american crystal 2014sugar company

AMERICAN CRYSTAL SUGAR COMPANY

2014ANNUAL REPORT

Creating ValueValuing Customers

American Crystal Sugar Company 1

American Crystal Sugar Company is a world-class agricultural cooperative specializing in the production of sugar and related agri-products. American Crystal is owned by about 2,750 shareholders who raise approximately one-third of the nation’s sugarbeet acreage in the Red River Valley of Minnesota and North Dakota. Additional acres are contracted in eastern Montana and western North Dakota. As the largest beet sugar producer in the United States, the company utilizes innovative farming practices, low-cost production methods, and sales and marketing leadership to produce and sell about 15 percent of America’s finest quality sugar. American Crystal operates sugar factories in Crookston, East Grand Forks, and Moorhead, Minnesota; Drayton and Hillsboro, North Dakota; and Sidney, Montana, under the name Sidney Sugars Incorporated. The company’s technical services center and corporate headquarters are also located in Moorhead.

Located in Bloomington, Minnesota, United Sugars Corporation markets American Crystal’s sugar to retail and industrial customers throughout the nation. Midwest Agri-Commodities Company, based in San Rafael, California, globally markets American Crystal’s agri-products such as sugarbeet pulp, molasses, CSB, and betaine.

Tons of Sugarbeets Purchased 10,982 11,415

Sugar Content of Sugarbeets 17.3% 19.1%

Hundredweight of Sugar Produced 30,934 34,568

Gross Beet Payment $496,730 $780,877

Per Ton Purchased $45.23 $68.41

Per Acre Harvested $1,140 $1,854

Net Beet Payment $474,782 $746,656

Per Ton Purchased $43.23 $65.41

Per Acre Harvested $1,090 $1,773

This Annual Report may include certain forward-looking statements regarding, among other things, the Company’s strategies and anticipated trends in the Company’s business. These forward-looking statements are based largely on the Company’s expectations and the information available to the Company as of the date hereof, and are subject to a number of risks and uncertainties, certain of which are beyond the Company’s control. In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this Annual Report will in fact transpire or prove to be accurate.

2014 2013

2014 FINANCIAL HIGHLIGHTS(Red River Valley Information Only, Amount in Thousands, Except Percentages, Per-Ton-Purchased and Per-Acre-Harvested Amounts)

Creating ValueValuing CustomersAmerican Crystal strives to make quality products that deliver satisfying results to every one of our customers. By maintaining a focus on customer satisfaction through the entire process of growing, manufacturing and marketing our sugar products, we can create loyalty among customers and enhance the reputation of our company. Every action of every shareholder, employee and business partner is critically important in our effort to deliver value to food processors and consumers who use our products.

Fiscal Year 2014Looking back on the past year, financial results were disappointing. We recognized early in Fiscal Year 2014 that sugar prices were falling dramatically under the weight of excessive imports, specifically from Mexico. While working with the sugar industry to address the Mexican import situation, we also committed to a plan to intensify our operational efficiency. By leveraging cost management opportunities, the expertise of our employees, and the insights of our marketing entities – United Sugars Corporation and Midwest Agri-Commodities – we turned 11 million tons of sugarbeets into 30.9 million hundredweight of sugar and 693,000 tons of agri-products for customers. In turn, our efforts delivered an average gross beet payment of $45.23 per ton to shareholders.

Financial ConditionAt the close of Fiscal 2014, American Crystal’s debt-to-equity ratio was a strong .37:1. This strength is the result of a disciplined financial approach, responsible strategic investing, and efficient asset utilization.

Farm Bill and Mexican Trade CaseThe Farm Bill was finally signed into law in February 2014, about a year later than expected. It was delayed by efforts to undermine and reform the delicate balance between rural and urban interests sought by Congress. Legislative wisdom ultimately prevailed and the bill, which included a continuation of U.S. sugar policy, was extended for five years.

On March 28, 2014, the U.S. sugar industry initiated anti-dumping and countervailing duty cases against the Mexican sugar industry. We believe the Mexican sugar industry injured American Crystal and the entire U.S. sugar industry, and the cases provide the legal avenue for proving it and seeking an appropriate accommodation. On May 9, the International Trade Commission agreed we were potentially injured, and on August 25 the Department of Commerce applied preliminary duties against Mexican sugar. On October 27, the Department of Commerce announced additional duties on Mexican sugar, but then suspended them as part of a negotiated agreement with Mexico. The agreement is expected to return stability to the North American sugar market. American Crystal is taking a leadership role within the sugar industry to ensure that long-term objectives of United States sugar policy are adhered to, for the benefit of sugar users and producers.

Marketing Outlook2014 was a challenging year in the sugar market. While demand for sugar in the U.S. grew roughly 2 percent, an oversupplied sugar market coupled with very poor rail service led to lower prices and difficulty moving sugar from factories to customers. However, American Crystal and United Sugars’ goal of being North America’s premier supplier of sugar is unwavering. Steps are being taken to utilize all available transport options to better serve customers with excellent quality sugar delivered on time. Only during the summer of 2014, when the potential impact of the countervailing and antidumping duties petitions was realized, did imports from Mexico begin to slow and prices start to improve.

Following the corn feed market, pricing for agri-products fell from recent high levels yet remained strong compared to long term averages. Sales volumes from American Crystal dipped slightly from the previous year due to the 2013 crop size. Rail delivery issues aside, Midwest Agri-Commodities Company performed well delivering our beet pulp pellets, molasses, betaine, and CSB to international and domestic customers in the dairy, livestock, poultry, equestrian, and pet food industries.

Inspired People Quality Partners

At American Crystal,

we define our success

by the success of our

customers. It’s how we

ensure that they, along

with our employees and

shareholders, prosper

over the long term.

11 MILLIONTON SUGARBEET CROP

American Crystal hires great people. Learning from the best employees in the industry who care about the customers we serve has really expanded my ability to do my job.

Makenzie Miller, packaging technician

30.9 MILLION HUNDREDWEIGHT OF SUGAR PRODUCED

693,000 TONS OF AGRI-PRODUCTS PRODUCED

Our customers

need to be delighted

by our deliveries,

confident in our

partnering efforts,

and assured they’re

sourcing the safest,

highest quality

products available.

Reliable Ingredients Trusted Taste

2013 Crop and StorageA cool, wet spring resulted in a late-planted 2013 crop. To compensate, the cooperative’s Board authorized an increase in allowable acreage from 434,000 to 458,000. Final acres planted totaled 438,000 with the last acres seeded during the third week of June. The summer growing season was generally warm and much dryer than average. In September, far above-average temperatures and average to above-average rainfall boosted crop production.

Prepile harvest began on September 3. Full harvest began on October 1. Heat, moisture, and frost caused many harvest delays, especially in the southern growing area. This resulted in the northern three districts completing harvest at the end of October while the southern two districts finished up in early to mid-November. At the close, shareholders were unable to harvest 2,100 acres. The final 2013 crop statistics yielded a better-than-anticipated 25.2 tons-per-acre average

while sugar content was slightly below average at 17.3 percent. A total of nearly 11 million tons was harvested.

Storing the large volume crop required excellent pile management and well-timed winter weather. With cooperation from a colder-than-average late fall, cold winter, and cool spring, our storage team delivered on their plan. The result was an extremely low level of discards and a steady supply of excellent quality beets entering our factories throughout the processing season.

2013-2014 OperationsTeamwork was the focus of our manufacturing efforts as our processing campaign extended into early June for the sixth time in our history. The end result was a number of record-breaking slice rate and sugar production achievements. Over the 275-day campaign, our combined daily slice rate for our five factories reached 37,711 tons per day and average daily sugar production of 107,000

hundredweight. To continue on our processing optimization path, recently completed capital projects include the installation of a new sugar dryer, sugar cooler, and white sugar centrifugals at our East Grand Forks factory. A new high speed consumer packaging line was installed at our Moorhead factory. The construction of a new lime kiln at our Hillsboro factory is scheduled to be completed in early 2015. We are in the final phases of a multi-year environmental control project to meet new EPA-mandated coal-fired boiler standards at all factories.

Quality CountsWe want to connect with customers by delivering quality products. It’s a shared goal that permeates our organization and is a critical component of our training and operating efforts. Customers desire to source products from suppliers that deliver reliable, timely shipments, and comprehensive service. We’re working to keep every customer doing business with us.

In many ways, the beet crop from my farm is a gateway to some of the best, most widely recognized brands of food in the nation. It feels good to have a role in putting value on America’s tables.

Todd Weber, grower/shareholder

Workplace SafetyOur work to prevent workplace accidents continues to advance. Included in this effort is the recording of near-miss incidents that are used to proactively address potential injury sources and behaviors. Also essential is the ongoing education and training of employees to look at safety from all angles prior to beginning an assignment.

Sidney SugarsIt was a challenging year financially for our subsidiary, Sidney Sugars, Inc., primarily due to low sugar prices. From an operational perspective, the Sidney area growers harvested 31,000 acres averaging a near record 27.6 tons per acre, but a disappointing 16.6 percent sugar content. The factory produced 2.1 million hundredweight of sugar, down 13 percent from the previous year.

275-DAY PROCESSING CAMPAIGN

AVERAGE DAILY SLICE RATE OF

37,711TONS PER DAY

Our start-to-finish focus on

planning, investing, and advancing

our capabilities is providing lift to

our work teams and the entire

cooperative organization.

Engaging ExperienceFlavorful Future

Collaborative WorkplaceAt American Crystal, our employees apply their talents, grow their skills, and have opportunities to advance their careers. Our goal is to have the best workforce in the sugar industry. By focusing on training, development, and cross-functional skills we’re helping employees see an ever-bigger picture of how our company does what we do so well. Open, two-way communication is how we engage with our employees. Through their input, we are discovering fresh ways to impact our business. We know that our strength lies with the talents and conviction of our employees. Working together we can meet today’s challenges, improve results, and deliver a successful future.

2014 CropA wet fall and cold winter combined with a cool, late spring to delay planting of the 2014 sugarbeet crop. For the second consecutive year, the cooperative’s Board authorized an acreage increase. The upper planting tolerance was increased from 404,000 to 427,000 to help offset potential yield loss of a late planted crop. In mid-June, the last of the 413,000-acre crop was seeded. Timely light rains and a stretch of abnormally warm temperatures during germination led to the highest population stand counts in recent history. The brief optimism of the high stand counts was soon offset by abnormally high rain amounts in June that had the small beet plants fighting for survival.

