contract with the Company.  Each share of Preferred Stock held by a member requires that member to grow sugarbeets, subject to the planting tolerance, for delivery to the Company.  The Company’s Board of Directors has the discretion to adjust the acreage that is required to be planted for each share of Preferred Stock held by the members.  The Company’s Board of Directors set the planting tolerance for the 2011 crop year at .80 to .92 acres per share of Preferred Stock.  Based on current market conditions and processing capacity, the Company estimates planting tolerances for the 2012 crop year and beyond will be in the range of .80 to .85 acres per share of Preferred Stock. The Board of Directors and management regularly review and determine the relationship between the ownership of Preferred Stock and acreage planting.

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

Under the grower contracts, payments to members for sugarbeets delivered 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’s estimate of the member’s net beet payment for the then current fiscal year’s crop; (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 for the then current fiscal year’s crop; (iii) and not more than 15 days after completion and acceptance by the Board of Directors of the audit of the Company’s annual consolidated financial statements for the then completed fiscal year, the Company pays the remainder of the member’s net beet payment for the immediately prior completed fiscal year.  Except for unit retains, the Company must pay to 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 sugarbeets processed at the Sidney, Montana, factory are purchased from non-member growers under contract with Sidney Sugars. Each non-member grower has an annual contract with Sidney Sugars specifying the number of acres the non-member grower is obligated to grow during each year.

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

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

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Seasonality

The period during which the Company’s plants are in operation to process sugarbeets into sugar and agri-products is referred to as the “campaign.”  During the campaign, the Company’s factories operate twenty-four hours per day, seven days per week.  In the Red River Valley, the campaign typically begins in September and continues until the available supply of sugarbeets has been depleted, which generally occurs in May of the following year.  Based on current processing capacity, an average campaign lasts approximately 260 days, assuming normal crop yields.  At the Sidney, Montana factory, the campaign begins in late September or early October.  The 2011 Sidney campaign lasted 146 days.

While the timing of the Company’s processing activities are connected to the start of the harvest and the available supply of sugarbeets, the sales of sugar and agri-products occur ratably throughout the year.

Sales Backlog

The backlog of any unfilled sales orders at August 31, 2011 and 2010 was not material to the Company.

Market and Competition

Current United States government statistics estimate total United States refined sugar deliveries at approximately 212 million hundredweight for the year beginning October 1, 2010 and ending September 30, 2011.  For the same period ending September 2010, total deliveries were approximately 208 million hundredweight.  Comparing the two years shows an increase in demand of approximately two percent.

The United States refined sugar market has grown at about one percent per year over the last ten years.  Corn sweeteners and non-nutritive sweeteners also constitute a large portion of the overall sweetener market.  The Company believes that the United States annual market growth for sugar in the near future will approximate that of the last ten years.

The United States sugar industry has been subject to industry consolidation.  Approximately 71 percent of the United States sugar market share is concentrated in the top three sellers.  The Company’s sugar production and sales represent approximately 17 percent of the total domestic market for refined sugar in 2010/2011.  The Company had the right to market, or to have marketed on its behalf, approximately 35 million hundredweight of sugar from the 2010 crop.  Sugar sales by United Sugars Corporation, the Company’s marketing agent, represent approximately 27 percent of the United States sugar market.

United is currently the second largest marketer of sugar in the United States. Main competitors in the domestic market are: Domino Foods Incorporated; Imperial Sugar Company; Cargill, Incorporated; The Amalgamated Sugar Company LLC; Michigan Sugar Company; and The Western Sugar Cooperative.  Because sugar is a fungible commodity, competition in the United States sugar industry is primarily based upon price, customer service and reliability as a supplier.

Government Programs and Regulations

Food, Conservation and Energy Act of 2008

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

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·                  maintains a non-recourse loan program,

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

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

·                  restricts imports of foreign sugar and

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

Under the Farm Bill, sugar processors can borrow 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 the forfeiture price, the processors can forfeit the sugar securing the loans to the CCC in lieu of repayment.  Processors may also obtain CCC loans for “in-process” sugar or syrups at 80 percent of the loan rate.

The Farm Bill incorporates gradual loan rate increases for raw and refined sugar.  For raw sugar, the loan rate increases three-quarters of a cent per pound, raw value, phased-in in quarter-cent increments over crop years 2009-2011.  Raw cane loan rates were at 18.25 cents/lb. for the 2009 crop and gradually rose to 18.75 cents for the 2011 crop, and they will remain at 18.75 cents/lb. for the 2012 crop year.  Refined beet sugar loan rates were set at a rate equal to 128.5 percent of the loan rate per pound for raw cane sugar for each of the 2009 through 2012 crop years.

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

The marketing allotments and allocations set forth under the Farm Bill affect the sugar produced from the 2008 crop through the 2012 crop.  On an annual basis, the marketing allotments and the corresponding allocation to the Company will dictate the amount of sugar the Company can sell into the domestic market.  The Company’s marketing allocation for the 2010 crop was set at approximately 35 million hundredweight.  The Company’s marketing allocation for the 2011 crop is currently set at approximately 35 million hundredweight. The Company’s allocation may decrease or increase the amount of sugar the Company can market for a given year, thus affecting the number of acres of sugarbeets required for processing to produce that amount of sugar.

Currently Congress is considering language that will either extend or revise the current Farm Bill.  The Company has no way to predict the outcome, but the impact could be material and significant.  Final language is expected prior to the 2013 crop planting.

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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 and exports of sugar to Mexico expired on January 1, 2008.  Imports of Mexican sugar could cause material harm to the United States sugar market.  During the years ended September 30, 2011, 2010 and 2009, Mexico exported approximately 32 million, 15 million and 26 million hundredweight of sugar into the United States, respectively.  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 may continue to pursue international trade agreements.  The Company monitors the U.S. government’s international trade policy because it may lead to additional commitments to import sugar into the U.S. market.  Some of the countries who have either participated in trade agreements or are contemplated for new negotiations are major producers of sugar.  The primary agreements affecting sugar that are completed or are being negotiated, to the Company’s knowledge, include the Colombian Free Trade Agreement, Panama Free Trade Agreement, and the Trans-Pacific Partnership Agreement.  The Company believes these agreements, if they are passed into law, 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 reduce domestic sugar prices.

The U.S.-Colombian Free Trade Agreement and the U.S.-Panama Free Trade Agreement were signed into law on October 21, 2011, but have not entered into force.  The length of time necessary for the trade agreements to be brought into force is dependent on each trading partner coming into compliance with the obligations of the agreements. The U.S.-Colombian Free Trade Agreement would allow Colombia to export into the U.S. an additional 1.0 million cwt. of sugar above its traditional WTO level of 521,000 cwt.  The U.S.-Panama Free Trade Agreement would allow Panama to export into the U.S. an additional 144,000 cwt. of sugar above its traditional WTO level of 629,000 cwt.

The Doha Round negotiations of the WTO may 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 Trans-Pacific Partnership agreement is another multilateral trade negotiation that could affect operation of the sugar program and therefore the United States sugar market.  The Trans-Pacific Partnership agreement includes Chile, Singapore, Brunei, New Zealand, Australia, Peru, Malaysia, Vietnam and the United States.

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 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

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adverse effect on the Company through a reduction in sugar selling prices, and a corresponding reduction in the beet payment to its shareholders.

Employees

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. The collective bargaining agreement for the Red River Valley factory employees expired on July 31, 2011. The collective bargaining agreement for the Sidney, Montana, factory employees will expire on April 30, 2012. Office, clerical and management employees are not unionized, except for certain office employees at the Moorhead and Crookston, Minnesota, and Hillsboro, North Dakota, factories who are covered by the collective bargaining agreement with the BCTGM.

On July 31, 2011, the Red River Valley factory and clerical employees represented by the BCTGM rejected the Company’s new contract offer. On August 1, 2011, the Company locked out the union employees and secured contract replacement workers to ensure the continued operation of the Company’s factories in order to meet its obligations to its customers and shareholders. The Company cannot predict the time-frame for the resolution of this matter.

The Company generally employs approximately 1,360 full-time employees, of which approximately 1,090 are hourly and 270 are salaried.  In addition, the Company generally employs approximately 850 hourly seasonal workers, approximately 370 during the sugarbeet harvest and approximately 480 during the remainder of the sugarbeet processing campaign. During the sugarbeet harvest, the Company also contracts with third party agencies for approximately another 1,300 additional workers.

Environmental Matters

The Company is subject to extensive federal and state environmental laws and regulations with respect to water and air quality, solid waste disposal and odor and noise control.  The Company conducts an ongoing compliance program designed to comply with these environmental laws and regulations.  The Company believes that it is in substantial compliance with applicable environmental laws and regulations.  From time to time, however, the Company may be involved in investigations or determinations regarding matters that may arise in the ordinary course of business.  The Company works closely with all affected government agencies to resolve environmental issues that have arisen and believes such issues will be resolved without any material adverse effect on the Company.

The Company’s sugar manufacturing process is energy intensive and generates carbon dioxide and other “Greenhouse Gases” (GHGs).  Several bills have been passed or introduced in the United States Senate and House of Representatives that would regulate GHG emissions to reduce the impact of global climate change.  The Company believes that industries generating GHGs, including the Company, could be subject to either federal or state regulation relating to climate change policies in the relatively near future.  These policies, if adopted, will increase the Company’s energy and other operating costs.  Depending on how these policies address imports, the domestic sugar market may have a competitive disadvantage compared with imported sugar.  These policies could have a significant negative impact on the Company’s beet payment to shareholders if the Company is not able to pass the increased costs on to its customers.

