**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 

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

 

# **For the periodended May 31, 2005**

 

## **Commission file number:  33-83868**

 

**AMERICAN CRYSTAL SUGAR COMPANY**

(Exact name of registrant as specified in its charter)

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

 

**101 North Third Street**

**Moorhead, Minnesota  56560**

(Address of principal executive offices)

 

**Telephone Number (218) 236-4400**

(Registrant’s telephone number, including area code)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months, and (2) has been subject to such filing requirements for the past90 days.

 
| YES   ý |   | NO   o |
|-----------------------------|--------|-----------------------|

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in rule 12b-2of the Act).

 
| YES   o |   | NO   ý |
|------------------------|--------|----------------------------|

 

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

 

| **Class of Common Stock** | ** ** | **Outstanding at  July 5, 2005** |
|--------------------------------|------------|---------------------------------------|
| **$10 Par Value**              | ** ** | **2,902**                             |

 

 

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**AMERICAN CRYSTAL SUGAR COMPANY**

 

**FORM 10-Q**

 

**INDEX**

 
| **PART I**  | **FINANCIAL  INFORMATION**                                                                      |   |
|------------------|-------------------------------------------------------------------------------------------------|--------|
|             |                                                                                            |   |
| **ITEM 1.**      | **CONSOLIDATED  FINANCIAL STATEMENTS**                                                          |   |
|             |                                                                                            |   |
| ** **       | **CONSOLIDATED BALANCE SHEETS**                                                                 |   |
|             |                                                                                            |   |
| ** **       | **CONSOLIDATED  STATEMENTS OF OPERATIONS**                                                      |   |
|             |                                                                                            |   |
| ** **       | **CONSOLIDATED  STATEMENTS OF CASH FLOWS**                                                      |   |
|             |                                                                                            |   |
| ** **       | **NOTES TO  THE CONSOLIDATED FINANCIAL STATEMENTS**                                             |   |
|             |                                                                                            |   |
| **ITEM 2.**      | **MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS  OF OPERATIONS AND FINANCIAL CONDITION** |   |
|             |                                                                                            |   |
| **ITEM 3.**      | **QUANTITATIVE AND  QUALITATIVE DISCLOSURES ABOUT MARKET RISK**                                 |   |
|             |                                                                                            |   |
| **ITEM 4.**      | **CONTROLS AND PROCEDURES**                                                                     |   |
|             |                                                                                            |   |
| **PART II** | **OTHER INFORMATION**                                                                           |   |
|             |                                                                                            |   |
| **ITEM 1.**      | **LEGAL PROCEEDINGS**                                                                           |   |
|             |                                                                                            |   |
| **ITEM 2.**      | **UNREGISTERED SALES OF EQUITY  SECURITIES AND USE OF PROCEEDS**                                |   |
|             |                                                                                            |   |
| **ITEM 3.**      | **DEFAULTS UPON SENIOR  SECURITIES**                                                            |   |
|             |                                                                                            |   |
| **ITEM 4.**      | **SUBMISSION OF MATTERS TO A  VOTE OF SECURITY HOLDERS**                                        |   |
|             |                                                                                            |   |
| **ITEM 5.**      | **OTHER INFORMATION**                                                                           |   |
|             |                                                                                            |   |
| **ITEM 6.**      | **EXHIBITS**                                                                                    |   |
|             |                                                                                            |   |
| **SIGNATURES**   |                                                                                            |   |

 

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** **

**AMERICAN CRYSTAL SUGAR COMPANY**

**Consolidated BalanceSheets**

**(Unaudited)**

**(Dollars in Thousands)**

 

**ASSETS**

 
| ** **                                     | ** ** | **May 31** | ** ** | **August 31,** | ** ** |
|------------------------------------------------|------------|------------|------------|----------------|------------|
| ** **                                     | ** ** | **2005**   | ** ** | **2004**       | ** ** | **2004*** | ** ** |
| **Current  Assets:**                           |       |       |       |           |       |   |   |
| Cash and Cash  Equivalents                     |       | $          | 512        |           | $          | 766 |   | $ | 184 |   |
| Accounts Receivable:                           |       |       |       |           |       |   |   |
| Trade                                          |       | 57,811     |       | 78,945         |       | 79,185 |   |
| Members                                        |       | 3,963      |       | 4,752          |       | 5,105 |   |
| Other                                          |       | 2,605      |       | 2,018          |       | 3,605 |   |
| Advances to  Related Parties                   |       | 16,253     |       | 9,234          |       | 13,508 |   |
| Inventories                                    |       | 290,556    |       | 333,916        |       | 129,285 |   |
| Prepaid Expenses                               |       | 5,623      |       | 5,676          |       | 4,846 |   |
|                                           |       |       |       |           |       |   |   |
| Total Current  Assets                          |       | 377,323    |       | 435,307        |       | 235,718 |   |
|                                           |       |       |       |           |       |   |   |
| **Property  and Equipment:**                   |       |       |       |           |       |   |   |
| Land                                           |       | 43,655     |       | 40,105         |       | 43,195 |   |
| Buildings                                      |       | 94,568     |       | 91,481         |       | 93,988 |   |
| Equipment                                      |       | 758,069    |       | 795,446        |       | 809,775 |   |
| Construction-in-Progress                       |       | 15,599     |       | 10,289         |       | 3,118 |   |
| Less:  Accumulated Depreciation                |       | (602,131   | )          | (619,536       | )          | (619,534 | ) |
|                                           |       |       |       |           |       |   |   |
| Net Property and  Equipment                    |       | 309,760    |       | 317,785        |       | 330,542 |   |
|                                           |       |       |       |           |       |   |   |
| **Net  Property and Equipment Held for Lease** |       | 153,483    |       | 163,276        |       | 160,643 |   |
|                                           |       |       |       |           |       |   |   |
| **Other  Assets:**                             |       |       |       |           |       |   |   |
| Investments in  CoBank, ACB                    |       | 17,603     |       | 19,581         |       | 19,069 |   |
| Investments in  Marketing Cooperatives         |       | 4,644      |       | 5,287          |       | 4,487 |   |
| Investments in  Crystech, LLC                  |       | 16,153     |       | 16,130         |       | 15,353 |   |
| Other Assets                                   |       | 70,723     |       | 47,699         |       | 56,343 |   |
|                                           |       |       |       |           |       |   |   |
| Total Other  Assets                            |       | 109,123    |       | 88,697         |       | 95,252 |   |
|                                           |       |       |       |           |       |   |   |
| Total Assets                                   |       | $          | 949,689    |           | $          | 1,005,065 |   | $ | 822,155 |   |

 

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* Derived from auditedfinancial statements.

 

The Accompanying Notesare an Integral Part of These Consolidated Financial Statements.