Most of July and August saw normal temperatures and slightly below-average rainfall. Growing conditions turned favorable for sugarbeets in late August through September with slightly above-average temperatures and near-average precipitation, which allowed the crop to overcome its late start and disease issues.

Prepile harvest began September 2 and continued smoothly throughout the month. Full stockpile harvest began on October 1. The Moorhead District entered a heat shut down for only eight hours on the first day of harvest – otherwise harvest rolled virtually non-stop for over ten days straight. Nearly ideal weather and lifting conditions made this one of the most rapid harvests in company history. However, the late planting took its toll on yield as the crop averaged 23.1 tons per acre with a slightly below average 17.4 percent sugar content.

Looking ForwardThere’s no denying we are in some bumpy times in the sugar business. The pressures we’re experiencing in the sugar market from excessive Mexican imports, moderate returns from agri-products due to competing feed sources, and a lower-yielding 2014 crop are affecting our ability to deliver adequate financial results to shareholders. However, American Crystal has a long history of dealing decisively, directly, and successfully with business complications.

The ultimate basis for our confidence in the company’s future is the strength of our low-cost business structure and the collective commitment of American Crystal’s people.

Creating Value, Valuing CustomersAmerican Crystal’s primary objective is to provide competitively superior products and services that satisfy our value-conscious customers. Meeting this goal requires disciplined focus on maximizing the potential of our agriculture, operations, and marketing expertise. We have a reputation for performing at the top of the sugar industry. And, we aim to build on it.

Robert Green Chairman, Board of Directors

David Berg President & Chief Executive Office

UNITED SUGARS DELIVERIES BY MARKET SEGMENT:

Other Food

CanningBeverages

Baking & CerealConfection

DistributorsDairy

30%24%19%14%6%5%3%

MIDWEST AGRI-COMMODITIES PULP SALES BY GEOGRAPHY:

East Grand Forks District

Hillsboro District


Management’s Report on the Consolidated Financial Statements

The management of American Crystal Sugar Company is responsible for the preparation, integrity and fair presentation of the accompanying consolidated financial statements and related information contained in this Annual Report. The consolidated financial statements, which include amounts based on management’s estimates and judgments, have been prepared in conformity with accounting principles generally accepted in the United States of America.

The Company maintains accounting and internal control systems to provide reasonable assurance at reasonable cost that assets are safeguarded against loss from unauthorized use or disposition, that transactions are properly recorded and executed in accordance with management’s authorization, and that the financial records provide a solid foundation from which to prepare the consolidated financial statements. These systems are augmented by written policies, an organizational structure providing division of responsibilities and careful selection and training of qualified personnel.

The Company’s consolidated financial statements have been audited by independent auditors CliftonLarsonAllen LLP. The independent auditors were given unrestricted access to all financial records and related data.

The Audit Committee of the Board of Directors meets with the independent auditors and management periodically to review their respective responsibilities and activities and to provide oversight to the Company’s accounting policies, internal controls and the financial reporting process. The independent auditors have free access to the Board of Directors and its Audit Committee, with or without management present, to discuss the scope and results of their audits and the adequacy of the system of internal controls.

David Berg, President and Chief Executive Officer

Teresa Warne, Vice President – Finance

Exploring Options, Taking ActionOur staying power in the sugar industry is directly

linked to our quality/value equation. American

Crystal’s philosophy is to make decisions that provide

lasting benefits to our entire cooperative enterprise.

Executing systematic strategies that result in a higher-

performing organization is how we move forward.

Daniel Mott Secretary and General Counsel

John Gudajtes Director

Thomas Astrup Vice President Operations

Jim Nelson Director

Kevin Price Vice President Government Relations

Lisa Borgen Vice President Administration

Teresa Warne Vice President Finance

Robert Green Chairman

William “Buzz” Baldwin Director

Perry Skaurud Director

Steve Williams Vice Chairman

Wayne Tang Director

William Hejl Director

Kelly Erickson Director

Donald Andringa Director

Curt Knutson Director

Dale Fischer Director

Brian Erickson Director

John Brainard Director

David Berg President & Chief Executive Officer

David Mueller Director

Brian Ingulsrud Vice President Agriculture

Crookston District

Moorhead District

Drayton District

Senior Management


Management’s Discussion of Operations

The harvest of the Red River Valley and Sidney sugarbeet crops grown during 2013 and processed during fiscal 2014 produced a total of 11.8 million tons of sugarbeets, or approximately 25.4 tons of sugarbeets per acre from approximately 467,000 acres. This represents a decrease in total tons harvested of approximately 4.0 percent compared to the 2012 crop. The sugar content of the 2013 crop was 17.3 percent as compared to 19.1 percent for the 2012 crop. The Company produced a total of approximately 33.0 million hundredweight of sugar from the 2013 crop, a decrease of approximately 10.7 percent compared to the 2012 crop.

Revenue for the year ended August 31, 2014, was $1.4 billion, a decrease of $215.6 million from the year ended August 31, 2013. The table to the right reflects the percentage changes in product revenues, prices and volumes for the year ended August 31, 2014, as compared to the year ended August 31, 2013.

The decrease in the selling price of sugar reflects an increased supply of sugar in the domestic sugar market. The slight increase in the volume of sugar sold includes the forfeiture of sugar to the CCC this year along with the sugar sold through the Feedstock Flexibility Program. The decreases in the volume of pulp and molasses reflect the impact of less product availability related to the later start of the processing campaign this year due to a smaller sugarbeet crop. The increased volumes for CSB and betaine reflect different timing of sales between the two years. The lower betaine selling price is a result of a softening of the poultry feed market.

Cost of sales for the year ended August 31, 2014, exclusive of payments to members for sugarbeets, increased $68.1 million as compared to the year ended August 31, 2013. This increase was primarily related to product inventories that are recorded at their net realizable value partially offset by decreased operating costs due to processing 4.0 percent fewer tons of sugarbeets this year, lower costs associated with purchased sugar and lower costs associated with non-member sugarbeets. 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, 2014 was $75.5 million as compared to an increase of $95.2 million for the year ended August 31, 2013 resulting in a $170.7 million unfavorable change in the cost of sales between the two years as shown in the table below:

¹ The change is primarily due to a 111.0 percent increase in the hundredweight of sugar inventory as of August 31, 2013, as compared to August 31, 2012, partially offset by a 20.2 percent decrease in the per hundredweight net realizable value of sugar inventory as of August 31, 2013, as compared to August 31, 2012.

² The change is primarily due to a 22.9 percent decrease in the hundredweight of sugar inventory as of August 31, 2014, as compared to August 31, 2013 along with an 11.6 percent decrease in the per hundredweight net realizable value of sugar inventory as of August 31, 2014, as compared to August 31, 2013.

Selling, general and administrative expenses increased $8.2 million for the year ended August 31, 2014, as compared to the year ended August 31, 2013. Selling expenses increased $8.5 million primarily due to expenses related to the increases in the volumes of sugar, CSB and betaine sold along with increased sugar packaging costs. General and administrative expenses decreased $ .3 million due to general cost decreases.

Interest expense decreased $2.9 million for the year ended August 31, 2014, as compared to the year ended August 31, 2013. This reflects a decrease in the average borrowing level of short-term debt and a decrease in the average interest rate for both short-term and long-term debt.

Net proceeds attributable to American Crystal Sugar Company decreased $288.2 million for the year ended August 31, 2014, as compared to the year ended August 31, 2013. This decrease was primarily due to the decline in the net selling price for sugar along with the decreased tons of sugarbeets processed and the lower sugar content of this year’s sugarbeet crop resulting in the decreased production of sugar and agri-products.

Product Revenue Selling Price VolumeSugar -14.4% -17.7% 4.1%Pulp -13.0% -9.2% -4.3%Molasses -28.8% -2.2% -27.2%CSB 26.9% 2.6% 23.7%Betaine 10.3% -22.6% 42.5%

Change in the Net Realizable Value of Product Inventories

(In Millions) For the Years Ended August 31

2014 2013 Change

Beginning Product Inventories at Net Realizable Value $ 229.0 $ 133.8 $ 95.2 1

Ending Product Inventories at Net Realizable Value (153.5) (229.0) 75.52

(Increase) Decrease in the Net Realizable Value of Product Inventories $ 75.5 $ (95.2) $ 170.7

Independent Auditors’ Report

To the Audit CommitteeAmerican Crystal Sugar CompanyMoorhead, Minnesota

We have audited the accompanying consolidated financial statements of American Crystal Sugar Company and Subsidiaries, which comprise the consolidated balance sheets as of August 31, 2014 and 2013 and the related consolidated statements of operations, comprehensive income, changes in members’ investments, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American Crystal Sugar Company and Subsidiaries as of August 31, 2014 and 2013, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

CliftonLarsonAllen LLPStevens Point, WisconsinOctober 15, 2014


For the Years Ended August 31 (In Thousands) 2014 2013

Non-Member Business Income $ 4,586 $ 8,597

Pension & Post-Retirement Gain/(Loss) (3,942) 56,525

Pension & Post-Retirement Prior Service Credit/(Cost) 9,682 485

Equity Method Investees Other Comprehensive Income/(Loss) (1,259) 7,315 Foreign Currency Forward Contract Gain/(Loss) (12) 27

Derivative Interest Rate Contract Gain/(Loss) 246 1,002

Total Comprehensive Income $ 9,301 $ 73,951

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


Net Revenue $ 1,387,785 $ 1,603,404

Cost of Sales 561,425 493,318

Gross Proceeds 826,360 1,110,086

Selling, General and Administrative Expenses 309,833 301,633 Operating Proceeds 516,527 808,453

Other Income (Expense): Interest Income 104 76 Interest Expense, Net (6,818) (9,694) Other, Net 141 106

Total Other Expense (6,573) (9,512)

Proceeds Before Income Tax 509,954 798,941

Income Tax Expense (2,620) (3,484)

Consolidated Net Proceeds 507,334 795,457

Less: Net Proceeds Attributable to Noncontrolling Interests (6,018) (5,983)

Net Proceeds Attributable to American Crystal Sugar Company $ 501,316 $ 789,474

Distributions of Net Proceeds Attributable to American Crystal Sugar Company: Credited to American Crystal Sugar Company’s Members’ Investments: Non-Member Business Income $ 4,586 $ 8,597 Unit Retains Withheld from Members 21,948 34,221