On November 25, 2008, the Company entered into a stipulation agreement with the Minnesota Pollution Control Agency (MPCA) related to hydrogen sulfide emissions from its Crookston, East Grand Forks and Moorhead, Minnesota factories.  As part of the stipulation agreement, the Company has agreed to make certain capital expenditures over the subsequent three years and implement specified

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changes in operating procedures to contain hydrogen sulfide emissions at the Minnesota factories. The Company is on schedule with the agreed to changes.

On August 12, 2011, the Company received a Finding of Violation and Notice of Violation from the United States Environmental Protection Agency (EPA) for alleged violations of the Clean Air Act concerning certain air emissions at the Company’s three Minnesota factories. The Company has entered into discussions with the EPA concerning the alleged violations.  The Company, at this time, cannot predict the outcome of these discussions or the financial impact, if any, resulting from the resolution of this matter.

Including the expenditures related to the MPCA stipulation agreement, the Company has identified capital expenditures for environmental related projects over the next three years at the Company’s factory locations of approximately $4.5 million.

Available Information

The Company’s corporate headquarters are located at 101 North Third Street, Moorhead, Minnesota 56560, telephone number (218) 236-4400.  The Company’s fiscal year ends August 31.  The Company’s website is www.crystalsugar.com.  The Company files annual, quarterly and periodic reports with the United States 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 of charge upon request.  In addition, the Company’s reports may be read or copied at the SEC Public Reference Room at 100 F. Street, N.E., Washington, D.C. 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC maintains an Internet site at http://www.sec.gov that contains reports and other information filed electronically about the Company.

Item 1A. RISK FACTORS

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

Rising operating expenses might inhibit our ability to compete effectively in our industry.

Our Company operates in a commodity market environment.  Our strategy involves, to a substantial degree, maximizing profitability by continuing to control operating expenses. In furtherance of this strategy, we have engaged in ongoing, company-wide efficiency activities intended to increase productivity and reduce costs.  These activities have included realigning and streamlining our operations and optimizing the efficiency of our production facilities.  We cannot assure that our efforts will result in our continued profitability.

An oversupply of sugar could reduce the price of sugar and our profitability.

Many factors can lead to an oversupply of sugar.  Excess supply may result in a decline in domestic sugar prices.  Lower sugar prices directly impact profitability of selling refined sugar in the United States.  If the selling price of sugar decreases, our revenues will decrease which will result in a direct negative impact on our profitability.

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

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

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

The nature and scope of future legislation and regulation affecting the sugar market and industry cannot be predicted.  The current price supports and market protections in place for sugar may not continue in their present forms.  If the price support programs were eliminated in their entirety, or if certain protections the federal government provides from foreign competitors were materially reduced, the amount of sugar we can sell, the amount of sugarbeets we can process and the price for which we can sell our sugar may be impacted, which could reduce the profitability of our business.  If legislation or government programs change, we may not be able to adopt strategies that would allow us to compete effectively in a greatly changed domestic market for sugar and the adverse effects could negatively impact the desirability of growing sugarbeets for delivery to us for processing, our financial results, and our continued viability.

The availability of alternative sweeteners in the sweetener market may reduce the demand for sugar and our operating results may suffer.

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

Our operations are highly dependent on the availability of short-term financing.

Because sugar is sold throughout the year, while sugarbeets are processed primarily in the fall, winter and spring, and due to the timing of the payments to growers during the year, we are highly dependent on the availability of short-term financing to fund our operations.  Even though we currently have access to several sources of short-term financing, disruptions in the access to these sources or alternative sources could have a significant adverse impact on our operations.

Funding obligations under our pension plans may increase.

Substantially all employees who meet eligibility requirements of age, date of hire and length of service are covered by Company-sponsored defined benefit pension plans, which impose on us certain funding obligations. In determining our future payment obligations under the plans, we assume certain rates of return on the plan assets and growth rates of certain costs. Significant adverse changes in credit or capital markets could result in actual rates of return being materially lower than projected.  Our cost

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growth rates may also be materially higher than projected. These factors could significantly increase our payment obligations under the plans, require us to take a significant charge on our balance sheet and, as a result, adversely affect our business, results of operations and financial condition.

Our operations are sensitive to energy prices.

The prices we pay for energy related products, such as natural gas, coal, coke and diesel fuel, have been volatile and may continue to be volatile.  We use substantial amounts of these products in our manufacturing process.  We believe that the prices for these energy related products will continue to be volatile and higher than historical levels. Higher energy prices may also increase the costs of many goods and services we acquire.  These higher prices may materially increase our cost of production, thus reducing our profitability.

Quantity and quality of sugarbeets is sensitive to weather and other factors such as seed varieties.

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

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

A significant increase in the quantity or quality of sugarbeets harvested due to good weather conditions or improved seed varieties could result in an unpredictably large quantity of sugarbeets to be processed.  If we are required to process a larger than anticipated quantity of sugarbeets we may experience increased per unit of sugar processing cost which in turn would have an adverse financial consequence to us and our members.

In order to manage the quantity and quality of sugarbeets that are harvested or available for processing, our Grower Contract allows for us to establish the number of acres to be planted at the beginning of a crop year or harvested at the end of a crop year.

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

Based on results of recent yield trials and crop results, we expect that new sugarbeet varieties may continue to result in increases in the average sugarbeet crop yields over the next five years.  As a result, we anticipate that there may be a need to reduce the number of acres of sugarbeets that can be planted by each shareholder in order to match the sugarbeet crop volume to our processing and marketing capacity.  This reduction, if necessary, would be accomplished by reducing the per share planting tolerance by an amount that may be material.  Assuming there are no changes in other variables, the increased yield per acre expected to result from the continued use of the new sugarbeet varieties would allow shareholders to deliver substantially the same number of tons of sugarbeets to us

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from fewer acres.  Individual shareholder profitability will continue to depend on the circumstances unique to each shareholder.

On September 21, 2009, the U.S. District Court (District Court) ruled against the U.S. Department of Agriculture (USDA) finding that the USDA violated federal law by failing to prepare an Environmental Impact Statement (EIS) before deregulating Roundup Ready® sugarbeets.  On August 13, 2010, at a District Court hearing on interim remedies, the District Court issued a ruling confirming the ability of our shareholders to harvest the 2010 root crop even though it was produced primarily from Roundup Ready® sugarbeet seed but vacated the original decision by USDA to deregulate the use of Roundup Ready® sugarbeet seed.  As a result, the planting of Roundup Ready® sugarbeet seed after August 13, 2010 was prohibited until further action was taken by USDA.

On February 4, 2011, the USDA issued an Environmental Assessment that partially deregulated Roundup Ready® sugarbeet seed, an action that allowed for the planting of Roundup Ready® sugarbeet seed for the 2011 sugarbeet crop, subject to certain conditions.  On March 23, 2011 we entered into a compliance agreement with the USDA that sets forth the growing conditions that we and our shareholders must comply with in order to plant Roundup Ready® sugarbeet seed.  On March 30, 2011, our Board of Directors authorized the planting of Roundup Ready® sugarbeet seed for the 2011 growing season.  This authorization allowed our shareholders to choose between conventional sugarbeet seed and Roundup Ready® sugarbeet seed.

Our compliance agreement with the USDA includes a number of conditions that individual shareholders, and the Company as a whole, must strictly observe.  Each shareholder desiring to plant Roundup Ready® sugarbeets must sign an addendum to their annual contract, under which they agree to comply with all regulatory requirements associated with planting Roundup Ready® sugarbeets.  Failure to comply with the conditions may result in a shareholder not being permitted to harvest his or her crop.  In addition, a shareholder’s noncompliance could result in a breach of our compliance agreement, which conceivably could mean that no Roundup Ready® sugarbeets planted by any shareholder would be harvested.  If a significant number of our shareholders are not allowed to harvest their Roundup Ready® sugarbeets for any reason we could experience material adverse financial consequences that would impact both us and our shareholders.

In order to mitigate the risk of non-delivery by a shareholder who plants Roundup Ready® sugarbeet seed, both the Five Year Agreement that each shareholder already has in place with the us as well as the Roundup Ready® addendum that must be signed in order to plant Roundup Ready® varieties, include language that obligates the shareholder to pay liquidated damages equal to our fixed costs if the shareholder’s Roundup Ready® sugarbeets are not harvested for legal or regulatory reasons.  This liquidated damage requirement is in place to mitigate the financial risk to us in the event of a decision that prevents the harvest of Roundup Ready® sugarbeets by one or more shareholders.

The same plaintiffs who have repeatedly raised legal challenges to the planting of Roundup Ready® sugarbeets have made public statements that they plan to continue to oppose the use of the technology.  Litigation is currently pending in two consolidated cases in the Federal District Court in Washington, D.C. concerning the scope and validity of the Environmental Assessment.  No decision is expected in those cases before the spring of 2012.  Although we believe the risk is low, the possibility exists that a subsequent ruling by the District Court could result in the inability of our shareholders to plant Roundup Ready® sugarbeet seed in subsequent years.