 

1

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** **

**AMERICAN CRYSTAL SUGAR COMPANY**

**Consolidated Balance Sheets**

**(Unaudited)**

**(Dollars in Thousands)**

 

**LIABILITIESAND MEMBERS’ INVESTMENTS**

 
| ** **                                                  | ** ** | **May 31** | ** ** | **August 31,** | ** ** |
|-------------------------------------------------------------|------------|-----------------|------------|---------------------|------------|
| ** **                                                  | ** ** | **2005**        | ** ** | **2004**            | ** ** | **2004*** | ** ** |
| **Current  Liabilities:**                                   |       |            |       |                |       |   |   |
| Short-Term Debt                                             |       | $               | 162,791    |                | $          | 192,000 |   | $ | 30,199 |   |
| Current  Maturities of Long-Term Debt                       |       | 20,947          |       | 20,932              |       | 20,932 |   |
| Accounts Payable                                            |       | 15,561          |       | 14,080              |       | 27,063 |   |
| Advances Due to  Related Parties                            |       | 5,889           |       | 8,196               |       | 7,864 |   |
| Accrued  Continuing Costs (See Note 5)                      |       | 51,726          |       | 75,741              |       | — |   |
| Other Current  Liabilities                                  |       | 21,996          |       | 21,486              |       | 20,500 |   |
| Amounts Due  Growers                                        |       | 58,265          |       | 65,937              |       | 70,487 |   |
|                                                        |       |            |       |                |       |   |   |
| Total Current  Liabilities                                  |       | 337,175         |       | 398,372             |       | 177,045 |   |
|                                                        |       |            |       |                |       |   |   |
| **Long-Term  Debt, Net of Current Maturities**              |       | 217,132         |       | 255,301             |       | 250,086 |   |
|                                                        |       |            |       |                |       |   |   |
| **Accrued  Employee Benefits**                              |       | 37,561          |       | 33,324              |       | 33,939 |   |
|                                                        |       |            |       |                |       |   |   |
| **Other  Liabilities**                                      |       | 9,125           |       | 10,684              |       | 10,297 |   |
|                                                        |       |            |       |                |       |   |   |
| Total  Liabilities                                          |       | 600,993         |       | 697,681             |       | 471,367 |   |
|                                                        |       |            |       |                |       |   |   |
| **Commitments  and Contingencies (See Note 11)**            |       |            |       |                |       |   |   |
|                                                        |       |            |       |                |       |   |   |
| **Minority  Interest in ProGold Limited Liability Company** |       | 50,666          |       | 46,590              |       | 47,362 |   |
|                                                        |       |            |       |                |       |   |   |
| **Members’  Investments:**                             |       |            |       |                |       |   |   |
| Preferred Stock                                             |       | 38,275          |       | 38,275              |       | 38,275 |   |
| Common Stock                                                |       | 29              |       | 29                  |       | 29 |   |
| Additional  Paid-in Capital                                 |       | 152,261         |       | 152,261             |       | 152,261 |   |
| Unit Retains                                                |       | 130,132         |       | 108,844             |       | 138,714 |   |
| Equity Retention                                            |       | 2,703           |       | 2,714               |       | 2,708 |   |
| Accumulated  Other Comprehensive Income/(Loss)              |       | (376            | )          | (11,900             | )          | (376 | ) |
| Retained  Earnings/(Deficit)                                |       | (24,994         | )          | (29,429             | )          | (28,185 | ) |
|                                                        |       |            |       |                |       |   |   |
| Total Members’  Investments                            |       | 298,030         |       | 260,794             |       | 303,426 |   |
|                                                        |       |            |       |                |       |   |   |
| Total  Liabilities and Members’ Investments            |       | $               | 949,689    |                | $          | 1,005,065 |   | $ | 822,155 |   |

 

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* Derived from auditedfinancial statements.

 

The Accompanying Notesare an Integral Part of These Consolidated Financial Statements.

 

2

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** **

**AMERICAN CRYSTAL SUGAR COMPANY**

**Consolidated Statements of Operations**

**(Unaudited)**

**(Dollars in Thousands)**

 
| ** **                                                            | ** ** | **For the Nine Months Ended  May 31** | ** ** | **For the Three Months Ended  May 31** | ** ** |
|-----------------------------------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                            | ** ** | **2005**                                   | ** ** | **2004**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                  |       |                                       |       |                                        |       |   |   |   |   |
| **Net  Revenue**                                                      |       | $                                          | 726,517    |                                        | $          | 746,603 |   | $ | 267,670 |   | $ | 274,527 |   |
| **Cost  of Sales**                                                    |       | 131,026                                    |       | 77,129                                      |       | 72,375 |   | 71,807 |   |
|                                                                  |       |                                       |       |                                        |       |   |   |   |   |
| **Gross  Proceeds**                                                   |       | 595,491                                    |       | 669,474                                     |       | 195,295 |   | 202,720 |   |
|                                                                  |       |                                       |       |                                        |       |   |   |   |   |
| **Selling,  General and Administrative Expenses**                     |       | 145,910                                    |       | 139,052                                     |       | 51,318 |   | 48,385 |   |
| **Accrued  Continuing Costs (See Note 5)**                            |       | 51,726                                     |       | 75,741                                      |       | 6,887 |   | 16,546 |   |
|                                                                  |       |                                       |       |                                        |       |   |   |   |   |
| **Operating  Proceeds**                                               |       | 397,855                                    |       | 454,681                                     |       | 137,090 |   | 137,789 |   |
|                                                                  |       |                                       |       |                                        |       |   |   |   |   |
| **Other  Income/(Expense)**                                           |       |                                       |       |                                        |       |   |   |   |   |
| Interest Income                                                       |       | 240                                        |       | 158                                         |       | 79 |   | 33 |   |
| Interest Expense                                                      |       | (13,900                                    | )          | (14,767                                     | )          | (4,380 | ) | (4,434 | ) |
| Other, Net                                                            |       | (263                                       | )          | 1,077                                       |       | 67 |   | 436 |   |
| Total Other  (Expense)                                                |       | (13,923                                    | )          | (13,532                                     | )          | (4,234 | ) | (3,965 | ) |
|                                                                  |       |                                       |       |                                        |       |   |   |   |   |
| **Proceeds  before Minority Interest and Income Tax Expense**         |       | 383,932                                    |       | 441,149                                     |       | 132,856 |   | 133,824 |   |
|                                                                  |       |                                       |       |                                        |       |   |   |   |   |
| **Minority  Interest**                                                |       | (3,304                                     | )          | (2,821                                      | )          | (1,360 | ) | (1,163 | ) |
|                                                                  |       |                                       |       |                                        |       |   |   |   |   |
| **Income  Tax Expense**                                               |       | (356                                       | )          | (92                                         | )          | (345 | ) | (87 | ) |
| **Net  Proceeds Resulting from Member and Non-Member Business**       |       | $                                          | 380,272    |                                        | $          | 438,236 |   | $ | 131,151 |   | $ | 132,574 |   |
|                                                                  |       |                                       |       |                                        |       |   |   |   |   |
| **Distribution  of Net Proceeds:**                                    |       |                                       |       |                                        |       |   |   |   |   |
| Credited/(Charged)  to Members’ Investments:                     |       |                                       |       |                                        |       |   |   |   |   |
| Non-Member  Business Income                                           |       | $                                          | 3,191      |                                        | $          | 2,995 |   | $ | 1,868 |   | $ | 369 |   |
| Unit Retains  Declared to Members                                     |       | —                                     |       | —                                      |       | — |   | — |   |
| Net Credit to  Members’ Investments                              |       | 3,191                                      |       | 2,995                                       |       | 1,868 |   | 369 |   |
| Payments to/due  Members for Sugarbeets, Net of Unit Retains Declared |       | 377,081                                    |       | 435,241                                     |       | 129,283 |   | 132,205 |   |
|                                                                  |       |                                       |       |                                        |       |   |   |   |   |
| **Total**                                                             |       | $                                          | 380,272    |                                        | $          | 438,236 |   | $ | 131,151 |   | $ | 132,574 |   |

 

The Accompanying Notes arean Integral Part of These Consolidated Financial Statements.