Net Credit to American Crystal Sugar Company’s Members’ Investments 26,534 42,818 Payments to Members for Sugarbeets, Net of Unit Retains Withheld 474,782 746,656

Total $ 501,316 $ 789,474


Consolidated Statements of Operations Consolidated Statements of Comprehensive Income


AssetsAugust 31 (In Thousands) 2014 2013

Current Assets:

Cash and Cash Equivalents $ 120 $ 129

Receivables:

Trade 67,395 80,127

Members 7,993 5,098

Other 5,462 4,937

Advances to Related Parties 13,850 17,077

Inventories 221,986 295,063

Prepaid Expenses 2,699 4,773

Total Current Assets 319,505 407,204

Property and Equipment:

Land and Land Improvements 104,329 96,421

Buildings 146,320 139,292

Equipment 1,117,357 1,078,931

Construction in Progress 26,421 14,904

Less Accumulated Depreciation (923,374) (889,981)

Net Property and Equipment 471,053 439,567

Net Property and Equipment Held for Lease 65,975 74,507

Other Assets:

Investments in CoBank, ACB 3,972 4,974

Investments in Marketing Cooperatives 6,824 8,836

Other Assets 15,446 15,897

Total Other Assets 26,242 29,707

Total Assets $ 882,775 $ 950,985


Consolidated Balance Sheets

Liabilities and Members’ InvestmentsAugust 31 (In Thousands) 2014 2013

Current Liabilities: Short-Term Debt $ 60,599 $ 118,497 Current Maturities of Long-Term Debt 6,065 300 Accounts Payable 46,971 54,708 Advances Due to Related Parties 4,477 4,372 Other Current Liabilities 33,574 35,868 Amounts Due Growers 124,321 137,660

Total Current Liabilities 276,007 351,405

Long-Term Debt, Net of Current Maturities 151,995 128,060

Accrued Employee Benefits 39,105 47,755

Other Liabilities 7,573 6,557

Total Liabilities 474,680 533,777

Commitments and Contingencies

Members’ Investments: Preferred Stock, Shares Outstanding: 498,570 and 498,570 38,275 38,275 Common Stock, Shares Outstanding: 2,738 and 2,757 27 28 Additional Paid-In Capital 152,261 152,261 Unit Retains 210,231 223,902 Accumulated Other Comprehensive Income (Loss) (38,901) (43,616) Retained Earnings 14,363 9,777

Total American Crystal Sugar Company Members’ Investments 376,256 380,627

Noncontrolling Interests 31,839 36,581

Total Members’ Investments 408,095 417,208

Total Liabilities and Members’ Investments $ 882,775 $ 950,985


Consolidated Balance Sheets


Accumulated American Preferred Common Additional Other Comprehensive Retained Crystal Sugar Noncontrolling For the Years Ended August 31 (In Thousands) Stock Stock Paid-In Capital Unit Retains Income (Loss) Earnings Company Total Interests Total

Balance, August 31, 2012 $ 38,275 $ 28 $ 152,261 $ 216,035 $ (108,970) $ 1,180 $ 298,809 $ 41,381 $ 340,190

Comprehensive Income — — — — 65,354 8,597 73,951 — 73,951 Net Proceeds Noncontrolling Interests — — — — — — — 5,983 5,983 Distributions to Noncontrolling Interests — — — — — — — (10,783) (10,783) Unit Retains Withheld from Members — — — 34,221 — — 34,221 — 34,221 Unit Retains Paid to Members — — — (26,354) — — (26,354) — (26,354) Stock Issued/(Redeemed), Net — — — — — — — — —

Balance, August 31, 2013 38,275 28 152,261 223,902 (43,616) 9,777 380,627 36,581 417,208

Comprehensive Income — — — — 4,715 4,586 9,301 — 9,301 Net Proceeds Noncontrolling Interests — — — — — — — 6,018 6,018 Distributions to Noncontrolling Interests — — — — — — — (10,760) (10,760) Unit Retains Withheld from Members — — — 21,948 — — 21,948 — 21,948 Unit Retains Paid to Members — — — (35,619) — — (35,619) — (35,619) Stock Issued/(Redeemed), Net — (1) — — — — (1) — (1)

Balance, August 31, 2014 $ 38,275 $ 27 $ 152,261 $ 210,231 $ (38,901) $ 14,363 $ 376,256 $ 31,839 $ 408,095


Consolidated Statements of Changes in Members’ Investments



Cash Provided By (Used In) Operating Activities: Net Proceeds Attributable to American Crystal Sugar Company $ 501,316 $ 789,474 Payments To/Due Members for Sugarbeets, Net of Unit Retains Declared (474,782) (746,656) Add (Deduct) Non-Cash Items: Depreciation and Amortization 57,099 55,312 Accretion Expense 124 — Loss from Equity Method Investees 729 258 Loss on the Disposition of Property and Equipment 2,713 720 Loss on the Disposition of Property and Equipment Held for Lease 216 228 Deferred Gain Recognition (63) (63) Noncontrolling Interests 6,018 5,983 Changes in Assets and Liabilities: Receivables 9,312 (7,093) Inventories 73,077 (22,377) Prepaid Expenses 2,071 (3,867) Other Assets (4,314) (4,518) Advances To/Due to Related Parties 3,332 17,480 Accounts Payable (3,937) (4,729) Other Liabilities (2,328) (4,888) Amounts Due Growers (13,339) 38,301Net Cash Provided By Operating Activities 157,244 113,565

Cash Provided By (Used In) Investing Activities: Purchases of Property and Equipment (81,204) (72,001) Purchases of Property and Equipment Held for Lease (2,281) (2,179) Proceeds from the Sale of Property and Equipment 53 10 Equity Distribution from CoBank, ACB 1,002 1,157 Investments in Marketing Cooperatives (140) (8,319) Equity Distribution from Marketing Cooperatives 163 716 Changes in Other Assets (268) (3,383)Net Cash (Used In) Investing Activities (82,675) (83,999)

Cash Provided By (Used In) Financing Activities: Net Proceeds from (Payments on) Short-Term Debt (57,898) 7,857 Proceeds from Issuance of Long-Term Debt 30,000 — Long-Term Debt Repayment (300) (280) Distributions to Noncontrolling Interests (10,760) (10,783) Common Stock Issued/(Redeemed), Net (1) — Payment of Unit Retains (35,619) (26,354)Net Cash (Used In) Financing Activities (74,578) (29,560)Increase (Decrease) In Cash and Cash Equivalents (9) 6Cash and Cash Equivalents, Beginning of Year 129 123Cash and Cash Equivalents, End of Year $ 120 $ 129

Non-Cash Investing Activities: Purchases of Property and Equipment include the changes in Accounts Payable related to these purchases of ($4,790,000) and $4,526,000 for the years ended August 31, 2014 and 2013, respectively and changes in Other Liabilities of $2,633,000 for the year ended August 31, 2014. Purchases of Equipment Held for Lease include the changes in Accounts Payable related to these purchases of $991,000 for the year ended August 31, 2014.


Consolidated Statements of Cash Flows(1) PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES:

Organization

American Crystal Sugar Company (Company) is a Minnesota agricultural cooperative corporation which processes sugarbeets and markets sugar as well as sugarbeet pulp, molasses, concentrated separated by-product (CSB), betaine (collectively, agri-products) and sugarbeet seed. Business done with its shareholders (members) constitutes “patronage business” as defined by the Internal Revenue Code, and the net proceeds therefrom are credited to members’ investments in the form of unit retains or distributed to members in the form of payments for sugarbeets. Members are paid the net amounts realized from the current year’s production less member operating costs determined in conformity with accounting principles generally accepted in the United States of America.

Basis of Presentation

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

All material inter-company transactions have been eliminated.

Certain reclassifications have been made to the August 31, 2013 consolidated financial statements to conform with the August 31, 2014 presentation. These reclassifications had no effect on previously reported results of operations, cash flows or Members’ Investments.

Revenue Recognition

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

Operating Lease

ProGold owns a corn wet milling facility which it leases to Cargill, Incorporated (Cargill) under an operating lease. Payments are to be received monthly under the lease, which runs through December 31, 2017. The operating lease revenue is recognized as earned ratably over the term of the lease and to the extent that amounts received exceed amounts earned, deferred revenue is recorded. Expenses (including depreciation and interest) are charged against such revenue as incurred. The lease does not contain a provision for the automatic renewal or extension of the lease terms. However, it does provide an option for Cargill to request exclusive negotiations with ProGold during a certain period of time prior to the expiration of the current lease. The lease also contains provisions for increased payments to be received during the lease period related to the plant’s capital additions.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company places its temporary cash investments with high credit quality financial institutions. At times, such investments may be in excess of the applicable insurance limit.

Accounts Receivable and Credit Policies

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

Trade receivables are uncollateralized customer obligations due under normal trade terms requiring payment within 15 to 90 days from the invoice date. The receivables are non-interest bearing. Trade receivables are stated at the amount billed to the customer. Payments of trade receivables are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoices.

Ongoing credit evaluations of customers’ financial condition are performed and the Company maintains a reserve for potential credit losses. The carrying amount of trade receivables is reduced by a valuation allowance that reflects the Company’s best estimate of the amounts that will not be collected. The Company determines a receivable to be uncollectable and is written off against the reserve based on several criteria including such items as the credit evaluation of a customer’s financial condition, the aging of the receivable and previous unsuccessful collection efforts.

Notes to the Consolidated Financial Statements


Inventories

Sugar, pulp, molasses and other agri-products inventories are valued at estimated net realizable value. Operating supplies, maintenance parts, and sugarbeet seed inventories are valued at the lower of average cost or market. Sugarbeets are valued at the projected gross per-ton beet payment related to that year’s crop.

Net Property and Equipment

Property and equipment are recorded at cost less impairment. Indirect costs and construction period interest are capitalized as a component of the cost of qualified assets. Property and equipment are depreciated for financial reporting purposes principally using straight-line methods with estimated useful lives ranging from 3 to 33 years.

Net Property and Equipment Held for Lease

Net property and equipment held for lease are stated at cost, net of accumulated depreciation. Depreciation on assets placed in service is provided using the straight-line method with estimated useful lives ranging from 5 to 40 years.

Impairment of Long Lived Assets

The Company reviews its long lived assets 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. The fair value of assets is a significant estimate and it is at least reasonably possible that a change in the estimate could occur in the near term. No impairment was recognized in 2014 or 2013.