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On October 11, 2011, the USDA issued a draft Environmental Impact Statement (EIS) fully analyzing the impact of Roundup Ready® sugarbeets.  The draft EIS considers the impact of one of three alternative regulatory approaches — the regulation, deregulation, or partial deregulation of Roundup Ready® sugarbeets.  USDA indicated that its preferred alternative is to fully deregulate Roundup Ready® sugarbeets.  After receiving and analyzing public comments on the draft EIS, USDA will issue a final EIS, likely sometime in 2012.  The final EIS could then be subject to further legal challenge.  In the meantime, we anticipate that the 2012 sugarbeet crop will again be planted under the compliance agreements that were signed in 2011.  At this time there is no regulatory basis to allow planting of Roundup Ready® sugarbeet seed in 2013 and beyond.  If Roundup Ready® sugarbeets are not deregulated as contemplated in the draft EIS, our shareholders may be required to plant conventional sugarbeet seed.

If we are unable to manage the quantity and quality of sugarbeets available for processing, we could experience adverse financial consequences that would impact both us and our shareholders.

Increased profitability of alternative crops could adversely affect the desirability of growing sugarbeets.

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

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

We are subject to extensive federal and state environmental laws and regulations with respect to water and air quality and solid waste disposal.  We conduct on-going programs designed to meet these environmental laws and regulations.  Changes in environmental laws or regulations or complying with existing environmental laws and regulations or enforcement action brought under such environmental laws and regulations might increase the cost of operating our facilities or result in significant capital investment.  Any such changes or compliance costs could reduce our profitability.

Our sugar manufacturing process is energy intensive and generates carbon dioxide and other “Greenhouse Gases” (GHGs).  Several bills have been introduced in the United States Senate and House of Representatives that would regulate GHG emissions to reduce the impact of global climate change.  We believe that industries generating GHGs, including us, could be subject to either federal or state regulation under climate change policies in the relatively near future.  These policies, if adopted, will increase our energy and other operating costs.  Depending on how these policies address imports, the domestic sugar market may have a competitive disadvantage with imported sugar.  These policies could have a significant negative impact on the beet payment to our shareholders if we are not able to pass the increased costs on to our customers.

Employee strikes and other labor-related disruptions may adversely affect our operations.

Substantially all of the hourly employees at our factories, including full-time and seasonal employees, are represented by the Bakery, Confectionery, Tobacco Workers and Grain Millers (BCTGM) AFL-CIO. The collective bargaining agreement for the Red River Valley factory employees expired on July 31, 2011. The collective bargaining agreement for the Sidney, Montana, factory employees will expire on April 30, 2012.  Office, clerical and management employees are not unionized,

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except for certain office employees at the Moorhead and Crookston, Minnesota, and Hillsboro, North Dakota, factories who are covered by the collective bargaining agreement with the BCTGM.

On July 31, 2011, the Red River Valley factory and clerical employees represented by the BCTGM rejected our new contract offer. On August 1, 2011, we locked out the union employees and secured contract replacement workers to ensure the continued operation of our factories in order to meet our obligations to our customers and shareholders. If we are unable to reach agreement, the lockout may continue indefinitely.  The continued lockout or an unfavorable collective bargaining agreement may negatively impact our current and future financial performance and payments to our shareholders.

Healthcare Legislation may impact our operations.

In March 2010, the Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act which amends certain provisions of the PPACA were signed into law.  We believe healthcare costs could increase significantly as a result of the legislative provisions effective in future years, negatively affecting our profitability.

Item 1B.                               UNRESOLVED STAFF COMMENTS

None.

Item 2.                                        PROPERTIES

The Company operates five sugarbeet processing factories in the Red River Valley and one in Sidney, Montana.  The Company owns all of its factories and the land on which they are located.  The factories range in size from 150,000 to 400,000 square feet.  These properties are used in the Company’s sugar segment. The location and processing capacity of the Company’s factories are:

Each of the processing factories includes the physical facilities and equipment necessary to process sugarbeets into sugar.  Each factory has space for sugarbeet storage, including ventilated storage sites.  The Red River Valley factories also have cold storage facilities.  Each of the Red River Valley factories is currently operating at or near its capacity.  The Sidney, Montana factory is currently operating at less than full capacity.  The Company owns molasses desugarization (MDS) plants at its East Grand Forks and Hillsboro facilities.  The MDS plants process molasses to 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 in Torrington, Wyoming.  The Torrington, Wyoming, facility is leased on a long-term basis to another sugar company.

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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 of processing corn to produce high fructose corn syrup and various agri-products.  This property is used in the Company’s leasing segment. The 10 year lease between ProGold and Cargill runs through December 31, 2017 and provides that Cargill pay ProGold average annual rental payments equal to $21.9 million.

The Company’s corporate office is located in a 30,000 square foot, two-story office building in Moorhead, Minnesota.  The Company also has a 100,000 square foot Technical Services Center situated on approximately 200 acres in Moorhead, Minnesota.  The Company owns both facilities. The Company also owns numerous sites as sugarbeet receiving and storage stations located within proximity of their factories.  Substantially all non-current assets are mortgaged or pledged as collateral for its indebtedness to various financial institutions.

Item 3.                                        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.

On September 21, 2009, the U.S. District Court (District Court) ruled against the U.S. Department of Agriculture (USDA) finding that the USDA violated federal law by failing to prepare an Environmental Impact Statement (EIS) before deregulating Roundup Ready® sugarbeets.  On August 13, 2010, at a District Court hearing on interim remedies, the District Court issued a ruling confirming the ability of the shareholders to harvest the 2010 root crop even though it was produced primarily from Roundup Ready® sugarbeet seed but vacated the original decision by USDA to deregulate the use of Roundup Ready® sugarbeet seed.  As a result, the planting of Roundup Ready® sugarbeet seed after August 13, 2010 was prohibited until further action was taken by USDA.

On February 4, 2011, the USDA issued an Environmental Assessment that partially deregulated Roundup Ready® sugarbeet seed, an action that allowed for the planting of Roundup Ready® sugarbeet seed for the 2011 sugarbeet crop, subject to certain conditions.  On March 23, 2011 the Company entered into a compliance agreement with the USDA that sets forth the growing conditions the Company and its shareholders must comply with in order to plant Roundup Ready® sugarbeet seed.  On March 30, 2011, the Company’s Board of Directors authorized the planting of Roundup Ready® sugarbeet seed for the 2011 growing season.  This authorization allowed the Company shareholders to choose between conventional sugarbeet seed and Roundup Ready® sugarbeet seed.

The compliance agreement between the Company and USDA includes a number of conditions that individual shareholders, and the Company as a whole, must strictly observe.  Each shareholder desiring to plant Roundup Ready® sugarbeets must sign an addendum to their annual contract, under which they agree to comply with all regulatory requirements associated with planting Roundup Ready® sugarbeets.  Failure to comply with the conditions may result in a shareholder not being permitted to

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harvest his or her crop.  In addition, a shareholder’s noncompliance could result in a breach of the compliance agreement by the Company, which conceivably could mean that no Roundup Ready® sugarbeets planted by any shareholder would be harvested.  If a significant number of shareholders are not allowed to harvest their Roundup Ready® sugarbeets for any reason the Company could experience material adverse financial consequences that would impact both the Company and its shareholders.

In order to mitigate the risk of non-delivery by a shareholder who plants Roundup Ready® sugarbeet seed, both the Five Year Agreement that each shareholder already has in place with the Company as well as the Roundup Ready® addendum that must be signed in order to plant Roundup Ready® varieties, include language that obligates the shareholder to pay liquidated damages equal to the Company’s fixed costs if the shareholder’s Roundup Ready® sugarbeets are not harvested for legal or regulatory reasons.  This liquidated damage requirement is in place to mitigate the financial risk to the Company in the event of decision that prevents the harvest of Roundup Ready® sugarbeets by one or more shareholders.

The same plaintiffs who have repeatedly raised legal challenges to the planting of Roundup Ready® sugarbeets have made public statements that they plan to continue to oppose the use of the technology.  Litigation is currently pending in two consolidated cases in the Federal District Court in Washington, D.C. concerning the scope and validity of the Environmental Assessment.  No decision is expected in those cases before the spring of 2012.  Although the Company believes the risk is low, the possibility exists that a subsequent ruling by the District Court could result in the inability of shareholders to plant Roundup Ready® sugarbeet seed in subsequent years.

On October 11, 2011, the USDA issued a draft Environmental Impact Statement (EIS) fully analyzing the impact of Roundup Ready® sugarbeets.  The draft EIS considers the impact of one of three alternative regulatory approaches — the regulation, deregulation, or partial deregulation of Roundup Ready® sugarbeets.  USDA indicated that its preferred alternative is to fully deregulate Roundup Ready® sugarbeets.  After receiving and analyzing public comments on the draft EIS, USDA will issue a final EIS, likely sometime in 2012.  The final EIS could then be subject to further legal challenge.  In the meantime, the Company anticipates that the 2012 sugarbeet crop will again be planted under the compliance agreements that were signed in 2011.  At this time there is no regulatory basis to allow planting of Roundup Ready® sugarbeet seed in 2013 and beyond.  If Roundup Ready® sugarbeets are not deregulated as contemplated in the draft EIS, shareholders may be required to plant conventional sugarbeet seed.