 

3

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**AMERICANCRYSTAL SUGAR COMPANY**

**Consolidated Statements of Cash Flows**

**(Unaudited)**

**(Dollars inThousands)**

 
| ** **                                                            | ** ** | **For the Nine Months Ended  May 31** | ** ** |
|-----------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                            | ** ** | **2005**                                   | ** ** | **2004** | ** ** |
| **Cash  Provided By/(Used In) Operations:**                           |       |                                       |       |   |   |
| Net Proceeds  Resulting from Member and Non-Member Business           |       | $                                          | 380,272    |   | $ | 438,236 |   |
| Payments to/due  Members for Sugarbeets, Net of Unit Retains Declared |       | (377,081                                   | )          | (435,241 | ) |
| Add/(Deduct)  Non-Cash Items:                                         |       |                                       |       |   |   |
| Depreciation and  Amortization                                        |       | 50,241                                     |       | 51,041 |   |
| (Income) from  Equity Method Investees                                |       | (829                                       | )          | (843 | ) |
| Loss on the  Disposition of Property and Equipment                    |       | 1,549                                      |       | 317 |   |
| Non-Cash Portion  of Patronage Dividend from CoBank, ACB              |       | (447                                       | )          | (542 | ) |
| Deferred Gain  Recognition                                            |       | (148                                       | )          | (148 | ) |
| Minority  Interest in ProGold Limited Liability Company               |       | 3,304                                      |       | 2,821 |   |
| Changes in  Assets and Liabilities:                                   |       |                                       |       |   |   |
| Receivables                                                           |       | 23,516                                     |       | (13,938 | ) |
| Inventories                                                           |       | (161,271                                   | )          | (202,935 | ) |
| Prepaid Expenses                                                      |       | (777                                       | )          | 1,386 |   |
| Long-Term  Prepaid Pension Expense                                    |       | (15,785                                    | )          | (11,892 | ) |
| Advances To/Due  to Related Parties                                   |       | (4,720                                     | )          | (77 | ) |
| Accounts Payable                                                      |       | (11,502                                    | )          | (8,989 | ) |
| Accrued  Continuing Costs                                             |       | 51,726                                     |       | 75,741 |   |
| Other  Liabilities                                                    |       | 3,945                                      |       | 3,654 |   |
| Amounts Due  Growers                                                  |       | (12,222                                    | )          | 7,041 |   |
| Net Cash (Used  In) Operations                                        |       | (70,229                                    | )          | (94,368 | ) |
|                                                                  |       |                                       |       |   |   |
| **Cash  Provided By/(Used In) Investing Activities:**                 |       |                                       |       |   |   |
| Purchases of  Property and Equipment                                  |       | (20,731                                    | )          | (14,944 | ) |
| Purchases of  Property and Equipment Held for Lease                   |       | (1,153                                     | )          | (908 | ) |
| Proceeds from  the Sale of Property and Equipment                     |       | 8                                          |       | 123 |   |
| Equity Refund  from CoBank, ACB                                       |       | 1,913                                      |       | 2,646 |   |
| Investments in  Marketing Cooperatives                                |       | —                                     |       | 1,049 |   |
| Acquisition by  Crab Creek Sugar Company                              |       | —                                     |       | (5,763 | ) |
| Changes in Other  Assets                                              |       | (546                                       | )          | 4,580 |   |
| Net Cash (Used  In) Investing Activities                              |       | (20,509                                    | )          | (13,217 | ) |
|                                                                  |       |                                       |       |   |   |
| **Cash  Provided By/(Used In) Financing Activities:**                 |       |                                       |       |   |   |
| Net Proceeds  from/(Payments on) Short-Term Debt                      |       | 132,592                                    |       | 142,011 |   |
| Long-Term Debt  Repayment                                             |       | (32,939                                    | )          | (21,971 | ) |
| Proceeds from  Issuance of Stock                                      |       | —                                     |       | 4,022 |   |
| Payment of Unit  Retains & Equity Retention                  |       | (8,587                                     | )          | (16,570 | ) |
| Net Cash  Provided By Financing Activities                            |       | 91,066                                     |       | 107,492 |   |
|                                                                  |       |                                       |       |   |   |
| Increase/(Decrease)  In Cash and Cash Equivalents                     |       | 328                                        |       | (93 | ) |
| Cash and Cash  Equivalents, Beginning of Year                         |       | 184                                        |       | 859 |   |
|                                                                  |       |                                       |       |   |   |
| Cash and Cash  Equivalents, End of Period                             |       | $                                          | 512        |   | $ | 766 |   |

 

**Non-Cash Investing and Financing Activities:**In September 2003, a note payable in theamount of $969,000 was issued in connection with the acquisition by Crab CreekSugar Company.

 

The Accompanying Notes are an Integral Part ofThese Consolidated Financial Statements.

 

4

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# ** **

# **AMERICAN CRYSTALSUGAR COMPANY**

**NOTES TO THE CONSOLIDATED FINANCIALSTATEMENTS**

**FOR THE NINE MONTHS AND THREE MONTHS ENDED**

**May 31, 2005 AND 2004**

**(Unaudited)**

 

**Note1:  Basis of Presentation**

 

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

 

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

 

CrabCreek was formed in fiscal 2003 under the laws of the State of Minnesota, andon September 8, 2003, acquired the control of a sugarbeet processingfacility and the related marketing allocations associated with such facility.

 

Allmaterial inter-company transactions have been eliminated.

 

Theoperating results for the nine month period ended May 31, 2005 are notnecessarily indicative of the results that may be expected for the year ended August 31,2005.

 

Theamount paid to shareholders for sugarbeets (member beet payment) depends on thefuture selling prices of sugar and agri-products as well as processing andother costs incurred during the remainder of the fiscal year associated withthe 2004 Red River Valley sugarbeet crop (RRV crop).  The amount paid to non-member growers forsugarbeets (non-member beet payment) depends on the future selling prices ofsugar and the related selling expenses associated with the 2004 Sidney sugarbeetcrop (Sidney crop).  For the purposes ofthis report, the amount of the beet payments, future revenues and costs havebeen estimated.  Therefore, adjustmentswith respect to these estimates may be necessary in the future, as additionalinformation becomes available.

 

Thesefinancial statements should be read in conjunction with the consolidated financialstatements and notes included in the Company’s Annual Report on Form 10-Kfor the year ended August 31, 2004.

 

Certainreclassifications have been made to the May 31, 2004 and the August 31,2004 consolidated financial statements to conform with the May 31, 2005presentation.  These reclassificationshad no effect on previously reported results of operations or Members’Investments.