Related Parties

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

Investments

Investments in CoBank, ACB are stated at cost plus unredeemed patronage refunds received in the form of capital stock. Investments in Marketing Cooperatives include investments in United and Midwest, which are accounted for using the equity method. Investments in West Coast Beet Seed Company are stated at cost.

Members’ Investments

Preferred and Common Stock - The ownership of common stock is restricted to a “farm operator” as defined by the bylaws of the Company. Each shareholder may own only one share of common stock and is entitled to one vote in the affairs of the Company. Each common shareholder is required to purchase preferred stock in proportion to the acreage of sugarbeets which the common shareholder places under contract with the Company. The preferred shares are non-voting. All transfers of stock must be approved by the Company’s Board of Directors and any shareholder desiring to sell stock must first offer it to the Company for repurchase at its par value. The Company has never exercised this repurchase option for preferred stock. The Company’s articles of incorporation do not allow dividends to be paid on either the common or preferred stock.

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

Accumulated Other Comprehensive Income (Loss) - Accumulated Other Comprehensive Income (Loss) represents the cumulative net increase (decrease) in equity related to the recording of the over-funded or under-funded status of defined benefit postretirement plans, the Company’s portion of the other comprehensive income (loss) of equity method investees and the gain or loss related to foreign currency forward contracts and interest rate swap contracts. Consistent with the Company’s treatment of income taxes related to member-source income and expenses, accumulated other comprehensive income (loss) does not include any adjustment for income taxes.

Retained Earnings - Retained earnings represents the cumulative net income (loss) resulting from non-member business, the 2009 pension measurement date adjustment and, for years prior to 1996, the difference between member income as determined for financial reporting purposes and for federal income tax reporting purposes.

Interest Expense, Net

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

Income Taxes

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

Deferred tax assets, less any applicable valuation allowance, and deferred tax liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled.

Accounting Estimates

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

Fair Value Measurements

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.

The fair value hierarchy requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Includes the following inputs:

• quoted prices in active markets for similar assets or liabilities,

• quoted prices for identical or similar assets or liabilities in markets that are not active,

• or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

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

Derivative Instruments and Hedging Activities

The Company recognizes all derivatives in its Consolidated Balance Sheet at fair value. On the date the derivative instrument is entered into, the Company designates the derivative as either (1) a hedge of the fair value of a recognized asset or liability, or of an unrecognized firm commitment (“fair value hedge”) or (2) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”). The Company has entered into foreign currency forward contracts and an interest rate swap, each of which have been designated as a cash flow hedge. Changes in the fair value of a derivative designated as a cash flow hedge are recorded in accumulated other comprehensive income (loss) and are reclassified into earnings as the underlying hedged item affects earnings.

Business Risk

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


Concentration and Sources of Labor

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 expires on July 31, 2017. The collective bargaining agreement for the Sidney, Montana, factory employees will expire on April 30, 2015. 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.

Shipping and Handling Costs

The costs incurred for the shipping and handling of products sold are classified in the consolidated financial statements as a selling expense on the Consolidated Statements of Operations. Shipping and handling costs were $214.0 million and $210.3 million for the years ended August 31, 2014 and 2013, respectively.

Deferred Costs and Product Values

All costs incurred prior to the end of the Company’s fiscal year that relate to receiving and processing the subsequent year’s sugarbeet crop are deferred. Similarly, the net realizable values of products produced prior to the end of the Company’s fiscal year that relate to the subsequent year’s sugarbeet crop are deferred. The net result of these deferred costs and product values are recorded in the Company’s consolidated balance sheet in “Other Current Liabilities.” There were no deferred costs and product values as of August 31, 2014 or 2013.

Recently Issued Accounting Pronouncements

In December 2011, the FASB issued an update to the authoritative guidance which requires disclosure information about offsetting and related arrangements for financial instruments and derivative instruments. The guidance provided by this update became effective and was adopted by the Company during fiscal 2014.

In February 2013, the FASB issued an update to the authoritative guidance which requires disclosure information about the amounts reclassified out of accumulated other comprehensive income. The guidance provided by this update becomes effective for the Company in fiscal 2015. The Company does not expect that the adoption of this guidance will have a material effect on the Company’s financial statements.

In February 2013, the FASB issued an update to the authoritative guidance which requires the Company to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. The guidance also requires the Company to disclose the nature and amount of the obligation. The guidance provided by this update becomes effective for the Company in fiscal 2015. The Company does not expect that the adoption of this guidance will have a material effect on the Company’s financial statements.

In July 2013, the FASB issued an update to the authoritative guidance in regards to the presentation in the financial statements of an unrecognized tax benefit when a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward exists. The guidance provided by this update becomes effective for the Company in fiscal 2016. The Company does not expect that the adoption of this guidance will have a material effect on the Company’s financial statements.

In May 2014, the FASB issued an update to the authoritative guidance which establishes principles for reporting and disclosing useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. The guidance provided by this update becomes effective for the Company in fiscal 2019. The Company does not expect that the adoption of this guidance will have a material effect on the Company’s financial statements.

(2) RECEIVABLES:

There was no single customer attributable to the Company that accounted for 10 percent or more of the Company’s total receivables as of August 31, 2014 or 2013 or that accounted for 10 percent or more of the revenues of the Company for the years ended August 31, 2014 or 2013.

(3) INVENTORIES:

The major components of inventories as of August 31, 2014 and 2013 are as follows:

(In Thousands) 2014 2013

Sugar, Agri-Products and Sugarbeet Seed $ 155,381 $ 231,083

Operating Supplies and Maintenance Parts 66,605 63,980

Total Inventories $ 221,986 $ 295,063

The Company’s reserve for inventory obsolescence was $14.3 million and $16.8 million as of August 31, 2014 and 2013, respectively.

(4) NET PROPERTY AND EQUIPMENT:

Indirect costs capitalized were $1.5 million and $1.3 million in 2014 and 2013, respectively. Construction period interest capitalized was $ .5 million and $ .3 million in 2014 and 2013, respectively. Depreciation expense was $44.8 million and $42.2 million in 2014 and 2013, respectively. The Company had outstanding commitments totaling $14.7 million as of August 31, 2014, for equipment and construction contracts related to various capital projects.

During fiscal 2014, the Company recorded an asset retirement obligation and an increase in Land Improvements of $2.6 million associated with certain landfills at its factories. Depreciation expense and accretion expense associated with this obligation was $322,000 and $124,000, respectively for the year ended August 31, 2014.

(5) NET PROPERTY AND EQUIPMENT HELD FOR LEASE:

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

Net Property and Equipment Held for Lease are stated at cost, net of accumulated depreciation. Depreciation expense was $11.6 million and $11.5 million in 2014 and 2013, respectively. The components of Net Property and Equipment Held for Lease as of August 31, 2014 and 2013 are shown below:


Land and Land Improvements $ 8,492 $ 8,256

Buildings 42,379 42,215

Equipment 210,327 209,826

Construction in Progress 1,885 813

Less Accumulated Depreciation (197,108) (186,603)

Net Property and Equipment Held for Lease $ 65,975 $ 74,507

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

Fiscal year ending August 31, (In Thousands)

2015 $ 21,500

2016 21,500

2017 21,500

2018 7,167

Total $ 71,667

ProGold has entered into a Capital Expenditures Agreement with Cargill associated with a project to replace certain equipment at the corn wet milling facility. The agreement calls for ProGold to reimburse Cargill up to a maximum of $2.2 million for costs incurred for the project upon completion. The agreement also provides that ProGold will receive monthly incremental lease payments from Cargill upon completion of the project equal to an amount necessary for the reimbursement amount together with interest to be fully amortized over a period of 12 years. The incremental lease payments will continue during the term of the lease including any extension(s) of the lease term but not to exceed 12 years.

As of August 31, 2014, ProGold has recorded a liability of $991,000 due Cargill associated with costs incurred on the replacement project through that date.


(9) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:

The Company, as a result of its operating and financing activities, is exposed to changes in foreign currency exchange rates and interest rates which may adversely affect its results of operations and financial position. In seeking to minimize the risks and/or costs associated with such activities, the Company may enter into derivative contracts.

The Company manages its foreign currency related risks primarily through the use of foreign currency forward contracts. The contracts held by the Company are denominated in Euros. The Company has entered into foreign currency forward contracts that are designated as cash flow hedges of exchange rate risk related to foreign currency-denominated purchases of equipment. Inputs used to measure the fair value of the foreign currency forward contracts are contained within level 1 of the fair value hierarchy. The fair value of the open contracts is recorded in accumulated other comprehensive income (loss) in members’ investments. Amounts deferred to accumulated other comprehensive income (loss) are reclassified into the cost of the equipment when the actual purchase takes place.

Minimum annual principal payments for the next five years are as follows:

(In Thousands)

2015 $ 6,065 2016 $ 335 2017 $ 18,355 2018 $ 48,6252019 $ —

The Company has a long-term debt line of credit through August 13, 2018 with CoBank, ACB of $60.8 million along with an additional $60.0 million which can be utilized for either short-term or long-term borrowing purposes. As of August 31, 2014, the Company had an outstanding loan with CoBank, ACB of $30.0 million and outstanding long-term letters of credit of $64.1 million. The unused long-term line of credit as of August 31, 2014 was $26.7 million which can also be utilized for short-term borrowing purposes.

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

The long-term debt outstanding as of August 31, 2014 and 2013 is summarized below:


Term Loans from CoBank, ACB, due in fiscal 2018, interest at a fixed rate of 1.41%, with senior lien on substantially all non-current assets. $ 30,000 $ —

Term Loans from Insurance Companies, due in varying amounts through fiscal 2028, interest at fixed rates of 7.32% to 7.42%, with senior lien on substantially all non-current assets. 50,000 50,000

Pollution Control and Industrial Development Revenue Bonds, due in varying amounts through fiscal 2027, interest at fixed rates of 5.35% to 6.00% and varying rates of .07% to .10% as of August 31, 2014, substantially secured by letters of credit. 78,060 78,360

Total Long-Term Debt 158,060 128,360

Less Current Maturities (6,065) (300)

Long-Term Debt, Net of Current Maturities $ 151,995 $ 128,060

At August 31, 2013, the Company had a long-term debt line of credit through August 13, 2018 with CoBank, ACB of $60.8 million along with an additional $60.0 million which could be utilized for either short-term or long-term borrowing purposes. As of August 31, 2013, there was no outstanding balance with CoBank, ACB but the Company had $64.3 million in long-term letters of credit outstanding. The unused long-term line of credit as of August 31, 2013 was $56.5 million which could also be utilized for short-term borrowing purposes.