Approximately 86% of the acres planted by shareholders for the 2011 crop utilized Roundup Ready® sugarbeet seed.  In order to mitigate the risk of non-delivery by a shareholder who plants Roundup Ready® sugarbeet seed, both the five year agreement that each shareholder already has in place with the Company as well as a Roundup Ready® addendum that must be signed in order to plant Roundup Ready® varieties, include language that obligates the shareholder to pay liquidated damages equal to the Company’s fixed costs if their Roundup Ready® beets are not harvested for legal or regulatory reasons.  This liquidated damage requirement is in place to ensure that a possible legal decision that prevents the harvest of Roundup Ready® beets will not financially damage the Company and those shareholders that grow conventional sugarbeets.

The BCTGM filed unfair labor practice charges against the Company with the National Labor Relations Board (NLRB) associated with the negotiations for a new collective bargaining agreement and the lockout of union employees upon the expiration of the previous collective bargaining agreement.  The NRLB subsequently dismissed all the charges against the Company.  However, the BCTGM has appealed the decisions by the NLRB.  The Company intends to continue to vigorously defend its position but cannot predict the ultimate outcome of these matters.

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Item 4.    (REMOVED AND RESERVED)

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PART II

As of August 31, 2011, the Company had 2,780 shares of the Common Stock and 498,570 shares of the Preferred Stock issued and outstanding.  There is no established public market for the Company’s Common Stock or Preferred Stock, as such shares may be held only by farmer-producers who are eligible for membership in the Company.  The Company’s shares are not listed for trading on any exchange or quotation system.  Although transfers of the Company’s shares may occur only with the consent of the Board of the Directors, the Company does not obtain information regarding the transfer price in connection with such transfers.  As a result, the Company is not able to provide information regarding the prices at which the Company’s shares have been transferred.

Because the number of acres of sugarbeets a member may grow for delivery to the Company is directly related to the number of shares of Preferred Stock owned, a limited, private market for Preferred Stock exists.  It is not anticipated that a general public market for the Company’s shares of Common Stock or Preferred Stock will develop due to the limitations on transfer and the various membership requirements which must be satisfied in order to acquire such shares.

A member desiring to sell his or her Common Stock or Preferred Stock must first offer them to the Company for purchase at par value.  If the Company declines to purchase such shares, either class may be sold to a new member (i.e., another farm operator not already a member) and Preferred Stock may be sold to one or more existing members or farm operators approved for membership, in each case subject to approval by the Board of Directors.  To date, the Company’s Board of Directors has not exercised the Company’s right of first refusal to purchase preferred shares offered for sale by its members.  Because the Company does not require parties seeking approval for transfers to provide information regarding the transfer price, the Company does not possess verifiable information regarding the transfer price involved in recent transfers of the Company’s Preferred Stock.

The selected financial data of the Company should be read in conjunction with the consolidated financial statements and related notes included in Appendix A of this report.

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

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

(3) Information for a fiscal year relates to the crop planted and harvested in the preceding calendar year (i.e., information for the fiscal year ended August 31, 2011 relates to the crop of 2010).  Crop data reflect the combined data of the Red River Valley crop and the Sidney crop.

The following discussion of the financial conditions and results of operations of the Company should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in Appendix A of this report.

Liquidity and Capital Resources

Under the Company’s agreement with its shareholders, payments for member-delivered sugarbeets for each crop year are calculated based on the revenues from sugar and agri-products derived from the sugarbeet crop less 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 capital.

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 Company has a seasonal line of credit through July 19, 2015, with a consortium of lenders led by CoBank, ACB of $350.0 million, against which there was no outstanding balance as of August

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31, 2011 and a line of credit with Wells Fargo Bank for $1.0 million, against which there was no outstanding balance as of August 31, 2011.  The Company’s commercial paper program provides short-term borrowings up to $350 million of which approximately $66.2 million was outstanding as of August 31, 2011.  The Company had $3.3 million in short-term letters of credit outstanding as of August 31, 2011.  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 August 31, 2011, was $281.5 million.

The Company can borrow funds on a non-recourse basis from the Commodity Credit Corporation (CCC), with repayment of such funds secured by sugar.  The Company did not utilize the CCC during fiscal 2011.  The limitations on such borrowings are based on the amount of the Company’s sugar inventory and certain loan covenant restrictions by CoBank, ACB.  As of August 31, 2011, the Company had the capacity to obtain non-recourse loans from the CCC of approximately $112.9 million.

On December 16, 2010, the Company closed a bond issuance for $15.0 million.  The City of Moorhead, Minnesota (Issuer) issued the Recovery Zone Facility Revenue Bonds (American Crystal Sugar Company Project) Series 2010 in the principal amount of $15.0 million (Bonds).  Proceeds of the Bonds were used by the Company to construct a tower diffuser and associated enclosure at the Company’s sugar beet processing facility in Moorhead, Minnesota. The principal amount of the Bonds of $3.0 million is due on June 1, 2024 and the remaining principal amount of the bonds is due in equal payments of $4.0 million each on June 1 of the subsequent three years.  The Bonds carry fixed interest rates of 5.35% and 5.65%.  Interest on the Bonds is payable semiannually on each June 1 and December 1, commencing June 1, 2011.

The Company also has a long-term debt line of credit through July 30, 2015, with CoBank, ACB of $110.8 million. As of August 31, 2011, there was no outstanding balance but the Company had $70.7 million in long-term letters of credit outstanding.  The unused long-term line of credit as of August 31, 2011, was $40.1 million.  In addition, the Company had long-term debt outstanding, as of August 31, 2011, of $50 million from a private placement of Senior Notes that occurred in September of 1998 and $84.4 million from five separate issuances of Pollution Control and Industrial Development Revenue Bonds, which includes the $15.0 million issuance mentioned above.

The Company had outstanding purchase commitments totaling $6.5 million as of August 31, 2011, for equipment and construction contracts related to various capital projects.

As of August 31, 2011, Midwest had outstanding short-term debt with CoBank, ACB of $4.8 million, of which $2.1 million was guaranteed by the Company.

The net cash provided by operations was $55.8 million for the year ended August 31, 2011, as compared to $159.4 million for the year ended August 31, 2010.  This increase in cash used of $103.6 million was primarily the result of the following:

·                  Reflected in the change in the net cash provided by operating activities is a net cash increase of $19.7 million from the prior year which was the result of increased revenue of $338.9 million and increased unit retains withheld of $14.0 partially offset by an increase in costs of $57.8 million and an increase in the member gross beet payment of $275.4 million.

·                  There was a net change in assets and liabilities from the prior year of $123.3 million primarily comprised of the following:

·                  The decrease in cash related to receivables of $34.0 million is primarily due to an increase in the selling price of sugar this year and the timing of the deliveries of products and collections.

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·                  The decrease in cash related to the change in inventories of $17.1 million was primarily due to an increase in the hundredweight of sugar inventory and an increased net realizable value per hundredweight of sugar partially offset by a decrease in the tons of pulp inventory.

·                  The decreases in cash related to changes in other liabilities of $11.3 million, and non-current pension asset/liabilities of $7.0 million partially offset by an increase in cash of $1.4 million related to accounts payable all primarily due to the timing of payments.

·                  The decrease in cash related to changes in advances to related parties of $29.1 million was primarily due to additional cash requirements of our marketing agents.

·                  The decrease in cash related to the Amount Due Growers of $26.2 million was due to an increase in the current year’s total grower payment based on an increase in tons harvested and a higher per ton member grower payment this year as compared to last year.

The net cash used in investing activities was $68.8 million for the years ended August 31, 2011, as compared to $69.6 million for the year ended August 31, 2010.  This decrease of $.8 million was primarily due to the decreased purchases of property and equipment of $2.4 million partially offset by an increase in the change in other assets of $1.7 million.

The net cash provided by financing activities was $13.0 million for the year ended August 31, 2011, as compared to cash used in financing activities of $89.8 million for the year ended August 31, 2010.  This increase of $102.8 million was primarily due to increased net proceeds from short- term debt of $102.2 million and increased proceeds from a bond issuance of $15.0 million partially offset by increased payments on long-term debt of $ .9 million, increased distributions to noncontrolling interests of $1.1 million and an increase in unit retains paid of $12.4 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.

The following table provides information regarding the Company’s contractual obligations as of August 31, 2011:

(1) Accrued Employee benefits of $2.4 million with corresponding offsetting assets and requiring no future payments have been excluded from the amounts presented.  Other Long-Term Liabilities of $3.1 million, which relate to deferred revenue also requiring no future payments, have also been excluded from the table.

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

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Critical Accounting Policies and Estimates

Preparation of the Company’s consolidated financial statements requires estimates and judgments to be made that affect the amounts of assets, liabilities, revenues and expenses reported.  Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates.  Management continually evaluates these estimates based on historical experience and other assumptions we believe to be reasonable under the circumstances.

The difficulty in applying these policies arises from the assumptions, estimates and judgments that have to be made currently about matters that are inherently uncertain, such as future economic conditions, operating results and valuations as well as management intentions.  As the difficulty increases, the level of precision decreases, meaning that actual results can and probably will be different from those currently estimated.