 

5

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**Note 2:  Inventories**

 

The major components ofinventories are as follows (In Thousands):

 
| ** **                                                             | ** ** | **05/31/05** | ** ** | **05/31/04** | ** ** | **8/31/04** | ** ** |
|------------------------------------------------------------------------|------------|--------------|------------|--------------|------------|-------------|------------|
| Refined Sugar,  Pulp, Molasses, Other Agri-Products and Sugarbeet Seed |       | $            | 270,616    |         | $          | 315,824     |       | $ | 107,812 |   |
| Maintenance  Parts & Supplies                                 |       | 19,940       |       | 18,092       |       | 21,473      |       |
|                                                                   |       |         |       |         |       |        |       |
| Total  Inventories                                                     |       | $            | 290,556    |         | $          | 333,916     |       | $ | 129,285 |   |

 

Sugar, pulp, molasses andother agri-products inventories are valued at estimated net realizablevalue.  Unprocessed sugarbeets are valuedat the estimated gross beet payment.  Maintenanceparts & supplies and sugarbeet seed inventories are valued at thelower of average cost or market.

 

# **Note3: Short-Term Debt**

# ** **

The Company has a seasonal line of credit with aconsortium of lenders led by CoBank, ACB of $265 million and a line ofcredit with Wells Fargo Bank for $1 million.  The Company’s commercial paper programprovides short-term borrowings of up to $225 million.  Any borrowingsunder the commercial paper program along with outstanding short-term letters ofcredit will act to reduce the available credit under the CoBank, ACB seasonalline of credit by a commensurate amount. The Company also utilizes the Commodity Credit Corporation (CCC) to meetits short-term borrowing needs.

 

As of May 31,2005, the Company had outstanding commercial paper of $112.8****million at an average interest rate of 2.9% and maturitydates between June 1, 2005 and July 29, 2005.  The Company also had $50.0 million ofoutstanding short-term debt with CoBank, ACB as of May 31, 2005 at aninterest rate of 3.84% and a maturity date of July 15, 2005.  The Company had no outstanding short-termdebt with the CCC as of May 31, 2005. The Company had $5.9 million ofshort-term letters of credit outstanding as of May 31, 2005. The unusedseasonal line of credit as of May 31, 2005 was $97.3 million.

 

As of May 31,2004, the Company had outstanding commercial paper of $192.0****million at an average interest rate of 1.36% and maturitydates between June 1, 2004 and July 15, 2004.  The Company had no outstanding short-termdebt with CoBank, ACB or the CCC as of May 31, 2004.

 

**Note 4:  Interest Paid**

 

Interest paid, net ofamounts capitalized, was $13.4 million and $13.5 million for the nine monthsended May 31, 2005 and 2004, respectively.

 

**Note 5:  Accrued Continuing Costs**

 

Forinterim reporting, the Net Proceeds from Member Business is based on theforecasted gross beet payment and the percentage of the tons of sugarbeetsprocessed to the total estimated tons of sugarbeets to process for a given cropyear.  The Net Proceeds from theoperations of Sidney Sugars is based on the forecasted net income for thefiscal year and the percentage of the tons of non-member sugarbeets processedto the total estimated tons of non-member sugarbeets to process for a given fiscalyear.

 

Accruedcontinuing costs represent the difference between the Net Proceeds asdetermined above and actual member business crop year and Sidney Sugars fiscalyear revenues realized and expenses incurred through the end of the reportingperiod.  Accrued continuing costs arereflected in the Consolidated Financial Statements as a cost on the ConsolidatedStatements of Operations and as a current liability on the Consolidated BalanceSheets.

 

6

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**Note 6: ****Net Periodic Pension andPost-Retirement Costs**

 

The following schedules provide the components of theNet Periodic Pension and Post-Retirement Costs for the Nine Months and Three Monthsended May 31, 2005 and 2004:

 

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

(In Thousands)

 
| ** **                             | ** ** | **For the Nine Months Ended  May 31** | ** ** | **For the Three Months Ended  May 31** | ** ** |
|----------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------|------------|
| ** **                             | ** ** | **2005**                                   | ** ** | **2004**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| Service Cost                           |       | $                                          | 2,450      |                                        | $          | 2,079 |   | $ | 817 |   | $ | 693 |   |
| Interest Cost                          |       | 5,314                                      |       | 4,512                                       |       | 1,771 |   | 1,504 |   |
| Expected Return  on Plan Assets        |       | (6,047                                     | )          | (4,470                                      | )          | (2,016 | ) | (1,490 | ) |
| Multiple  Employer Adjustment          |       | (119                                       | )          | (258                                        | )          | (40 | ) | (86 | ) |
| Amortization of  Net Transition Assets |       | (16                                        | )          | (93                                         | )          | (5 | ) | (31 | ) |
| Amortization of  Prior Service Costs   |       | 768                                        |       | 408                                         |       | 256 |   | 136 |   |
| Amortization of  Net (Gain) Loss       |       | 998                                        |       | 1,500                                       |       | 333 |   | 500 |   |
| Net Periodic  Pension Cost             |       | $                                          | 3,348      |                                        | $          | 3,678 |   | $ | 1,116 |   | $ | 1,226 |   |

 

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

(In Thousands)

 
| ** **                         | ** ** | **For the Nine Months Ended  May 31** | ** ** | **For the Three Months Ended  May 31** | ** ** |
|------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------|------------|
| ** **                         | ** ** | **2005**                                   | ** ** | **2004**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| Service Cost                       |       | $                                          | 825        |                                        | $          | 840 |   | $ | 275 |   | $ | 280 |   |
| Interest Cost                      |       | 1,629                                      |       | 1,323                                       |       | 543 |   | 441 |   |
| Amortization of  Net (Gain) Loss   |       | 216                                        |       | 342                                         |       | 72 |   | 114 |   |
| Net Periodic  Post-Retirement Cost |       | $                                          | 2,670      |                                        | $          | 2,505 |   | $ | 890 |   | $ | 835 |   |

 

For the nine months ended May 31,2005, the Company had made contributions of approximately $18.8 million relatedto pensions.  No additional contributionsare expected prior to the end of the current fiscal year.  The Company has made payments for Post-Retirementbenefits of approximately $ .7 million for the nine months ended May 31,2005, and expects total payments for the current fiscal year to beapproximately $1.0 million.

 

**Note 7:  Members’ Investments**

 
| ** **            | ** ** | **Par Value** | ** ** | **Shares  Authorized** | ** ** | **Shares Issued  & Outstanding** | ** ** |
|-----------------------|------------|---------------|------------|------------------------|------------|--------------------------------------|------------|
| Preferred Stock:      |       |          |       |                   |       |                                 |       |
| July 5,  2005    |       | $             | 76.77      |                   | 600,000    |                                 | 498,570    |   |
| May 31,  2005    |       | $             | 76.77      |                   | 600,000    |                                 | 498,570    |   |
| August 31,  2004 |       | $             | 76.77      |                   | 600,000    |                                 | 498,570    |   |
| May 31,  2004    |       | $             | 76.77      |                   | 600,000    |                                 | 498,570    |   |
|                  |       |          |       |                   |       |                                 |       |
| Common Stock:         |       |          |       |                   |       |                                 |       |
| July 5,  2005    |       | $             | 10.00      |                   | 4,000      |                                 | 2,902      |   |
| May 31,  2005    |       | $             | 10.00      |                   | 4,000      |                                 | 2,878      |   |
| August 31,  2004 |       | $             | 10.00      |                   | 4,000      |                                 | 2,873      |   |
| May 31,  2004    |       | $             | 10.00      |                   | 4,000      |                                 | 2,905      |   |

 

7

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**Note 8: Shipping and Handling Costs**

 

The costs incurred for the shipping and handling ofproducts sold are classified in the financial statements as a selling expenseon the Statements of Operations.  Shippingand handling costs were $93.7 million and $91.6 million for the nine monthsended May 31, 2005 and 2004, respectively and $33.9 million and $33.5million for the three months ended May 31, 2005 and 2004, respectively.