The short-term debt outstanding as of August 31, 2014 and 2013 is summarized below:


Commercial Paper, at fixed interest rates of .32% and .33%, due 9/3/14. $ 60,599 $ 118,497

During the year ended August 31, 2014, the Company borrowed from the Commodity Credit Corporation (CCC) and issued commercial paper to meet its short-term borrowing requirements. As of August 31, 2014, the Company had a seasonal line of credit through August 13, 2018, with a consortium of lenders led by CoBank, ACB of $350.0 million along with an additional $60.0 million which can be utilized for either short-term or long-term borrowing purposes. As of August 31, 2014, $33.2 million of the $60.0 million was utilized for long-term borrowing purposes. There was no outstanding balance with CoBank, ACB as of August 31, 2014. The Company also has a line of credit with Wells Fargo Bank for $1.0 million, against which there was no outstanding balance as of August 31, 2014. The Company’s commercial paper program provides short-term borrowings up to the amount of the CoBank, ACB seasonal line of credit of which approximately $60.6 million was outstanding as of August 31, 2014. The Company had $3.5 million in short-term letters of credit outstanding as of August 31, 2014. 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 line of credit as of August 31, 2014 was $313.7 million which includes $26.7 million that can also be utilized for long-term borrowing purposes.

The Company can borrow funds on a non-recourse basis from the CCC, with repayment of such funds secured by sugar. The limitations on such borrowings are based on the amount of the Company’s sugar inventory and certain loan covenant restrictions by CoBank, ACB. On October 1, 2013, the Company forfeited approximately 2.0 million hundredweight of 2012 crop sugar to the CCC in satisfaction of the $46.7 million in outstanding non-recourse loans. As of August 31, 2014, the Company had no outstanding loans with the CCC and had the capacity to obtain non-recourse loans from the CCC of approximately $112.7 million.

During the year ended August 31, 2013, the Company borrowed from the CCC and CoBank, ACB and issued commercial paper to meet its short-term borrowing requirements. As of August 31, 2013, the Company had a seasonal line of credit through August 13, 2018, with a consortium of lenders led by CoBank, ACB of $350.0 million along with an additional $60.0 million which could be utilized for either short-term or long-term borrowing purposes. As of August 31, 2013, $3.5 million of the $60.0 million was utilized for long-term borrowing purposes. There was no outstanding balance with CoBank, ACB as of August 31, 2013. The Company also had a line of credit with Wells Fargo Bank for $1.0 million, against which there was no outstanding balance as of August 31, 2013. The Company’s commercial paper program provided short-term borrowings up to the amount of the CoBank, ACB seasonal line of credit of which approximately $118.5 million was outstanding as of August 31, 2013. The Company had $3.1 million in short-term letters of credit outstanding as of August 31, 2013. Any borrowings under the commercial paper program along with outstanding short-term letters of credit act to reduce the available credit under the CoBank, ACB seasonal line of credit by a commensurate amount. The unused line of credit as of August 31, 2013 was $285.9 million which included $56.5 million that could also be utilized for long-term borrowing purposes. As of August 31, 2013, the Company had no outstanding loans with the CCC and had the capacity to obtain non-recourse loans from the CCC of approximately $108.8 million.

Maximum borrowings, average borrowing levels and average interest rates for short-term debt for the years ended August 31, 2014 and 2013, follow:

(In Thousands, Except Interest Rates) 2014 2013

Maximum Borrowings $ 291,150 $ 383,320Average Borrowing Levels $ 192,587 $ 238,467Average Interest Rates 0.61% 0.68%

The terms of the loan agreements contain prepayment penalties along with certain covenants related to, among other matters, the: level of working capital; ratio of term liabilities to members’ investments; current ratio; interest coverage ratio; and investment in CoBank, ACB stock in amounts prescribed by the bank. Substantially all non-current assets are pledged to the senior lenders to provide security to support the Company’s seasonal and long-term financing. As of August 31, 2014 and 2013, the Company was in compliance with the terms of the loan agreements.

Interest paid, net of amounts capitalized, was $6.9 million and $9.6 million for the years ended August 31, 2014 and 2013, respectively.

(6) INVESTMENTS IN MARKETING COOPERATIVES:

The Company has a 61 percent ownership interest and a 33 1/3 percent voting interest in United. The investment is accounted for using the equity method. As of August 31, 2014, the Company’s investment in United was approximately $6.8 million. Substantially all sugar products produced are sold by United as an agent for the Company. The amount of sales and related costs to be recognized by each owner of United is allocated based on its pro rata share of sugar production for the year. The owners provide United with cash advances on an ongoing basis for operating and marketing expenses incurred by United. The Company had outstanding advances to United of $13.3 million and $16.4 million as of August 31, 2014 and 2013, respectively. The Company provides administrative services for United and is reimbursed for costs incurred. The Company was reimbursed approximately $1.0 million for services provided in each of the years 2014 and 2013.

The Company has a 41 percent ownership interest and a 25 percent voting interest in Midwest. The investment is accounted for using the equity method. As of August 31, 2014, the Company’s investment in Midwest was approximately $61,000. Substantially all sugarbeet pulp, molasses and other agri-products produced are sold by Midwest as an agent for the Company. The amount of sales and related costs to be recognized by each owner of Midwest is allocated based on its pro rata share of production for each product for the year. The owners provide Midwest with cash advances on an ongoing basis for operating and marketing expenses incurred by Midwest. The Company had outstanding advances due to Midwest of $4.5 million and $4.4 million as of August 31, 2014 and 2013, respectively. The Company provides administrative services for Midwest and is reimbursed for costs incurred. The Company was reimbursed $108,000 and $133,000 for services provided during 2014 and 2013, respectively. The owners of Midwest are guarantors of an $11.0 million short-term line of credit Midwest has with CoBank, ACB. As of August 31, 2014, Midwest had outstanding short-term debt with CoBank, ACB of $4.9 million, of which $1.6 million was the proportional amount guaranteed by the Company.

The Company has performed a complete analysis and has determined that its investments in United and Midwest do not meet the criteria of Variable Interest Entities and therefore such entities are not consolidated in the Company’s Consolidated Financial Statements.

(7) INVESTMENTS IN WEST COAST BEET SEED COMPANY:

The Company has a 15 percent ownership interest in West Coast Beet Seed Company (WCBS). The investment is accounted for on a cost basis. As of August 31, 2014, the Company’s investment in WCBS was approximately $1,000 and is included in Other Assets on the Consolidated Balance Sheets. WCBS contracts with growers for the production of sugarbeet seed per the requirements of the owners of WCBS. The owners provide WCBS with cash advances on an ongoing basis for operating expenses incurred by WCBS. The Company had outstanding advances to WCBS of $ .5 million and $ .6 million as of August 31, 2014 and 2013, respectively.


The Company is exposed to interest risk primarily through its borrowing activities. On December 24, 2009, the Company entered into an interest rate swap contract associated with a $27.3 million Industrial Development Revenue Bond issue that matures on September 1, 2019. The interest rate swap contract requires payment of a fixed interest rate of 2.827 % and the receipt of a variable rate of interest based on the Securities Industry and Financial Market Association (SIFMA) index of .05 % as of August 31, 2014, on $27.3 million of indebtedness. The Company has designated this interest rate swap contract as a cash flow hedge. Inputs used to measure the fair value of the interest rate swap contracts are contained within level 2 of the fair value hierarchy. The fair value of the cash flow hedge is recorded in accumulated other comprehensive income (loss) and will be reclassified to interest expense over the life of the swap contract. No material ineffectiveness was recognized in earnings during the years ended August 31, 2014 and 2013. The current year’s loss of $754,000 is classified as interest expense on the statements of operations.

The following tables present the fair value of the Company’s derivatives and their Consolidated Balance Sheet location:

(In Thousands) Fair Value of Asset Derivatives as of August 31

Balance Sheet Location 2014 2013

Derivatives Designated as Hedging Instruments:

Foreign Currency Forward Contracts Prepaid Expenses $ — $ 2

Foreign Currency Forward Contracts Other Assets — 5

Total Asset Derivatives $ — $ 7

(In Thousands) Fair Value of Liability Derivatives as of August 31

Balance Sheet Location 2014 2013

Derivatives Designated as Hedging Instruments:

Foreign Currency Forward Contracts Other Current Liabilities $ 5 $ —

Interest Rate Contracts Other Current Liabilities 715 699

Interest Rate Contracts Other Long-Term Liabilities 863 1,125

Total Liability Derivatives $ 1,583 $ 1,824

(10) OPERATING LEASES:

The Company is party to operating leases for such items as rail cars, computer hardware and vehicles. Cargill, Incorporated has assumed responsibility for the payments on a rail car lease for the duration of that lease and accordingly, the lease payments are not included in the table below. Operating lease expense was $1.8 million and $1.9 million for the years ended August 31, 2014 and 2013, respectively. Future minimum payments under these obligations are as follows:

Fiscal year ending August 31, (In Thousands)

2015 $ 1,6902016 1,4842017 1,1352018 1,0852019 1,024Thereafter 1,845Total $ 8,263

(11) EMPLOYEE BENEFIT PLANS:

Company-Sponsored Defined Benefit Pension and Other Post-Retirement Benefit Plans

Substantially all employees who meet eligibility requirements of age, date of hire and length of service are covered by a Company-sponsored retirement plan. As of August 31, 2014, the pension plans were funded as required by the funding standards set forth by the Employee Retirement Income Security Act (ERISA). The Company also has non-qualified supplemental executive retirement plans for certain employees.

Employees of the Company who are not members of a collective bargaining unit and who are newly hired, or re-hired, and employees who transfer from a union position to a non-union position on or after September 1, 2007, are not eligible for participation in the defined benefit pension plan. These employees participate in a defined contribution plan as described later in this note.