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

Inventory Valuation

Sugar, pulp, molasses and other agri-product inventories are valued at estimated net realizable value. The Company derives its estimates from sales contracts, recent sales and evaluations of market conditions and trends. Sugarbeets are valued at the projected gross per-ton beet payment related to that year’s crop.  Changes in market conditions and the Company’s operations may cause management’s estimates to differ from actual results.

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

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

The Company reviews its property and equipment, and property and equipment held for lease for impairment whenever events indicate that the carrying amount of the asset may not be recoverable.  An impairment loss is recorded when the sum of the future cash flows is less than the carrying amount of the asset.  An impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value. Considerable management judgment is necessary to estimate future cash flows and may differ from actual results.

Intangible Assets and Amortization

Intangible assets are amortized for financial reporting purposes principally using straight-line methods based on the expected useful lives of the assets.  Economic circumstances or other factors may cause management’s estimates of expected useful lives to differ from actual.

Pension Plan and Other Post-Retirement Benefits

Accumulated plan benefits are those future periodic payments, including lump-sum distributions, which are attributable under the Company’s Pension Plan and Post-Retirement Plan to the service employees have rendered. Accumulated plan benefits include benefits expected to be paid to retired or

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vested terminated employees or their beneficiaries; beneficiaries of employees who have died; and present employees or their beneficiaries.

The actuarial present value of accumulated plan benefits is determined by an actuary and is the amount that results from applying actuarial assumptions to adjust the accumulated plan benefits to reflect the time value of money and the probability of payment.

The significant actuarial assumptions used in the determination of the actuarial present value of accumulated pension plan benefits for fiscal 2011 were as follows: Valuation Funding Method - Entry age normal, frozen initial liability; Life Expectancy—PPA separate static annuitant and non-annuitant mortality tables; Retirement Age — graded rates from 1 percent retiring at age 55 to 100 percent retired by age 70 ;  Investment Return - 7.50 percent compounded annually for funding;  Discount Rate-5.12 percent compounded annually;  Salary Scale - 3.5 percent compounded annually (Plan A only).

The significant actuarial assumptions used in the determination of the actuarial present value of accumulated post-retirement benefits for fiscal 2011 were as follows: Healthcare Cost Trend - an 8.25 percent annual rate of increase in the per capita cost of covered healthcare benefits for participants under age 65 was assumed for 2011.  The rate is assumed to decline to 5.5 percent over the next five years.  For participants age 65 and older, a 9.25 percent annual rate of increase in the per capita cost of covered healthcare benefits was assumed for 2011.  The rate is assumed to decline to 6.5 percent over the next five years; Discount Rate- 5.12 percent compounded annually.

Actual events may differ from the assumptions used and may result in plan benefit payments differing significantly from these current estimates.

Self-Insurance

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

Results of Operations

The Company’s operational results and the resulting beet payment to its members are substantially dependent on market factors, including domestic prices for refined sugar.  These factors are continuously influenced by a wide variety of market forces, including domestic sugarbeet and cane production, weather conditions and United States’ farm and trade policy, which the Company is unable to predict.

In addition, highly variable weather conditions during the growing, harvesting and processing seasons, as well as diseases and insects, may materially affect the quality and quantity of sugarbeets available for purchase as well as the unit costs of raw materials and processing.

Comparison of the Years Ended August 31, 2011 and 2010

The harvest of the Red River Valley and Sidney sugarbeet crops grown during 2010 and processed during fiscal 2011 produced a total of 11.7 million tons of sugarbeets, or approximately 26.4 tons of sugarbeets per acre from approximately 445,000 acres.  This represents an increase in total tons harvested of approximately 11.9 percent compared to the 2009 crop.  The sugar content of the 2010 crop was 18.0 percent as compared to the 16.7 percent sugar content of the 2009 crop.  The Company produced a total of approximately 35.6 million hundredweight of sugar from the 2010 crop, an increase of approximately 22.8 percent compared to the 2009 crop.

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Revenue for the year ended August 31, 2011 was $1.5 billion, an increase of $338.9 million from the year ended August 31, 2010.  The table below reflects the percentage changes in product revenues, prices and volumes for the year ended August 31, 2011, as compared to the year ended August 31, 2010.

The increases in selling prices for sugar and betaine reflect strong markets due to supply and demand factors. The decrease in the selling price of pulp, molasses and CSB is the result of lower prices for competing alternative products in the marketplace. The increase in the volumes of all our products reflects the impact of more product availability due to larger sugarbeet crops and the increased sugar content of the sugarbeets this year as compared to the previous year.

Cost of sales for the year ended August 31, 2011, exclusive of payments to members for sugarbeets, increased $10.8 million as compared to the year ended August 31, 2010. This increase was primarily related to the following:

·                  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 year ended August 31, 2011, was $64.6 million as compared to a decrease of $25.8 million for the previous year ended August 31, 2010, resulting in a $90.4 million favorable change in the cost of sales between the two years as shown in the table below:

Change in the Net Realizable Value of Product Inventories

(1) The change is primarily due to a 22.6 percent decrease in the hundredweight of sugar inventory as of August 31, 2010, as compared to August 31, 2009, partially offset by an 11.3 percent increase in the per hundredweight net realizable value of sugar inventory as of August 31, 2010, as compared to August 31, 2009; a 35.4 percent decrease in the tons of pulp inventory as of August 31, 2010, as compared to August 31, 2009; and a 47.3 percent decrease in the per ton net realizable value of pulp inventory as of August 31, 2010, as compared to August 31, 2009.

(2) The change is primarily due to a 42.7 percent increase in the hundredweight of sugar inventory as of August 31, 2011, as compared to August 31, 2010;  a 14.8 percent increase in the per hundredweight net realizable value of sugar inventory as of August 31, 2011, as compared to August 31, 2010, partially offset by a 56.0 percent decrease in the tons of pulp inventory as of August 31, 2011, as compared to August 31, 2010;  and a 4.7 percent decrease in the per ton net realizable value of pulp inventory as of August 31, 2011, as compared to August 31, 2010.

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·                  Factory operating costs increased $42.1 million for the year ended August 31, 2011, as compared to the year ended August 31, 2010 primarily due to the increase in the tons harvested and processed this year.

·                  The cost recognized associated with the non-member sugarbeets increased $18.5 million for the year ended August 31, 2011, when compared to last year.  This increase was primarily due to an increase in the per ton sugarbeet payment for the Sidney crop and an increase in the tons of sugarbeet harvested this year.

·                  In the event that the Company’s growers would not be able to plant Roundup Ready® sugarbeets or the growers would choose to plant conventional sugarbeet seed for the 2011 crop, the Company secured chemicals for the growers related to growing conventional sugarbeets.  The Company has recognized an expense of approximately $9.9 million related to these chemicals.

·                  During fiscal 2011, the Company’s sugar marketing agent, United Sugars Corporation, purchased and sold additional sugar to meet our customers’ needs. The requirements for purchased sugar were much less in fiscal 2010.  As a result, the costs associated with purchased sugar were $28.9 million higher for the year ended August 31, 2011, as compared to the year ended August 31, 2010.

Selling, general and administrative expenses increased $50.7 million for the year ended August 31, 2011, as compared to the year ended August 31, 2010.  Selling expenses increased $47.5 million primarily due to an increase in shipping and handling costs associated with increased volumes of sugar and agri-products sold.  General and administrative expenses increased $3.2 million due to increased labor and benefit costs along with general cost increases.

Interest expense increased $ .7 million for the year ended August 31, 2011, as compared to the year ended August 31, 2010.  This reflects an increase in the average borrowing level for short-term debt and an increase in the average interest rate for long-term debt partially offset by a decrease in the average interest rate for short-term debt and a decrease in the average borrowing level for long-term debt.

Net proceeds attributable to American Crystal Sugar Company increased $278.7 million for the year ended August 31, 2011, as compared to the year ended August 31, 2010. This increase was primarily due to more tons of sugarbeets processed, higher sugar content of the sugarbeets and increased sugar selling prices.

Comparison of the Years Ended August 31, 2010 and 2009

The harvest of the Red River Valley and Sidney sugarbeet crops grown during 2009 and processed during fiscal 2010 produced a total of 10.5 million tons of sugarbeets, or approximately 22.5 tons of sugarbeets per acre from approximately 467,000 acres.  This represents a decrease in total tons harvested of approximately 1.9 percent compared to the 2008 crop.  The sugar content of the 2009 crop was 16.7 percent as compared to the 17.6 percent sugar content of the 2008 crop.  The Company produced a total of approximately 29.0 million hundredweight of sugar from the 2009 crop, a decrease of approximately 5.3 percent compared to the 2008 crop.

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

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The increases in selling prices for sugar, molasses and betaine reflect strong markets due to supply and demand factors. The decrease in the selling price of pulp is the result of lower prices for competing alternative products in the marketplace. The decreases in the volumes of sugar and molasses sold are primarily due to lower beginning inventories this year as compared to the previous year along with reduced sugar production this year. The increase in the volume of pulp sold reflects the impact of more product availability due to higher beginning inventories of pulp this year as compared to the previous year. The decreases in the volumes of CSB and betaine sold are primarily due to lower production this year.