 

**Note 9: CrabCreek Sugar Company**

 

On September 8, 2003, the Company, through itswholly-owned subsidiary Crab Creek Sugar Company (Crab Creek), acquired all ofthe assets of Pacific Northwest Sugar Company, LLC (PNSC), certain assets ofCentral Leasing of Washington, LLC (Central Leasing) that were associated withPNSC and the Moses Lake, Washington, sugarbeet factory previously operated byPNSC and control of the sugar production assets owned by Central Leasingassociated with the Moses Lake, Washington, sugarbeet factory for a purchaseprice of approximately $6.7 million.  Inaddition, Crab Creek entered into various contracts with Central Leasing suchthat Crab Creek controls the long-term production of sugar at the Moses Lake,Washington, facility.  In connection withthis acquisition, the USDA transferred to the Company the sugar marketingallocations formerly allocated to PNSC. Neither Crab Creek nor the Company intends to operate the Moses Lake,Washington, facility.

 

**Note 10:Segment Reporting**

 

TheCompany has identified two reportable segments: Sugar and Leasing.  The sugar segment is engaged primarily in theproduction and marketing of sugar from sugarbeets.  It also sells agri-products and sugarbeetseed.  The leasing segment is engaged inthe leasing of a corn wet-milling plant used in the production of high-fructosecorn syrup sweetener.  The segments aremanaged separately.  There are nointer-segment sales.  The leasing segmenthas a major customer that accounts for all of that segment’s revenue.

 

Summarizedfinancial information concerning the Company’s reportable segments for the ninemonths and three months ended May 31, 2005 and 2004 is shown below:

 
| ** **                           | ** ** | **For the Nine Months Ended May 31, 2005  (Dollars In Thousands)** | ** ** |
|--------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                           | ** ** | **Sugar**                                                          | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from  External Customers |       | $                                                                  | 706,826    |   | $ | 19,691 |   | $ | 726,517 |   |
| Gross Proceeds                       |       | $                                                                  | 584,811    |   | $ | 10,680 |   | $ | 595,491 |   |
| Depreciation and  Amortization       |       | $                                                                  | 41,939     |   | $ | 8,302 |   | $ | 50,241 |   |
| Interest Income                      |       | $                                                                  | 229        |   | $ | 11 |   | $ | 240 |   |
| Interest Expense                     |       | $                                                                  | 10,046     |   | $ | 3,854 |   | $ | 13,900 |   |
| Income from  Equity Method Investees |       | $                                                                  | 829        |   | $ | — |   | $ | 829 |   |
| Other  Income/(Expense), Net         |       | $                                                                  | (252       | ) | $ | (11 | ) | $ | (263 | ) |
| Net Proceeds                         |       | $                                                                  | 376,833    |   | $ | 3,439 |   | $ | 380,272 |   |
|                                 |       |                                                               |       |   |   |   |   |
| Capital  Expenditures                |       | $                                                                  | 20,731     |   | $ | 1,153 |   | $ | 21,884 |   |

 

8

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| ** **                           | ** ** | **For the Nine Months Ended May 31, 2004  (Dollars In Thousands)** | ** ** |
|--------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                           | ** ** | **Sugar**                                                          | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from  External Customers |       | $                                                                  | 727,156    |   | $ | 19,447 |   | $ | 746,603 |   |
| Gross Proceeds                       |       | $                                                                  | 659,001    |   | $ | 10,473 |   | $ | 669,474 |   |
| Depreciation and  Amortization       |       | $                                                                  | 42,776     |   | $ | 8,265 |   | $ | 51,041 |   |
| Interest Income                      |       | $                                                                  | 154        |   | $ | 4 |   | $ | 158 |   |
| Interest Expense                     |       | $                                                                  | 10,143     |   | $ | 4,624 |   | $ | 14,767 |   |
| Income from  Equity Method Investees |       | $                                                                  | 843        |   | $ | — |   | $ | 843 |   |
| Other  Income/(Expense), Net         |       | $                                                                  | 1,102      |   | $ | (25 | ) | $ | 1,077 |   |
| Net Proceeds                         |       | $                                                                  | 435,300    |   | $ | 2,936 |   | $ | 438,236 |   |
|                                 |       |                                                               |       |   |   |   |   |
| Capital Expenditures                 |       | $                                                                  | 14,944     |   | $ | 908 |   | $ | 15,852 |   |

 
| ** **                           | ** ** | **For the Three Months Ended May 31, 2005  (Dollars In Thousands)** | ** ** |
|--------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                           | ** ** | **Sugar**                                                           | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from  External Customers |       | $                                                                   | 260,993    |   | $ | 6,677 |   | $ | 267,670 |   |
| Gross Proceeds                       |       | $                                                                   | 191,625    |   | $ | 3,670 |   | $ | 195,295 |   |
| Depreciation and  Amortization       |       | $                                                                   | 12,611     |   | $ | 2,770 |   | $ | 15,381 |   |
| Interest Income                      |       | $                                                                   | 74         |   | $ | 5 |   | $ | 79 |   |
| Interest Expense                     |       | $                                                                   | 3,521      |   | $ | 859 |   | $ | 4,380 |   |
| Income from  Equity Method Investees |       | $                                                                   | 267        |   | $ | — |   | $ | 267 |   |
| Other  Income/(Expense), Net         |       | $                                                                   | 78         |   | $ | (11 | ) | $ | 67 |   |
| Net Proceeds                         |       | $                                                                   | 129,736    |   | $ | 1,415 |   | $ | 131,151 |   |
|                                 |       |                                                                |       |   |   |   |   |
| Capital  Expenditures                |       | $                                                                   | 8,451      |   | $ | 498 |   | $ | 8,949 |   |

 
| ** **                           | ** ** | **For the Three Months Ended May 31, 2004  (Dollars In Thousands)** | ** ** |
|--------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                           | ** ** | **Sugar**                                                           | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from  External Customers |       | $                                                                   | 267,989    |   | $ | 6,538 |   | $ | 274,527 |   |
| Gross Proceeds                       |       | $                                                                   | 199,176    |   | $ | 3,544 |   | $ | 202,720 |   |
| Depreciation and  Amortization       |       | $                                                                   | 12,854     |   | $ | 2,757 |   | $ | 15,611 |   |
| Interest Income                      |       | $                                                                   | 32         |   | $ | 1 |   | $ | 33 |   |
| Interest Expense                     |       | $                                                                   | 3,288      |   | $ | 1,146 |   | $ | 4,434 |   |
| Income from  Equity Method Investees |       | $                                                                   | 272        |   | $ | — |   | $ | 272 |   |
| Other  Income/(Expense), Net         |       | $                                                                   | 436        |   | $ | — |   | $ | 436 |   |
| Net Proceeds                         |       | $                                                                   | 131,363    |   | $ | 1,211 |   | $ | 132,574 |   |
|                                 |       |                                                                |       |   |   |   |   |
| Capital  Expenditures                |       | $                                                                   | 5,829      |   | $ | 358 |   | $ | 6,187 |   |