The Company’s Investment Committee has the responsibility of managing the Company’s pension plans and trust. Investment allocation decisions are made by the Investment Committee, pursuant to an Investment Policy (Policy) that includes a target strategic asset allocation. The Investment Committee is committed to diversification to reduce the risk of large losses. The Policy allows some flexibility within the target asset allocation in recognition that market fluctuations may cause the allocation to a specific asset class to move up or down within a range. The Policy is reviewed periodically by the Investment Committee. The asset allocation targets within the Plan, include four areas; Domestic Equity, International Equity, Fixed Income and Cash & Other. Domestic and International Equity consists primarily of publicly traded U.S. and Non-U.S. equities, respectively. The Cash & Other allocation is allowed only as necessary for impending benefit payments, lump

(In Thousands) Plan Assets at Fair Value August 31, 2014

Level 1 Level 2 Level 3 Total Common/collective trusts

Equity index fund $ — $ 59,212 $ — $ 59,212

Diversified inflation hedges — 11,743 — 11,743 Registered investment company

Fixed income 71,045 — — 71,045

Domestic equity 47,274 — — 47,274

International equity 46,650 — — 46,650 Money market fund 644 — — 644 Total Plan Assets at Fair Value $ 165,613 $ 70,955 $ — $ 236,568

(In Thousands) Plan Assets at Fair Value August 31, 2013

Level 1 Level 2 Level 3 Total Common/collective trusts

Equity index fund $ — $ 55,481 $ — $ 55,481

Diversified inflation hedges — 9,291 — 9,291 Registered investment company

Fixed income 60,349 — — 60,349

Domestic equity 45,528 — — 45,528

International equity 42,012 — — 42,012 Money market fund 2 — — 2 Total Plan Assets at Fair Value $ 147,891 $ 64,772 $ — $ 212,663

sum contributions made by the company, or as authorized by the Investment Committee. The Policy does not allow direct use of derivatives, however, the Plan invests entirely in commingled or mutual funds, which may allow investment in derivatives. The stated goal is for each component of the plan to earn a rate of return greater than its corresponding benchmark. Progress of the plan against its return objectives will be measured over a full market cycle.

The following schedule reflects the percentage of pension plan assets by asset class as of the latest measurement date, August 31, 2014:

Percentage of Pension Plan Assets by Asset Class as of August 31, 2014

Asset Class Target Range Actual Allocation

Domestic Equity 35.0%-55.0% 45.0%

International Equity 15.0%-25.0% 19.7%

Fixed Income 20.0%-40.0% 30.0%

Cash & Other 0.0%-10.0% 5.3%

There have been no changes in the valuation methodologies used at August 31, 2014 and 2013. The Plan’s investment in the common/collective trust consists of investments in the WF Equity Index N Fund (Fund) managed by Wells Fargo Bank NA and the WTC-CIF Diversified Inflation Hedges (WTC-CIF) managed by Wellington Management. The net asset value of the Fund is determined daily. All earnings, gains and losses of the Fund are reflected in the computation of the daily unit value and are realized by the plan upon withdrawal from the Fund. The fund has a daily redemption frequency and redemption notice period with no unfunded commitments. WTC-CIF uses the accrual method of accounting in calculating net asset value of the fund daily based on a market, cost, or income approach depending on the underlying investment. All earnings, gains and losses are reflected in the computation of the monthly unit value and are realized by the plan upon withdrawal. Registered investment companies are valued at the net asset value of shares held by the Plan at year end based on quoted market prices. The money market fund is valued at quoted market price, which is cost plus accrued interest.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

To develop the expected long-term rate of return on assets assumption, the Company considered the historical returns and the future expectations for returns for each asset class, as well as, the target asset allocation of the pension portfolio. This resulted in the selection of the 7.0% long-term rate of return on assets assumption.

The following schedules reflect the fair values of the pension plan assets by major category as of August 31, 2014 and 2013:


Funded StatusFunded Status as of August 31, $ (6,364) $ (6,124) $ (19,025) $ (29,377)Net Amount Recognized $ (6,364) $ (6,124) $ (19,025) $ (29,377)

Amounts Recognized in the Balance SheetsNoncurrent Assets $ 2,968 $ 2,282 $ — $ —Current Liabilities (3,896) (3,642) (1,181) (1,362) Noncurrent Liabilities (5,436) (4,764) (17,844) (28,015) Net Amount Recognized $ (6,364) $ (6,124) $ (19,025) $ (29,377)

Prior Service Cost Recognized in Accumulated Other Comprehensive Income Prior Service Cost Beginning of the Year $ (996) $ (23) $ 1,458 $ —Recognized in Periodic Cost 238 8 (364) —Amount Arising During the Year — (981) 9,808 1,458Prior Service Cost End of the Year $ (758) $ (996) $ 10,902 $ 1,458

Accumulated Gain (Loss) Recognized in Accumulated Other Comprehensive IncomeAccumulated Gain (Loss) Beginning of the Year $ (47,963) $ (91,786) $ 10,132 $ (2,570)Recognized in Periodic Cost 3,694 9,661 (1,436) 227Amount Arising During the Year (6,680) 34,162 480 12,475Accumulated Gain (Loss) End of the Year $ (50,949) $ (47,963) $ 9,176 $ 10,132

The following schedules set forth a reconciliation of the changes in the plans’ benefit obligation and fair value of assets for the years ending August 31, 2014 and 2013, and a statement of the funded status and amounts recognized in the Balance Sheets and Accumulated Other Comprehensive Income as of August 31, 2014 and 2013:

Pension Post-Retirement

(In Thousands) 2014 2013 2014 2013

Change in Benefit Obligation Obligation at the Beginning of the Year $ 218,787 $ 241,584 $ 29,377 $ 41,912Service Cost 3,535 2,166 472 1,121Interest Cost 10,202 8,803 1,369 1,529Plan Amendments — 981 (9,808) (1,458)Plan Participant Contributions — — 639 604Government Subsidies — — 52 54Actuarial (Gain) Loss 24,602 (25,477) (480) (12,475)Benefits Paid (14,194) (9,270) (2,596) (1,910)Obligation at the End of the Year $ 242,932 $ 218,787 $ 19,025 $ 29,377

Change in Plan AssetsFair Value at the Beginning of the Year $ 212,663 $ 192,390 $ — $ —Actual Return on Plan Assets 32,611 22,644 — —Plan Participant Contributions — — 639 604Government Subsidies — — 52 54Employer Contributions 5,488 6,899 1,905 1,252Benefits Paid (14,194) (9,270) (2,596) (1,910)Fair Value at the End of the Year $ 236,568 $ 212,663 $ — $ —

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

(In Thousands) Pension Post-Retirement

2015 $ 10,586 $ 1,182 2016 10,834 1,172 2017 11,377 1,236 2018 11,954 1,275 2019 15,483 1,386 2020-2024 70,400 7,136 Total $ 130,634 $ 13,387

The Company expects to make contributions of approximately $5.0 million to the defined benefit pension plans, approximately $99,000 related to Supplemental Executive Retirement Plans and approximately $1.2 million to the post-retirement plans during the next fiscal year.

The following schedules provide the components of the Net Periodic Pension and Post-Retirement Costs for the years ended August 31, 2014 and 2013:

Components of Net Periodic Pension Cost (In Thousands) 2014 2013

Service Cost $ 3,535 $ 2,166Interest Cost 10,202 8,803Expected Return on Plan Assets (14,688) (13,959)Amortization of Prior Service Costs 238 8Amortization of Net Loss 3,694 9,661Net Periodic Pension Cost $ 2,981 $ 6,679

Components of Net Periodic Post-Retirement Cost (In Thousands) 2014 2013

Service Cost $ 472 $ 1,121Interest Cost 1,369 1,528Amortization of Prior Service Costs (364) —Amortization of Net (Gain) Loss (1,436) 228Net Periodic Post-Retirement Cost $ 41 $ 2,877

Prior service costs are amortized over the lesser of seven years or the length of the union contract that included the benefit change.

For measurement purposes, a 7.0 percent annual rate of increase in the per capita cost of covered healthcare benefits for participants under age 65 was assumed for 2014. The rate is assumed to decline to 4.5 percent over the next five years. For participants age 65 and older, an 8.0 percent annual rate of increase in the per capita cost of covered healthcare benefits was assumed for 2014. The rate is assumed to decline to 5.5 percent over the next five years.

Weighted Average Assumptions as of August 31, Pension Post-Retirement

2014 2013 2014 2013

Discount Rate 4.00% 4.78% 4.00% 4.78% Expected Return on Plan Assets 7.00% 7.00% N/A N/ARate of Compensation Increase 3.50% 3.50% N/A N/A

The development of the discount rate was based on a bond matching model whereby a hypothetical portfolio of bonds with an “AA” or better rating by a nationally recognized debt rating agency was constructed to match the expected benefit payments under the Company’s pension plans through the year 2044. The reinvestment rate for benefit cash flow occurring after 2044 was discounted back to the year 2044 at a rate consistent with the yields on long-term zero-coupon bonds. The resulting present value was treated as additional benefit cash flow for the year 2044 and consistently applied as any other benefit cash flow during the bond matching process.

The Company has a medical plan and a Medicare supplement plan which are available to certain union and non-union retirees. The costs of these plans are shared by the Company and plan participants. The Company’s post-retirement plan for certain non-union employees currently coordinates with Medicare’s medical coverage and provides tiered prescription drug coverage. The Company has determined that this plan is actuarially equivalent to Medicare Part D and therefore qualifies for the Federal subsidy provision in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. This provision allows the Company to receive a subsidy of 28 percent of the dollars spent providing prescription drug coverage. The Company also participates in the Federal Early Retiree Reinsurance Program which provides reimbursement of medical expenses for early and disability retirees between the ages of 55 and 65 who are not covered by Medicare.

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

(In Thousands) 1% Increase 1% Decrease

Effect on total service and interest cost components of net periodic post-retirement benefit costs. $ 307 $ (248)Effect on the accumulated post-retirement benefit obligation. $ 2,140 $ (1,801)

The estimated amounts that will be amortized from Accumulated Other Comprehensive Income at August 31, 2014, into net periodic benefit cost in fiscal 2015 are as follows:

(In Thousands) Pension Post-RetirementPrior Service Cost (Credit) $ 238 $ (1,766)Accumulated (Gain) Loss 3,765 (1,311)Total $ 4,003 $ (3,077)

The accumulated pension benefit obligation was $231.3 million and $209.4 million as of August 31, 2014 and 2013, respectively.