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

·                  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 decrease in the net realizable value of product inventories for the year ended August 31, 2010 was $25.8 million as compared to a decrease of $13.0 million for the previous year ended August 31, 2009 resulting in a $12.8 million unfavorable change in the cost of sales between the two years as shown in the table below:

Change in the Net Realizable Value of Product Inventories

(1) The change is primarily due to a 26 percent decrease in the hundredweight of sugar inventory as of August 31, 2009 as compared to August 31, 2008 partially offset by a 14 percent increase in the 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 of pulp inventory as of August 31, 2009 as compared to August 31, 2008; and a 68 percent increase in the per ton net realizable value of pulp inventory as of August 31, 2009 as compared to August 31, 2008.

(2) The change is primarily due to a 22.6 percent decrease in the hundredweight of sugar inventory as of August 31, 2010 as compared to August 31, 2009 partially offset by an 11.3 percent increase in the per hundredweight net realizable value of sugar inventory as of August 31, 2010 as compared to August 31, 2009; a 35.4 percent decrease in the tons of pulp inventory as of August 31, 2010 as compared to August 31, 2009; and a 47.3 percent decrease in the per ton net realizable value of pulp inventory as of August 31, 2010 as compared to August 31, 2009.

·                  Factory operating costs decreased $3.5 million for the year ended August 31, 2010, as compared to the year ended August 31, 2009 primarily due to lower costs associated with

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natural gas, property taxes and sugarbeet transportation. These costs were partially offset by higher labor and employee benefit costs.

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

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

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

Interest expense decreased $1.0 million for the year ended August 31, 2010, as compared to the year ended August 31, 2009.  This reflects a decrease in the average borrowing level and average interest rates for short-term debt and a decrease in the average borrowing level for long-term debt partially offset by an increased average interest rate for long-term debt.

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

Net proceeds attributable to American Crystal Sugar Company decreased $10.0 million for the year ended August 31, 2010, as compared to the year ended August 31, 2009. This decrease was primarily due to fewer tons harvested and a lower sugar content of the sugarbeets partially offset by increased sugar selling prices.

2011 Crop and Estimated Fiscal Year 2012 Information

This discussion contains the Company’s current estimate of the results to be obtained from the Company’s processing of the 2011 sugarbeet crop.  This discussion includes forward-looking statements regarding the quantity of sugar to be produced from the 2011 sugarbeet crop.  These forward-looking statements are based largely upon the Company’s expectations and estimates of future events; as a result, they are subject to a variety of risks and uncertainties.  The actual results experienced by the Company could differ materially from the forward-looking statements contained herein.

The harvest of the Red River Valley and the Sidney sugarbeet crops grown during 2011 is estimated to produce a total of 10.1 million tons of sugarbeets, or approximately 21.5 tons of sugarbeets per acre from approximately 471,000 acres.  This represents a decrease in total tons harvested of approximately 13.9 percent compared to the 2010 crop.  The sugar content of the 2011 crop is estimated to be 18.0 percent the same as the 2010 crop.  The Company expects to produce a total of approximately 28.2 million hundredweight of sugar from the 2011 crop, a decrease of approximately 20.9 percent compared to the 2010 crop.

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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 it is subject to 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.

The consolidated financial statements of the Company for the fiscal years ended August 31, 2011, 2010 and 2009 have been audited by Eide Bailly LLP, an independent registered public accounting firm.  Such consolidated financial statements have been included herein in reliance upon the report of Eide Bailly LLP.  The consolidated financial statements of the Company are included in Appendix A to this annual report.

None

Evaluation of Disclosure 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 August 31, 2011.  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 Security 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.

Management’s Report on Internal Control over Financial Reporting

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

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitations, internal control

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over financial reporting may not prevent or detect misstatements.  Also, because of changes in conditions, the effectiveness of internal control may vary over time.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of August 31, 2011, using criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework and concluded that the Company maintained effective internal control over financial reporting as of August 31, 2011 based on these criteria.

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

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control 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.

Item 9B.      OTHER INFORMATION

None.

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PART III

Item 10.                                 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Board of Directors

The Board of Directors of the Company consists of three directors from each of the five Red River Valley factory districts.  Directors must hold common stock of the Company or must be representatives of such shareholders belonging to the district they represent and are elected by the members of that district.  In the case of a holder of common stock who is other than a natural person, a duly appointed or elected representative of such shareholder may serve as a director.  Any holder of common stock can stand for election or be nominated from the floor at the factory district meeting where elections are held.  The directors were elected to serve three-year terms expiring in December of the years indicated in the table below.  Each person’s experience, qualifications, attributes or skills to serve as a director are determined by the members voting in the district meetings at which the election occurs and not reviewed or otherwise considered by the Company before any election.  One director is elected each year from each Red River Valley factory district.  A director cannot serve more than four consecutive three-year terms.  Our board officers consist of a Chairman and a Vice-Chairman.  These board offices are populated by members of the Board of Directors who are elected by and at the discretion of the Board of Directors.  Each of these individual’s experience, qualifications, attributes or skills to serve in their capacity as a board officer is determined by the members of the Board of Directors who are voting to place these individuals in these offices.

The table below lists certain information concerning current directors of the Company.

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Below is the biographical information on each Director.

Neil C. Widner.  Mr. Widner has been a director since 2000 and has served as Chairman since 2009.  Mr. Widner has farmed near Stephen, Minnesota, since 1973.  Mr. Widner serves on the Board of Directors of United Sugars Corporation, the Board of Directors of Midwest Agri-Commodities Company and as a director for the American Sugarbeet Growers Association.

Curtis E. Haugen.  Mr. Haugen has been a director since 2001 and has served as Vice-Chairman since 2009.  Mr. Haugen has been a farmer since 1981 and farms near Argyle, Minnesota.  Mr. Haugen serves on the Board of Directors of United Sugars Corporation, the Board of Governors of ProGold Limited Liability Company, as a director for the American Sugarbeet Growers Association and as a director and President of the Farmer’s Union Oil Company, Oslo, Minnesota.

Donald S. Andringa. Mr. Andringa has been a director since 2008. Mr. Andringa has been a sugarbeet farmer for 37 years with his farming operations near Crookston, Minnesota.  Mr. Andringa currently serves on the Board of Governors of ProGold Limited Liability Company and the Advisory Board for the University of Minnesota-Crookston Northwest Research and Outreach Center. Mr. Andringa

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previously served on Board of Directors of the Crookston Factory District Grower Association, the Red River Valley Sugarbeet Growers Association’s Executive Committee, the Board of Directors of the Red River Valley Farmers Insurance Pool and the American Sugarbeet Growers Association Board of Directors.

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

John Brainard.  Mr. Brainard has been a director since 2005.  Mr. Brainard has been a sugarbeet grower since 1998.  Mr. Brainard currently serves on the Board of Directors of Midwest Agri-Commodities Company and as a director of the American Sugarbeet Growers Association. Mr. Brainard is a past director of the Minnesota Farm Bureau and has served on the executive committee of the Red River Valley Sugarbeet Growers Association.

Brian R. Erickson.  Mr. Erickson has been a director since 2005.  Mr. Erickson has been a sugarbeet grower for over 20 years.  Mr. Erickson currently serves on the Board of Directors of United Sugars Corporation. Mr. Erickson has served as a director and Chairman of the East Grand Forks Economic Development and Housing Authority.

Robert M. Green.  Mr. Green has been a director since 2005.  Mr. Green has been a sugarbeet grower since 1976.  Mr. Green also serves as a director for the American Sugarbeet Growers Association. Mr. Green served 12 years as a director of 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 the Walsh County Historical Society.

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

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

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

Jeff D. McInnes.  Mr. McInnes has been a director since 2001.  Mr. McInnes co-manages a 4,000 acre farming operation near Hillsboro, North Dakota.   Mr. McInnes serves on the Board of Governors of ProGold Limited Liability Company and on the Board of the Hillsboro, North Dakota Medical Center.

David Mueller. Mr. Mueller was elected as a director in 2009. Mr. Mueller has been a sugarbeet farmer near Cummings, North Dakota since 1985.  Mr. Mueller previously served on the Red River Valley Sugarbeet Growers Association Boards’ Executive Committee and as treasurer of its Research and Education Board.

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

Steve Williams.  Mr. Williams has been a director since 2006.  Mr. Williams has farmed near Fisher, Minnesota since 1987.  Mr. Williams serves on the Board of Directors of the American Sugarbeet Growers Association and served as its President from 2006 to 2008.  Mr. Williams is also a director of the Sugar Association and is the President of the Board of Directors for the Halstad Cooperative Telephone Company.  Mr. Williams served as a director of the Red River Valley Sugarbeet Growers Association from 1998 to 2007, and served as its Chairman from 2003 to 2007.

Audit Committee and Audit Committee Financial Expert

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

As of August 31, 2011, the Board of Directors of the Company has determined that there is no audit committee financial expert serving on the Audit Committee.  The Company is a cooperative formed in accordance with the Minnesota cooperative law of the State of Minnesota.  In accordance with the Minnesota cooperative law, the Amended and Restated Articles of Incorporation of the Company and the Amended and Restated Bylaws of the Company, the Board of Directors must be composed of members of the Company (the holders of common stock).  Membership in the Company is limited to agricultural producers who are actively involved in the production of sugarbeets.  Based on the state law requirements for both membership and board service, the Company is unable to recruit outside of its membership to elect to its Board of Directors and its audit committee an individual that possesses the attributes of an “audit committee financial expert” as defined by the SEC.  To date, the Company has been unable to recruit from its membership an individual to serve on the Board of Directors that possesses the attributes of an “audit committee financial expert.”