 

9

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| ** **                   | ** ** | **As of May 31, 2005  (Dollars In Thousands)** | ** ** |
|------------------------------|------------|------------------------------------------------|------------|
| ** **                   | ** ** | **Sugar**                                      | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Property and  Equipment, Net |       | $                                              | 309,759    |   | $ | 1 |   | $ | 309,760 |   |
| Assets Held for  Lease, Net  |       | $                                              | —     |   | $ | 153,483 |   | $ | 153,483 |   |
| Segment Assets               |       | $                                              | 784,504    |   | $ | 165,185 |   | $ | 949,689 |   |

 
| ** **                   | ** ** | **As of May 31, 2004  (Dollars In Thousands)** | ** ** |
|------------------------------|------------|------------------------------------------------|------------|
| ** **                   | ** ** | **Sugar**                                      | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Property and  Equipment, Net |       | $                                              | 317,783    |   | $ | 2 |   | $ | 317,785 |   |
| Assets Held for  Lease, Net  |       | $                                              | —     |   | $ | 163,276 |   | $ | 163,276 |   |
| Segment Assets               |       | $                                              | 829,687    |   | $ | 175,378 |   | $ | 1,005,065 |   |

 

**Note 11:Legal Proceedings**

 

As of the date of this report, four administrativeproceedings have been brought against the United States Department ofAgriculture (USDA) seeking reversal of prior decisions regarding thedetermination and transfer of sugar marketing allocations made by theUSDA.  These proceedings are in variousstages of the applicable administrative process.  While the Company is not a party to any of theseadministrative proceedings, it is, solely or in coordination with other sugarprocessors, an intervenor in these administrative proceedings.  The initial decisions by the USDA in the fourproceedings were decided such that the Company would not experience a reductionin its marketing allocations.  Theinitial decisions by the USDA were appealed to an administrative law judgeunder guidelines promulgated by the USDA. Two of these appeals were decided such that the Company would notexperience a reduction in its marketing allocations.  Subsequent to the date of this report, the appealin the third proceeding was also decided such that the Company would notexperience a reduction in its marketing allocations.  The decision in the fourth proceeding,however, if it stands, will result in the Company experiencing a reduction inmarketing allocations equal to the loss of approximately 25,000 acres in futurecrop years and the recognition of an expense of approximately $3.1 millionrelated to the valuation of these marketing allocations.  Management has determined that an unfavorablefinal outcome from this proceeding is possible but not probable and thereforeno adjustments related to the valuation of these marketing allocations havebeen recognized in the financial statements as of May 31, 2005.  Three of the decisions of the administrative lawjudge have been appealed by various parties, including the Company, to ajudicial officer of the USDA.  One of thedecisions that was favorable to the Company was affirmed by the judicialofficer and the other two appeals are still pending.  Any decision made by a judicial officer ofthe USDA can be further appealed in federal court.

 

**Item 2.**   Management’s Discussion and Analysis ofResults of Operations and Financial Condition for the Nine Months and ThreeMonths Ended May 31, 2005 and 2004

** **

Thisreport contains forward-looking statements that involve risks anduncertainties.  Such forward-lookingstatements include, among others, those statements including the words “expect”,“anticipate”, “believe”, “may” and similar expressions.  The Company’s actual results could differmaterially from those indicated. Important factors that could cause or contribute to such differencesinclude, without limitation, market factors, weather and general economicconditions, farm and trade policy, available quantity and quality ofsugarbeets.  For a more completediscussion of “Important Factors”, please refer to the Company’s 2004 Form 10-K.

 

10

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**Comparisonof the Nine Months Ended May 31, 2005 and 2004**

 

Revenuefor the nine months ended May 31, 2005, was $726.5 million, a decrease of$20.1 million from the same period last year. Revenue from total sugar sales decreased 2.8 percent due to a 2.4percent decrease in the hundredweight sold and a .4 percent decrease in theaverage selling price per hundredweight. Revenue from pulp sales increased 2.3 percent due to a 10.2 percentincrease in the average selling price per ton partially offset by a 7.2 percentdecrease in the volume of pulp tons sold. Revenue from molasses sales decreased 46.1 percent due to a 50.4 percentdecrease in the volume of molasses sold partially offset by an 8.5 percentincrease in the average selling price per ton. The decrease in the volume of molasses sold was primarily due to 35.2percent decrease in molasses produced for sale. Revenue from sales of Concentrated Separated By-Product (CSB), aby-product of the molasses desugarization process, increased 1.2 percent due toa 10.2 percent increase in the volume of CSB sold partially offset by an 8.2percent decrease in the average selling price per ton.  Revenue from the sales of Betaine, aby-product of the molasses desugarization process, continues to increase asproduction levels rise.  Rental revenueon the ProGold operating lease was $19.7 million and $19.4 million for the ninemonths ended May 31, 2005 and 2004, respectively.

 

Costof sales for the nine months ended May 31, 2005, exclusive of payments tomembers for sugarbeets, increased $53.9 million as compared to the same periodlast year.  The change in the netrealizable value of product inventories impacted the cost of sales unfavorablyby $43.3 million.  The costs associatedwith sugar purchased to meet customer needs increased by $12.0 million due tothe later campaign start-up this year. The cost recognized associated with the non-member sugarbeets (Sidneycrop) decreased 19.2 percent for the nine months ended May 31, 2005 whencompared to the same period last year. This decrease was primarily due to fewer beets harvested this year.  Direct processing costs for sugar and pulpincreased 3.3 percent.  The increase isdue to increased prices related to purchased power, natural gas and majorsupplies partially offset by harvesting and processing 7.0 percent fewersugarbeets than last year.  Fixed andcommitted expenses increased 5.0 percent reflecting increased wastewatertreatment expenses costs and general cost increases.

 

Selling,general and administrative expenses for the nine months ended May 31, 2005increased $6.9 million as compared to the same period last year.  Selling expenses increased $6.4 millionprimarily due to higher freight and packaging costs.  General and Administrative costs increased $..5 million due in part to increased funding for sugar industry and associationactivities.

 

Interestexpense decreased $ .9 million for the nine months ended May 31, 2005, ascompared to the same period last year. This was the result of decreased average borrowings levels forshort-term and long-term debt, partially offset by higher short-term andlong-term interest rates.

 

Non-memberbusiness activities resulted in a gain of $3.2 million for the nine monthsended May 31, 2005, as compared to a gain of $3.0 million for the sameperiod last year.  The gain in bothperiods was due primarily to activities related to Sidney Sugars partiallyoffset by the activities related to ProGold. The Company expects lower earnings from the operations of Sidney Sugarsthis fiscal year due to the smaller sugarbeet crop and reduced selling pricesfor sugar.