(12) MEMBERS’ INVESTMENTS:

The following schedule details the Preferred Stock and Common Stock as of August 31, 2014 and 2013:

Par Shares Shares Issued Value Authorized & Outstanding

Preferred Stock: August 31, 2014 $ 76.77 600,000 498,570August 31, 2013 $ 76.77 600,000 498,570

Common Stock: August 31, 2014 $ 10.00 4,000 2,738August 31, 2013 $ 10.00 4,000 2,757

The components of Accumulated Other Comprehensive Income (Loss) as reflected in Members’ Investments on the Consolidated Balance Sheets are as follows:

August 31 August 31 (In Thousands) 2014 2013

Pension and Other Post-Retirement Benefits $ (31,629) $ (37,369) Derivative Interest Rate Contract (1,578) (1,824) Foreign Currency Forward Contracts (5) 7 OCI of Equity Method Investees (5,689) (4,430)

Total Accumulated Other Comprehensive Income (Loss) $ (38,901) $ (43,616)

(13) SEGMENT REPORTING:

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

Defined Contribution Plan

The Company has a qualified 401(k) plan for all eligible employees. Participants may contribute a percentage of their gross earnings each pay period as provided in the participation agreement. The Company matches the non-union and eligible union year-round participants’ contributions up to 4 percent and 2 percent, respectively, of their gross earnings. The plan provides for immediate vesting of these benefits. The Company’s contributions for this element of the plan totaled $2.1 million and $1.8 million for the years ended August 31, 2014 and 2013, respectively.

Employees of the Company who are not members of a collective bargaining unit and who are newly hired, or rehired, and employees who transfer from a union position to a non-union position on or after September 1, 2007, are no longer eligible for participation in the defined benefit pension plan but receive a 4% non-elective Company contribution to the 401(k) plan. These Company contributions have a six year vesting schedule. Due to forfeitures, the Company did not make any contributions for this element of the plan for the year ended August 31, 2014. The Company made contributions of $1.6 million for the year ended August 31, 2013.

Long-Term Incentive Plan

The Company’s Long-Term Incentive Plan provides deferred compensation to certain key executives of the Company. The plan creates financial incentives that are based upon contract rights which are available to the executive under the terms of the plan, the value of which is determined by the Board of Directors. During 2014, 65.64 vested contract rights were exercised and 94.57 unvested contract rights were forfeited. In 2014, 119.12 contract rights were granted at a stated value of $1,800 per contract right. At August 31, 2014, the Board of Directors decreased the value of the 1,008.33 contract rights previously granted and outstanding from $2,000 to $1,800 per contract right. As of August 31, 2014, there were 1,127.45 contract rights issued and outstanding at a stated value of $1,800 per contract right, of which 787.78 were vested.

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

(In Thousands) For the Year Ended August 31, 2014

Sugar Leasing Consolidated

Net Revenue from External Customers $1,363,602 $ 24,183 $1,387,785Gross Proceeds $ 813,981 $ 12,379 $ 826,360Depreciation and Amortization $ 45,511 $ 11,588 $ 57,099Interest Income $ 104 $ — $ 104Interest Expense $ 6,816 $ 2 $ 6,818Loss from Equity Method Investees $ (729) $ — $ (729)Other Income/(Expense), Net $ 141 $ — $ 141Consolidated Net Proceeds $ 495,052 $ 12,282 $ 507,334

Capital Additions $ 79,047 $ 3,272 $ 82,319

(In Thousands) For the Year Ended August 31, 2013


Net Revenue from External Customers $1,579,325 $ 24,079 $1,603,404Gross Proceeds $1,097,774 $ 12,312 $1,110,086Depreciation and Amortization $ 43,773 $ 11,539 $ 55,312Interest Income $ 76 $ — $ 76Interest Expense $ 9,692 $ 2 $ 9,694Loss from Equity Method Investees $ (258) $ — $ (258)Other Income/(Expense), Net $ 106 $ — $ 106Consolidated Net Proceeds $ 783,247 $ 12,210 $ 795,457

Capital Additions $ 76,527 $ 2,179 $ 78,706

(In Thousands) As of August 31, 2014


Property and Equipment, Net $ 471,053 $ — $ 471,053Assets Held for Lease, Net $ — $ 65,975 $ 65,975Segment Assets $ 815,464 $ 67,311 $ 882,775

(In Thousands) As of August 31, 2013


Property and Equipment, Net $ 439,567 $ — $ 439,567Assets Held for Lease, Net $ — $ 74,507 $ 74,507Segment Assets $ 874,583 $ 76,402 $ 950,985

(14) FAIR VALUE OF FINANCIAL INSTRUMENTS:

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Quoted market prices are generally not available for the Company’s financial instruments. Fair values are based on judgments regarding anticipated cash flows, future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates involve uncertainties and matters of judgment, and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Long-Term Debt, Inclusive of Current Maturities – Based upon discounted cash flows and current borrowing rates with similar maturities, the fair value of the long-term debt as of August 31, 2014, was approximately $139.3 million in comparison to the carrying value of $158.1 million. The fair value of the long-term debt as of August 31, 2013, was approximately $136.3 million in comparison to the carrying value of $128.4 million.

Investments in CoBank, ACB and Investments in Marketing Cooperatives – The Company believes it is not practical to estimate the fair value of these investments without incurring excessive costs because there is no established market for these securities and equity interests, and it is inappropriate to estimate future cash flows which are largely dependent on future earnings of these organizations.


(15) INCOME TAXES:

As of August 31, 2014 and 2013, the Company had no unrecognized tax benefits. Any future accrued interest or penalties related to unrecognized tax benefits will be recognized in income tax expense if incurred. The Company is no longer subject to U.S. Federal income tax examinations by tax authorities for fiscal years 2010 and earlier. The Company is no longer subject to state income tax examinations by tax authorities for fiscal years 2010 and earlier.

Total income tax payments were $1.8 million and $11.0 million for the years ended August 31, 2014 and 2013, respectively.

The Company’s net deferred tax liability included in Other Liabilities on the Company’s Balance Sheets as of August 31, 2014 and 2013 is reflected below:

(In Thousands) 2014 2013Deferred Tax Assets related to non-patronage source temporary differences $ 4,572 $ 5,132Deferred Tax Liability related to non-patronage source temporary differences 7,965 9,542Net Deferred Tax Liability $ 3,393 $ 4,410

Income tax expense for the years ended August 31, 2014 and 2013 is as follows:

(In Thousands) 2014 2013Current Income Taxes $ 1,603 $ 5,038Deferred Income Taxes 1,017 (1,554)Total Income Tax Expense $ 2,620 $ 3,484

A reconciliation of the Company’s effective tax rates for the years ended August 31, 2014 and 2013 is shown below:

2014 2013Federal tax expense at statutory rate 34.0% 34.0%State tax expense at statutory rate 2.0 2.0Payments to members (35.3) (35.3)Other, net (0.2) (0.3)Effective tax rate 0.5% 0.4%

Foreign Currency Forward Contracts – Based on a variety of pricing factors, which include the market price of the foreign currency forward contract available in the dealer-market, the fair value of the open contracts as of August 31, 2014, was a liability of approximately $5,000. The fair value of the open contracts as of August 31, 2013, was an asset of approximately $7,000. Inputs used to measure the fair value of the foreign currency forward contracts are quoted prices in active markets for identical assets or liabilities and therefore are contained within level 1 of the fair value hierarchy. See the tables below.

Interest Rate Contracts – Based on the zero coupon method in which the term, notional amount, and repricing date of the interest rate swap match the term, repricing date, and principal amount of the interest-bearing liability on which the hedging interest payments are due, the fair value of the interest rate contract as of August 31, 2014, was a liability of approximately $1.6 million. The fair value of the interest rate contract as of August 31, 2013, was a liability of approximately $1.8 million. Inputs used to measure the fair value of the interest rate swap contracts are quoted prices in active markets for similar assets or liabilities and therefore are contained within level 2 of the fair value hierarchy. See the tables below.

The tables below reflect the assets and liabilities measured at fair value on a recurring basis as of August 31, 2014 and 2013.

(16) 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 meet 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). 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 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. Although the Company has had some preliminary discussions with the EPA concerning possible settlement of the alleged violations, there are no such discussions currently active. 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.

(17) LEGAL MATTERS:

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.

(18) SUBSEQUENT EVENTS:

The Company has evaluated events through the date that the financial statements were available to be issued, October 15, 2014, for potential recognition or disclosure in the August 31, 2014, financial statements.

On September 30, 2014, the Company paid CoBank, ACB $30.0 million in satisfaction of the term loan that was outstanding as of August 31, 2014. On the same day, the Company borrowed $20.0 million from CoBank, ACB at a variable interest rate and maturity amounts of $5.0 million each due in August of 2024 through 2027.

The Company also entered into an interest rate swap contract with CoBank, ACB on September 30, 2014 associated with the previously mentioned $20.0 million loan. The interest rate swap contract requires payment of a fixed interest rate of 2.71 % and the receipt of a variable rate of interest based on one month LIBOR on the $20.0 million of indebtedness. The Company has designated this interest rate swap contract as a cash flow hedge.

On October 1, 2014, the Company borrowed $10.0 million from John Hancock Financial Services at a fixed interest rate of 4.93% and a maturity date of 2034.

These notes are an integral part of the accompanying Consolidated Financial Statements.