The Audit Committee has reviewed and discussed with management and Eide Bailly LLP the Company’s audited consolidated financial statements contained in this Annual Report on Form 10-K for the fiscal year ended August 31, 2011. The Audit Committee also discussed with Eide Bailly LLP the matters required to be discussed pursuant to SAS No. 61 (Codification of Statements of Auditing Standards, AU Section 380), which includes, among other items, matters related to the conduct of the audit of the Company’s consolidated financial statements.

The Audit Committee has received and reviewed the written disclosures and the letter from Eide Bailly LLP required by the applicable requirements of the Public Company Accounting Oversight Board regarding Eide Bailly LLP’s communications with the Audit Committee concerning its independence from the Company and has discussed with Eide Bailly LLP its independence from the Company.  Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in this Annual Report on Form 10-K for the fiscal year ended August 31, 2011 for filing with the Commission.

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On August 31, 2011, the members of the Audit Committee were John Brainard (Committee Chair), Donald S. Andringa, Brian R. Erickson, Robert M. Green, William A. Hejl, David Mueller and Wayne Tang.

Company Officers

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

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

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

Joseph J. Talley.Mr. Talley was named the Company’s Chief Operating Officer in May 2007. Mr. Talley was named as the Chairman of the Board and Chief Executive Officer of Sidney Sugars

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Incorporated in May 2007.  Mr. Talley served as the Company’s Vice President-Finance and Chief Financial Officer of the Company from 2003 to 2007.  Mr. Talley was the Company’s Vice President-Finance from 1998 to 2003.  Mr. Talley also served as Chief Operating Officer of Sidney Sugars Incorporated from 2002 to 2007.  He currently serves on the Board of Governors for ProGold Limited Liability Company.

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

Teresa A. Warne.  Ms. Warne was named the Company’s Corporate Controller, Chief Accounting Officer, Assistant Treasurer and Assistant Secretary in March 2008.  Prior to joining the Company, Ms. Warne was the Director of Accounting with Caribou Coffee Company at its corporate headquarters in Brooklyn Center, Minnesota from 2006 to 2008.  Ms. Warne previously was employed with Northwest Airlines where she held various financial positions from 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 General Counsel.  He is a Shareholder in the law firm 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 the American Crystal Sugar Political Action Committee and on the Board of Directors of the Institute of Cooperative Financial Officers.

Mark L. Lembke.  Mr. Lembke was named the Company’s Assistant Secretary and Assistant Treasurer in 1996 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 in 1993 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 in 1998 and also currently serves as the Company’s Director-Economic Analysis.

Lisa M. Maloy. Ms. Maloy was named the Company’s Assistant Secretary in 2002 and also currently serves as the Company’s Treasury Operations Manager.

Code of Ethics

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

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Item 11.         EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overview

This compensation discussion and analysis addresses the compensation paid to the individuals who served as our President and Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and Vice President of Administration for fiscal year 2011, all of whom are identified on the Summary Compensation Table immediately following this report (Named Executive Officers).  Immediately following this compensation discussion and analysis is the Compensation Committee Report of the Board of Directors (the Committee Report) of the Compensation Committee.

Purpose and Philosophy

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

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

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

Our management, on behalf of the Compensation Committee and Board of Directors, retained Towers Watson, an outside compensation consultant (Compensation Consultant), to prepare market-based compensation data comparing compensation information for our Named Executive Officers with that of executive officers in our market.  This analysis uses market data from published national survey sources, including Towers Watson General Industry Executive and Towers Watson Data Services Top Management surveys.  In addition, pay data from the proxy materials from the following group of comparative companies is referenced:

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This group of companies, together with the survey sources, represents the market in which we believe we compete for executive talent.

This data was provided to the Compensation Committee in September, 2010, when the Compensation Committee made compensation determinations and was utilized to establish market based pay practices for each of the Named Executive Officer positions.

Our base salary midpoint for our President and Chief Executive Officer is projected to represent less than the median of the market and total direct compensation is projected to be near the lower quartile of the market. Currently, we generally target our other Named Executive Officers’ base salary midpoint near the median of the market and total direct compensation near the lower quartile of our market.  After review and discussion of our compensation objectives and any risks associated with these objectives, the Compensation Committee determined that total direct compensation as established was appropriate and reflects the compensation principles outlined in this report.

While market based information is important in terms of setting pay practices, it is not the only factor considered by our Compensation Committee when making individual executive compensation decisions. Other factors considered when making individual executive compensation decisions include individual roles and responsibilities, performance, reporting structure, experience in the executives’ particular position and internal pay relationships.

Process

The Compensation Committee of the Board of Directors is responsible for annually reviewing and recommending to the Board of Directors the base salary and performance objectives for the incentive compensation (both short-term and long-term) of the President and Chief Executive Officer, as well as the performance objectives for long-term incentive compensation for all Named Executive Officers.  Board action on recommendations of the Compensation Committee is taken by a vote of all of the directors, none of whom are members of management.  Decisions on executive compensation made by the Compensation Committee, the Board of Directors or the President and Chief Executive Officer have been guided by our compensation philosophy discussed above.

Our President and Chief Executive Officer sets base salary and the annual performance objectives for the short-term incentive compensation for the other Named Executive Officers.  The prospective base salary and annual performance objectives for the other Named Executive Officers are reviewed with the Compensation Committee prior to being finalized by the President and Chief Executive Officer.

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Elements of Compensation

The elements of compensation paid to our Named Executive Officers for 2011 are as follows:

·                  Base salary

·                  Short-term cash incentive compensation

·                  Long-term incentive compensation

·                  Retirement and other benefits

·                  Perquisites

·                  Severance for our President and Chief Executive Officer

·                  Severance for our Chief Operating Officer, Mr. Joseph Talley, effective July 15, 2011 through the period ending August 31, 2012

Each of the above are more completely described below.

Base Salary

The objective of the level of base salary paid to our Named Executive Officers is to reflect individual roles and responsibilities, performance, reporting structure, experience in the executive’s particular position, and internal pay relationships with respect to market competitiveness.  All established base salaries for fiscal year 2011 for our Named Executive Officers were in accordance with our compensation philosophy described earlier in this report.

The fiscal year 2011 base salary of our President and Chief Executive Officer, Mr. Berg, was set by the Board of Directors in September, 2010 based on the comparable market data provided by our Compensation Consultant and the base salaries for the remaining Named Executive Officers were set by Mr. Berg using the same comparable market data.

Short-Term Cash Incentive Compensation

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

Short-term cash incentive compensation provides an annual cash incentive opportunity, expressed as a percent of base salary, for our Named Executive Officers who meet performance objectives.  For fiscal year 2011, our President and Chief Executive Officer had an opportunity to receive an additional 45% of his base salary, and the other Named Executive Officers had an opportunity to receive an additional 35% of their base salary, by meeting “target” performance levels.  Actual awards are determined based on the different performance levels achieved by the Named Executive Officers.  The potential for short-term cash incentive compensation for the President and Chief Executive Officer ranges from 0% for unsatisfactory performance to a maximum of 90% for outstanding performance.  For our other Named Executive Officers, the potential for short-term cash

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incentive compensation ranges from 0% for unsatisfactory performance to a maximum of 70% for outstanding performance.

The President and Chief Executive Officer’s performance objectives were weighted with 50% of the potential award based on our overall financial performance and 50% of the potential award based on the President and Chief Executive Officer’s individual performance objectives as established by the Board of Directors at the beginning of the fiscal year.  For the other Named Executive Officers, annual performance objectives were determined by the President and Chief Executive Officer with the input and consult of the Compensation Committee at the beginning of the fiscal year, with 40% based on our overall financial performance and 60% based on the achievement of individual performance objectives, including personal effectiveness.  Our overall financial performance objectives are based on the final gross beet payment for the fiscal year and total on-farm profit.  Total on-farm profit is equal to total gross beet payment minus the product of Total Harvested Acres multiplied by On-Farm Costs per Acre.  On-Farm Cost per Acre is based on the Red River Valley Report from the Minnesota and North Dakota Farm Business Management Education Program.  Both of the targets for these performance objectives are approved by the Compensation Committee.  For fiscal year 2011, the final gross beet payment was near the outstanding performance level and the total on-farm profit was at the outstanding performance level.

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

As indicated above, Mr. Berg’s performance objectives for fiscal year 2011 were set by the Board of Directors.  The performance objectives for fiscal year 2011 for our other Named Executive Officers were set by Mr. Berg at the beginning of fiscal year 2011.