 

**Comparisonof the Three Months Ended May 31, 2005 and 2004**

 

Revenuefor the three months ended May 31, 2005, was $267.7 million, a decrease of$6.9 million from the same period last year. Revenue from total sugar sales decreased 2.8 percent due to a 2.3percent decrease in the hundredweight sold and a .6 percent decrease in theaverage selling price per hundredweight. Revenue from pulp sales increased 6.9 percent due to a 16.1 percentincrease in the average selling price per ton partially offset by a 7.9 percentdecrease in the volume of pulp tons sold. Revenue from molasses sales decreased 44.0 percent due to a 51.2 percentdecrease in the volume of molasses sold partially offset by a 14.6 percentincrease in the average selling price per ton. The decrease in the volume of molasses sold was primarily due to 35.2percent decrease in molasses produced for sale. Revenue from sales of CSB increased .7 percent due to a 2.3 percentincrease in the volume of CSB sold partially offset by a 1.5 percent decreasein the average selling price per ton.  Revenuefrom the sales of

 

11

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Betainecontinues to increase as production levels rise. Rental revenue on the ProGoldoperating lease was $6.7 million and $6.5 million for the three months ended May 31,2005 and 2004, respectively.

 

Costof sales for the three months ended May 31, 2005, exclusive of payments tomembers for sugarbeets, increased $ .6 million as compared to the same periodlast year. The change in the net realizable value of product inventoriesimpacted the cost of sales favorably by $6.2 million.  The cost recognized associated with thenon-member sugarbeets (Sidney crop) decreased 5.1 percent for the three monthsended May 31, 2005 when compared to the same period last year.  This decrease was primarily due to fewerbeets harvested this year.    Direct processing costs for sugar and pulpincreased 12.9 percent.  This was due tohigher prices for natural gas and other major operating supplies. Fixed andcommitted expenses increased 10.4 percent reflecting increased wastewatertreatment expenses and general cost increases.

 

Selling,general and administrative expenses for the three months ended May 31,2005 increased $2.9 million as compared to the same period last year.  Selling expenses increased $2.9 millionprimarily due to higher freight and packaging costs.  General and Administrative costs remainedrelatively flat when compared to the same period last year.

 

Interestexpense remained relatively flat for the three months ended May 31, 2005when compared to the same period last year.

 

Non-memberbusiness activities resulted in a gain of $1.9 million for the three monthsended May 31, 2005, as compared to a gain of $ .4 million for the sameperiod last year.  The gain in bothperiods was due primarily to activities related to Sidney Sugars partiallyoffset by the activities related to ProGold.

 

**Regional and Bilateral Free Trade Agreements**

 

The United States government is pursuing anaggressive agenda on international trade. It is seeking to negotiate new free trade agreements with a number ofcountries and regions that are major producers of sugar.  The Company believes these agreements, ifthey reach fruition, could negatively impact the Company’s profitability.  The primary agreements under consideration,to the Company’s knowledge, are the Free Trade Area of the Americas; the DominicanRepublic-Central American Free Trade Agreement; the Andean Free TradeAgreement; the Thailand Free Trade Agreement; the U.S.-Panama Free TradeAgreement; and the South African Customs Union Free Trade Agreement.  On June 30, 2005, the United StatesSenate passed the Dominican Republic-Central American Free Trade Agreement.  This agreement is now pending in the UnitedStates House of Representatives.  Many ofthe countries included in these agreements are major sugar producers andexporters.  If increases in guaranteedaccess or reductions in sugar tariffs are included in these agreements, excesssugar from these regions could enter the U.S. market and put pressure ondomestic sugar prices.  The U.S. sugarindustry and the Company, as an influential member of such industry, recognizethe potential negative impact that would result if these agreements are enteredinto by the United States and are taking steps to attempt to manage thesituation.  The Company and the sugarindustry intend to continue to focus significant attention on trade issues inthe future.

 

Theimpact of the various trade agreements on the Company can not be assessed atthis time due to the uncertainty concerning the terms of the agreements andwhether they will ultimately be implemented.  It is possible, however, that the passage ofvarious trade agreements could have a material adverse effect on the Companythrough a reduction in acreage that can be planted by the Company’sshareholders and by the growers for Sidney Sugars, and/or a reduction in sugarselling prices, and a corresponding reduction in the beet payment to theshareholders and the Company earnings.  The magnitude of the impactcan not be determined at this time.

 

12

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**Energy Prices**

 

Theprices paid by the Company for energy related products, such as natural gas andcoke, have recently increased significantly due to supply and demandimbalances.  The Company uses substantialamounts of these products in its manufacturing process.  The Company believes that the prices forenergy related products including natural gas, coal and coke will remain highand will very likely increase.  TheCompany expects that the prices for these products will increase approximately15 percent in fiscal 2006 over that of fiscal 2005.  These higher prices may materially increasethe cost of production of the Company, thus impacting the financial results ofthe Company.

 

**Liquidityand Capital Resources**

 

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

 

Because sugar is soldthroughout the year (while sugarbeets are processed primarily in the fall,winter and spring) and because substantial amounts of equipment are requiredfor its operations, the Company has utilized substantial outside financing onboth a seasonal and long-term basis to fund such operations.  The majority of such financing has beenprovided by a consortium of lenders lead by CoBank, ACB.  The Company has a long-term debt line ofcredit with CoBank, ACB of****$222.3 million,of which $128.6 million in loans and $40.6 million in long-term letters ofcredit were outstanding as of May 31, 2005.  The unused long-term line of credit as of May 31,2005 was $53.1 million.  In addition, theCompany had long-term debt outstanding, as of May 31, 2005, of$50 million from a private placement of Senior Notes that occurred in September of1998; $13.6 million from a private placement of Senior Notes that occurredin January of 2003; $42.7 million from nine separate issuances ofPollution Control and Industrial Development Revenue Bonds, and a term loanwith Bank of North Dakota of $3.2 million. The Company also has a seasonal line of credit with a consortium oflenders led by CoBank, ACB of $265 million, of which there was anoutstanding balance of $50.0 million as of May 31, 2005, and a line ofcredit with Wells Fargo Bank for $1.0 million.  The Company’s commercial paper programprovides short-term borrowings of up to $225 million of which approximately$112.8 million was outstanding as of May 31, 2005.  The Company had $5.9 million of short-termletters of credit outstanding as of May 31, 2005. The unused short-termline of credit as of May 31, 2005 was $97.3 million.  Any borrowings under the commercial paperprogram along withoutstanding short-term letters of credit will act to reduce theavailable credit under the CoBank, ACB seasonal line of credit by acommensurate amount.  The Company had nooutstanding loans with the CCC, as of May 31, 2005.

 

TheCompany had outstanding commitments totaling $20.0 million as of May 31, 2005 for equipment and constructioncontracts related to various capital and maintenance projects.  Included in this amount are outstandingcommitments relating to a pulp press project at the East Grand Forks, Minnesotafactory and the construction of a centralized coal distribution center forservicing the Red River Valley factories. The Pulp press project is expected to be completed in August 2006while the coal distribution center is expected to be operational this fall.