(In Thousands) Fair Value of Assets as of August 31, 2013

Level 1 Level 2 Level 3 Total Foreign Currency Forward Contracts $ 7 $ — $ — $ 7 Total $ 7 $ — $ — $ 7

(In Thousands) Fair Value of Liabilities as of August 31, 2014

Level 1 Level 2 Level 3 Total Foreign Currency Forward Contracts $ 5 $ — $ — $ 5 Interest Rate Contracts — 1,578 — 1,578

Total $ 5 $ 1,578 $ — $ 1,583

(In Thousands) Fair Value of Liabilities as of August 31, 2013

Level 1 Level 2 Level 3 Total Interest Rate Contracts $ — $ 1,824 $ — $ 1,824 Total $ — $ 1,824 $ — $ 1,824


For the Years Ended August 31

(In Thousands, Except Per-Ton-Purchased and Per-Acre-Harvested Amounts) (Not Covered by Independent Auditors’ Report) 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005

Net Proceeds Attributable to American Crystal Sugar Company $ 501,316 $ 789,474 $ 548,253 $ 804,831 $ 526,112 $ 536,151 $ 542,693 $ 601,392 $ 445,091 $ 373,260 Non-Member (Income) Loss (4,586) (8,597) (10,895) (8,741) (5,426) (2,309) 4,787 (2,286) (2,246) (2,475)

Member Gross Beet Payment 496,730 780,877 537,358 796,090 520,686 533,842 547,480 599,106 442,845 370,785 Unit Retains (21,948) (34,221) (27,453) (43,574) (29,531) (31,024) (23,260) (35,705) (26,417) (18,840)

Member Net Beet Payment $ 474,782 $ 746,656 $ 509,905 $ 752,516 $ 491,155 $ 502,818 $ 524,220 $ 563,401 $ 416,428 $ 351,945

Per Ton Purchased:

Net Proceeds Attributable to American Crystal Sugar Company $ 45.65 $ 69.16 $ 59.86 $ 73.82 $ 53.42 $ 51.80 $ 46.63 $ 50.49 $ 50.50 $ 39.59 Non-Member (Income) Loss (0.42) (0.75) (1.19) (0.80) (0.55) (0.22) 0.41 (0.19) (0.25) (0.26)

Member Gross Beet Payment 45.23 68.41 58.67 73.02 52.87 51.58 47.04 50.30 50.25 39.33 Unit Retains (2.00) (3.00) (3.00) (4.00) (3.00) (3.00) (2.00) (3.00) (3.00) (2.00)

Member Net Beet Payment $ 43.23 $ 65.41 $ 55.67 $ 69.02 $ 49.87 $ 48.58 $ 45.04 $ 47.30 $ 47.25 $ 37.33

Member Tons Harvested 10,982 11,415 9,158 10,902 9,849 10,349 11,639 11,911 8,813 9,427

Member Gross Beet Payment Per Acre Harvested $ 1,140 $ 1,854 $ 1,212 $ 1,923 $ 1,177 $ 1,310 $ 1,107 $ 1,278 $ 947 $ 764

Member Net Beet Payment Per Acre Harvested $ 1,090 $ 1,773 $ 1,151 $ 1,818 $ 1,110 $ 1,234 $ 1,060 $ 1,201 $ 890 $ 725

Distribution of Net Proceeds Attributable to American Crystal Sugar Company

Gross Beet Payment Per Average Ton (DOLLARS per ton)

Gross Beet Payment(MILLIONS of dollars)

Net Beet Payment(MILLIONS of dollars)

Gross Beet Payment Per Average Acre (DOLLARS per acre)

Net Beet Payment Per Average Ton (DOLLARS per ton)

Net Beet Payment Per Average Acre (DOLLARS per acre)

$0

$200

$400

$1000

$600

$800

$1200

$1400

$1600

$1800

$2000

070605 08 09 10 11 12 13 14$0

$10

$20

$30

$40

$50

$60

$70

$80

07 09 10 11 08 0605 12 13 14$0

$200

$400

$600

$800

$1000

07 08 09 10 110605

$1200

$1400

$1600

$1800

$2000

12 13 14$0

$10

$20

$30

$40

$50

$60

$70

070605 08 09 10 11 12 13 14$0

$100

$200

$300

$400

$500

$600

$700

$800

07 09 10 11080605 12 13 14$0

$100

$200

$300

$400

$500

$600

$700

$800

070605 08 09 10 11 12 13 14


For the Years Ended August 31

(In Thousands, Except Ratios, Per-Acre-Harvested and Percentage Amounts) (Not Covered by Independent Auditors’ Report) 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005

Net Revenue $ 1,387,785 $ 1,603,404 $ 1,479,095 $ 1,542,777 $ 1,203,897 $ 1,200,229 $ 1,232,832 $ 1,222,857 $ 1,005,716 $ 965,474 Total Assets $ 882,775 $ 950,985 $ 899,480 $ 878,107 $ 788,743 $ 761,258 $ 813,299 $ 875,315 $ 839,997 $ 774,024 Total Members’ Investments $ 408,095 $ 417,208 $ 340,190 $ 361,499 $ 330,610 $ 339,528 $ 391,115 $ 395,620 $ 379,355 $ 367,230 Long-Term Debt, Net of Current Maturities $ 151,995 $ 128,060 $ 128,360 $ 128,640 $ 140,698 $ 143,073 $ 157,801 $ 157,974 $ 200,037 $ 216,842 Ratio of Debt to Total Members’ Investments .37:1 .31:1 .38:1 .36:1 .43:1 .42:1 .40:1 .40:1 .53:1 .59:1 Interest Expense, Net $ 6,818 $ 9,694 $ 8,165 $ 9,684 $ 9,012 $ 10,058 $ 14,750 $ 20,281 $ 19,096 $ 19,170 Property and Equipment Additions, Net of Retirements $ 79,337 $ 77,748 $ 52,080 $ 64,162 $ 73,512 $ 47,687 $ 45,188 $ 63,032 $ 45,453 $ 42,595 Depreciation and Amortization $ 57,099 $ 55,312 $ 54,072 $ 58,333 $ 55,580 $ 55,046 $ 58,197 $ 57,481 $ 56,753 $ 59,558 Working Capital $ 43,498 $ 55,799 $ 70,849 $ 53,110 $ 53,994 $ 50,482 $ 57,775 $ 36,929 $ 58,214 $ 47,514

Red River Valley Statistics — Member Business

Acres Harvested 436 421 443 414 442 408 494 469 468 485 Tons Purchased 10,982 11,415 9,158 10,902 9,849 10,349 11,639 11,911 8,813 9,427 Tons Purchased per Acre Harvested 25.2 27.1 20.7 26.3 22.3 25.4 23.5 25.4 18.8 19.4 Sugar Content of Sugarbeets 17.3% 19.1% 18.0% 18.1% 16.7% 17.6% 18.1% 18.2% 18.0% 17.7% Sugar Hundredweight Produced 30,934 34,568 26,051 33,494 27,386 29,611 34,276 34,814 27,289 28,037 Pulp Tons Produced 417 450 334 493 436 460 519 556 448 471 Molasses Tons Produced 60 167 98 22 27 36 107 124 26 22 CSB Tons Produced 197 168 156 187 158 166 164 164 154 156 Betaine Tons Produced 19 19 14 20 16 19 19 22 21 21

Selected Financial Data and Certain Statistics

Net Revenue(MILLIONS of dollars)

Members’ Investments(MILLIONS of dollars)

Long-Term Debt and Debt/Equity (MILLIONS of dollars)

Property and Equipment Additions, Net of Retirements (MILLIONS of dollars)

Tons Purchased Per Acre Harvested (TONS per acre)

Sugar Content of Sugarbeets (PERCENT)

06 07 09 10 11050%

4%

8%

12%

16%

20%

08 12 13 140

5

10

15

20

25

30

07 08 09 10 110605 12 13 14$0

$20

$40

$60

$80

$100

06 07 09 10 1105 08 12 13 14

1.50

1.25

1.00

0.75

0.50

0.25

0

$300

$250

$200

$150

$100

$50

$00605 07 09 10 1108 12 13 14

$450

$400

$350

$300

$250

$200

$150

$100

$50

$00605 07 09 10 1108 12 13 1406 07 09 10 1105 08 12 13 14

$1,600

$1,400

$1,200

$1,000

$800

$600

$400

$200

$0


David Garland General Manager (406) 433-9333

David Walden Director, Factory Operations (218) 281-0142

Jerry Christenson Agronomy Manager (218) 281-0107

Tom Newcomb Agronomy Manager (701) 454-3238

Jerry Christenson Agronomy Manager (218) 281-0107

Greg Richards Agronomy Manager (218) 291-5472

Greg Richards Agronomy Manager (218) 291-5472

Marketing

Midwest Agri-Commodities Company Headquarters 999 Fifth Avenue, Suite 500 San Rafael, CA 94901 (415) 259-2720

James Eichenberger President

Darryl Salter Vice President North American Operations

Kevin Christensen Vice President Finance

United Sugars Corporation Headquarters 7803 Glenroy Road, Suite 300 Bloomington, MN 55439 (952) 896-0131

John Doxsie President

Mike Kerber Vice President Sales and Marketing Consumer

Catherine Maruska Vice President Operations

Dirk Swart Vice President Sales and Marketing Industrial

Kae Kaske Vice President

Executive Personnel

David Berg President and Chief Executive Officer

Lisa Borgen Vice President Administration

Brian Ingulsrud Vice President Agriculture

Teresa Warne Vice President Finance

Kevin Price Vice President Government Affairs

Thomas Astrup Vice President Operations

Daniel Mott Secretary and General Counsel

Samuel Wai Treasurer Assistant Secretary

Steve Rosenau Corporate Controller Assistant Treasurer Assistant Secretary

Mark Lembke Assistant Treasurer Assistant Secretary

David Malmskog Assistant Treasurer Assistant Secretary

Lisa Maloy Assistant Treasurer Assistant Secretary

Ronald Peterson Assistant Treasurer Assistant Secretary

Annual Meeting

The 2014 Annual Meeting of the members will be held December 4, 2014, at the Holiday Inn, Fargo, ND

Auditors

CliftonLarsonAllen LLP Stevens Point, WI

Legal Counsel

Fredrikson & Byron PA Minneapolis, MN

Shareholder Information

The Treasury Department can help members with beet payments, transferring shares, changes of address, and similar matters. For assistance, contact:

Karen Brown Stockholder Accounting Supervisor (218) 236-4432

Financial Information

For information regarding American Crystal business operations or financial reports, shareholders should contact:

Teresa Warne Vice President Finance (218) 236-4364

News Media Inquiries

News media representatives and others needing information about American Crystal corporate activities should contact:

Jeff Schweitzer Public Relations Manager (218) 236-4492

BUSINESS INFORMATION

Al Zola Factory Manager (701) 454-3230

Lloyd Kennedy Factory Manager (218) 773-5124

Brad Carlson Factory Manager (701) 436-3103

Randy Axtman Factory Manager (218) 291-5431

Crookston Factory • 1201 U.S. 75 • Crookston, MN 56716 Drayton Factory • 8152 Old Highway 44 • Drayton, ND 58225

East Grand Forks Factory • 1020 Business Hwy 2 • East Grand Forks, MN 56721 Hillsboro Factory • 121 Hwy 18 NE • Hillsboro, ND 58045

Moorhead Factory • 2500 North 11th Street • Moorhead, MN 56560 Sidney Sugars Factory • 35140 County Road 125 • Sidney, MT 59270

Russ Fullmer Agricultural Manager (406) 433-9310

101 North Third Street Moorhead, Minnesota 56560

www.crystalsugar.com

american crystal 2014sugar company

Documents