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

Long-Term Incentive Compensation

Long-term incentive compensation provides a financial incentive opportunity, expressed as a percent of base salary, for our Named Executive Officers as a group who meet performance objectives designed to encourage long-term commitment to our organization.  Our 2005 Long-Term Incentive Plan, as amended (Plan), sets forth long-term incentive compensation available to our Named Executive Officers.  For fiscal year 2011, our President and Chief Executive Officer had an opportunity to receive an additional 40% of his base salary and the other Named Executive Officers had an opportunity to receive an additional 20% of their base salary assuming target performance levels.  Actual awards are determined based on the performance level achieved by the Named Executive Officers as a group.  The potential for long-term incentive compensation ranges from 0% for unsatisfactory performance to a maximum of 80% for outstanding performance for the President and Chief Executive Officer.  For our other Named Executive Officers, the potential for long-term incentive compensation ranges from 0% for

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unsatisfactory performance to a maximum of 40% for outstanding performance.  Unlike our short-term cash incentive compensation, long-term incentive compensation awards are based on the performance level of our Named Executive Officers as a group.  Forty-five percent (45%) of the performance objectives were based on the fiscal year’s actual on-farm profit as compared to historical profit levels while the other 55% was based on an assessment made by the Board of Directors regarding achievement of specific long-term performance objectives as established by the Board of Directors in the areas of international trade and governmental policy, strategic planning, succession management and reputation management.  For fiscal year 2011, the total on-farm profit performance was at the outstanding performance level.

According to the Plan, a long-term incentive award may be granted to a Named Executive Officer in the form of contract rights, cash, or in a combination of both cash and contract rights (incentive awards).  The value of any contract rights granted is determined by our Board of Directors.  To date, all incentive awards granted have been in the form of contract rights.  Incentive awards vest over a three-year period, with the first vesting occurring one year after the grant.  Vested incentive awards may be redeemed at the discretion of the Named Executive Officer and must be redeemed upon certain other events causing a termination of employment.  Redemptions that are in the form of cash payments must be deferred by the Named Executive Officer while employed by the Company.  Named Executive Officers receive a profit per acre payment for vested contract rights based on the average profit per acre paid to our shareholders.  Profit per acre payments are made to the Named Executive Officers in the same manner as our shareholders receive their crop payments.  Profit per acre payments can be taken in cash or deferred until a later date.  The Board of Directors retains the discretion to determine the amount of any incentive awards to be made available to the Named Executive Officers with respect to a given fiscal year.

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

On September 28, 2011, 198.63 contract rights were awarded with a grant date of August 31, 2011 to Named Executive Officers with respect to performance for the fiscal year ended August 31, 2011 at a value of $3,250 per contract right.  Correspondingly, the redemption value of the contract rights previously granted to the Named Executive Officers was increased from $2,550 to $3,250 per contract right.  Effective as of August 31, 2011, (and including the contract rights awarded on September 28, 2011), there were a total of 1,437.95 contract rights issued and outstanding to the Named Executive Officers, of which 1004.90 were vested.

Compensation Policies and Practices and Risk Management

The Company’s short-and long-term success is a direct result of the value we as a company provide to our shareholder/growers.  This “value” is specifically measured annually by the amount of the gross beet payment and total on-farm profits.  The members of our Compensation Committee and the Board of Directors, all of whom are shareholders of the Company and none of whom are members of management, have examined and reviewed all of our compensation policies and practices in light of the risks that may exist related to using personal performance standards and the annual gross beet payment and total on-farm profits as the measurements used for determining compensation.  Both the gross beet payment and total on-farm profits are amounts and values that are directly paid to or experienced by our shareholders on an annual basis, with each fiscal year’s results for such amounts generally independent

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from the results from prior or upcoming fiscal years.  The value of the gross beet payment and total on-farm profits are independently verified numbers.  The other measurements used to determine either incentive compensation or increases in compensation for our employees are based on job specific performance standards, none of which are specifically measured by performance actions by employees that relate to or affect risk taking by our employees.  The incentive awards held by our Named Executive Officers were designed to align the management’s incentive compensation with the success of the Company such that the financial benefits to the shareholders and management are balanced and management is not incentivized to take risks to artificially increase the value of such contract rights or incentive awards.  Therefore, the Board of Directors and the Compensation Committee reasonably believe, based on the information provided to them, that any risks that arise from our compensation policies and practices are not reasonably likely to have a material adverse effect on our business operations.

Retirement and Other Benefits

Retirement benefits are an important tool in achieving overall compensation objectives because they provide a financial security component and promote retention.  Our Named Executive Officers participate in our retirement plans like any other employee.  In addition, we provide a Supplemental Executive Retirement Plan (SERP) for our Named Executive Officers, which is a non-qualified defined contribution and defined benefit plan designed to replace benefits executives would have received if not for limits imposed by Code Section 401(a)(17) and 402(g).  The Named Executive Officers may elect to defer a portion of base salary by regular payroll deductions, and may also defer 100% of all short-term incentive compensation and long-term incentive compensation awards or payments related to any such awards.  All long term incentive deferrals are held in a long term incentive plan trust, all other deferrals are held in a SERP trust.  Both have nine investment options and are subject to the claims of our creditors.  The pension component of the SERP is “unfunded” with all amounts to be paid from our general assets, to the extent available, when due.

Our Named Executive Officers participate in our fully insured long-term disability program for all nonunion employees to provide income protection in the event of permanent disability.  The long-term disability plan is part of the core benefits we provide.  The long-term disability plan provides a benefit equal to 60% of base pay with a maximum monthly benefit of $10,000.  The Named Executive 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 the value of their long-term disability premium; therefore if they become disabled their benefit will be taxable.  For the Named Executive Officers, we impute the value of the premium to provide a tax-free benefit to partially offset the impact of receiving a disability benefit less than 60% of base pay because of the $10,000 monthly benefit limitation.

Perquisites

Our Compensation Committee and the Board of Directors 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 or all of the following perquisites while employed: car allowance, cell phone, minimum of 4 weeks annual vacation accrual, reimbursement for income tax preparation and executive physicals.  Additionally, the President and Chief Executive Officer is provided with a country club membership.   The above described perquisites cease upon retirement or separation of service with us.

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Severance

If we terminate Mr. Berg’s employment without cause he is entitled to receive a post-termination severance payment equal to two years of his base salary in effect on the date of termination.  Mr. Talley is entitled to receive a post-termination severance payment equal to one year of his base salary in effect on the date of termination in the event we terminate his employment during the period from July 15, 2011 through the period ending August 31, 2012.

There are no compensatory plans or arrangements providing for payments to any of the other Named Executive Officers in conjunction with any termination of employment with us, including without limitation resignation, severance, retirement or constructive termination of employment by the Company.  Furthermore, there are no such plans or arrangements providing for payments to any of the Named Executive Officers in conjunction with a change of control or change in such Named Executive Officer’s responsibilities.

Employment Agreements

We entered into an employment agreement with Mr. Berg effective March 21, 2007.  The agreement provides that Mr. Berg shall serve as an “at will” employee at the pleasure of the Board of Directors.  The agreement also includes a two-year non-compete/non-solicitation agreement with Mr. Berg.  The agreement grants the Board of Directors the authority to establish Mr. Berg’s base salary each year, and also provides that he may participate in other benefit plans offered to all employees.

We entered into an employment agreement with Mr. Talley effective July 15, 2011 and continuing through the period ending August 31, 2012.  The agreement provides that Mr. Talley shall serve as an “at will” employee at the pleasure of the President and Chief Executive Officer. The agreement also provides that Mr. Talley receive a severance payment, any accrued benefits and a prorated portion of incentive awards if the Company terminates Mr. Talley’s employment prior to August 31, 2012.

Compensation Committee Report

The Compensation Committee of the Company’s Board of Directors has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K. The Compensation Committee has a charter that is available from the Company upon request.

Members of the Compensation Committee as of the date of the report, all of whom are members of the Board of Directors and none of whom are members of management are:

Steve Williams, Chairman

John Brainard

Brian R. Erickson

John F. Gudajtes

Dale Kuehl

William Baldwin

Summary Compensation Table

The following table summarizes the compensation of the Named Executive Officers for the fiscal years ended August 31, 2011, 2010 and 2009.  The Named Executive Officers are the Company’s Chief

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Executive Officer, Chief Financial Officer and the two other most highly compensated executive officers of the Company.

2011 SUMMARY COMPENSATION TABLE

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

(2)             Represents the stated value of contract rights that were earned in the fiscal year, which was the year performance targets were achieved. Contract rights vest equally over a three year period. For further information regarding the Long-Term Incentive Plan, see “Compensation Discussion and Analysis” within this Form 10-K.

(3)             Represents the change in value of the outstanding contract rights granted to the executives in prior years of $700 per contract right in 2011, $350 per contract right in 2010 and $450 per contract right in 2009. Contract rights vest equally over a three year period. For further information regarding the Long-Term Incentive Plan, see “Compensation Discussion and Analysis” within this Form 10-K.

(4)             Represents the Profit-Per-Acre payments that were earned in the fiscal year on vested contract rights.

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

Change in Pension Value and Nonqualified Deferred Compensation Earnings

(A) Represents the change in the present value of the accumulated benefits provided by the plan or agreement including the effect of the increase in the discount rate from 5.00% to 5.12%.

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

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

Grants of Plan-Based Awards

The following table discloses the grants of plan-based awards to each of the Company’s Named Executive Officers for the current year related to the Long-Term Incentive Plan (LTIP).  The amounts of these awards that were expensed are shown in the Summary Compensation Table.  The table below also discloses the estimated future payouts related to contract rights under the LTIP, Short-Term Incentive Plan (STIP) and the Profit-Per-Acre (PPA) payment under the LTIP.

Grants of Plan-Based Awards Table