 

TheCompany controls 50 percent of Crystech, LLC, a special purpose entity thatoperates a molasses desugarization facility at the Company’s Hillsboro, NorthDakota sugar factory.  The Companyaccounts for its investment using the equity method.  As of May 31, 2005, Crystech hadoutstanding debt of $24.6 million

 

The changes that haveoccurred in the Company’s financial statements from August 31, 2004 to May 31,2005 were primarily due to normal business seasonality.  The first nine months of the Company’s fiscalyear includes: the completion of the sugarbeet harvest and the processingcampaign; the

 

13

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final payments to growersfor sugarbeets delivered from the previous year’s crop; and the initialpayments to growers for sugarbeets delivered from the current year’s crop.

 

The net cash used inoperations was $70.2 million for the nine months ended May 31, 2005 ascompared to $94.4 million for the same period last year.  The decrease of $24.2 million was primarilydue to lower inventories of $41.7 million resulting from the smaller crops thisyear and changes in receivables of $37.5 million. These were partially offsetby decreases in the amount due growers of $19.3 million and accrued continuingcosts of $24.0 million which were caused by smaller crops and lower projectedgrower payments this year.

 

The net cash used ininvesting activities was $20.5 million for the nine months ended May 31,2005 as compared to $13.2 million for the same period last year.  The increase of $7.3 million was primarilyrelated to increased purchases of property and equipment of $5.8 million thisyear. Capital expenditures for the nine months ended May 31, 2005 were $21.9 million as comparedto $15.9 million for the same period in 2004.

 

The net cash provided byfinancing activities was $91.1 million for the nine months ended May 31,2005 as compared to $107.5 million for the same period last year.  This decrease of $16.4 million was primarilydue to lower net proceeds from short-term debt of $9.4 million. The requirementfor short-term debt was lower this year due to the processing smaller cropsthis year and the lower grower payments for the current year’s crop. Alsocontributing to this decrease was higher long-term debt repayments of $11million partially offset by lower payments of unit retains and equityretention.

 

Working capital decreased$18.6 million from $58.7 million at the beginning of the year to $40.1 millionas of May 31, 2005 primarily due to increased short-term debt and reducedreceivables, partially offset by increased inventories most of which areprimarily due to normal business seasonality. Working capital as of May 31, 2005 increased $3.2 million whencompared to $36.9 million of working capital as of May 31, 2004.  The higher level of working capital as of May 31,2005 was primarily due to less short-term debt, amounts due growers and accruedcontinuing costs partially offset by lower inventories. These changes wereprimarily due to the smaller crop this year and the resulting lower sugarproduction and forecasted grower beet payments.

 

TheCompany anticipates that the funds necessary for working capital requirementsand future capital expenditures will be derived from operations, short-termborrowings, depreciation, unit retains and long-term borrowings.

 

**Item 3**.  Quantitative and Qualitative Disclosuresabout Market Risk

** **

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

 

The Company does notbelieve that there is any material market risk exposure with respect tointerest rates, exchange rates, commodity prices, equity prices and other marketchanges that would require disclosure under this item.

 

14

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**Item 4**.  Controls and Procedures

 

TheCompany’s chief executive officer and chief financial officer have reviewed andevaluated the effectiveness of the Company’s disclosure controls and procedures(as defined in Rules 240.13a-15(e) and 15d-15(e) promulgatedunder the Securities Exchange Act of 1934) as of May 31, 2005.  Based on that review and evaluation, whichincluded inquiries made to certain other employees of the Company, the chiefexecutive officer and chief financial officer have concluded that the Company’scurrent disclosure controls and procedures, as designed and implemented, areeffective in ensuring that information relating to the Company required to bedisclosed in the reports the Company files or submits under the SecuritiesExchange Act of 1934 is recorded, processed, summarized and reported within thetime periods specified in the Security and Exchange Commission’s rules andforms, including ensuring that such information is accumulated and communicatedto the Company’s management, including the chief executive officer and thechief financial officer, as appropriate to allow timely decisions regardingrequired disclosure.

 

## **PART II**.OTHER INFORMATION

 

#### **Item1**.  LegalProceedings

 

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

 

As of the date of this report, four administrativeproceedings have been brought against the United States Department ofAgriculture (USDA) seeking reversal of prior decisions regarding thedetermination and transfer of sugar marketing allocations made by the USDA oran agency under the USDA.  Theseproceedings are in various stages of the applicable administrativeprocess.  While the Company is not aparty to any of these administrative proceedings, it is, solely or incoordination with other sugar processors, an intervenor in these administrativeproceedings.  The initial decisions bythe USDA in the four proceedings were decided such that the Company would notexperience a reduction in its marketing allocations.  The initial decisions by the USDA wereappealed to an administrative law judge under administrative guidelinespromulgated by the USDA.  Two of theseappeals were decided such that the Company would not experience a reduction inits marketing allocations.  Subsequent tothe date of this report, the appeal in the third proceeding was also decidedsuch that the Company would not experience a reduction in its marketingallocations.  The decision in the fourthproceeding, however, if it stands, will result in the Company experiencing areduction in marketing allocations equal to the loss of approximately 25,000 acresin future crop years.  Three of thedecisions of the administrative law judge have been appealed by variousparties, including the Company, to a judicial officer of the USDA.  One of the decisions that was favorable tothe Company was affirmed by the judicial officer and the other two appeals arepending.  Any decision made by a judicialofficer of the USDA can be further appealed in federal court.

 

The outcome of any contested matter is never certainand the eventual decisions of the administrative proceedings identified abovemay result in a change in the current sugar marketing allocations.  In the event these proceedings are decided ina manner that reduces the Company’s sugar allocations, the amount of sugar theCompany can produce and market may be adversely impacted.

 

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**Item 2****.  Unregistered Sales of Equity Securities andUse of Proceeds.**

 

None

 

**Item 3****.  Defaults Upon Senior Securities**

 

None

 

### **Item4**.  Submission ofMatters to a Vote of Security Holders

### ** **

None

 

**Item 5.****  Other Information.**

 

None.

 

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### **Item6**. Exhibits

 
| **Item No.** | ** ** | ** **                                                                                                              | ** ** | ** **                                                                                                                                                                               | **Method of Filing** | ** ** |
|--------------|------------|-------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------|------------|
|         |       |                                                                                                                    |       |                                                                                                                                                                                     |                 |
| 3.1          |       | Restated  Articles of Incorporation of American Crystal Sugar Company                                                   |       | Incorporated by  reference to Exhibit 3(i) from the Company’s Registration Statement on  Form S-1 (File No. 33-83868), declared effective November 23,  1994.   |                 |
|         |       |                                                                                                                    |       |                                                                                                                                                                                     |                 |
| 3.2          |       | Restated By-laws  of American Crystal Sugar Company                                                                     |       | Incorporated by  reference to Exhibit 3(ii) from the Company’s Registration Statement on  Form S-1 (File No. 333-11693), declared effective November 13,  1996. |                 |
|         |       |                                                                                                                    |       |                                                                                                                                                                                     |                 |
| 4.1          |       | Restated  Articles of Incorporation of American Crystal Sugar Company                                                   |       | See  Exhibit 3.1                                                                                                                                                                    |                 |
|         |       |                                                                                                                    |       |                                                                                                                                                                                     |                 |
| 4.2          |       | Restated By-laws  of American Crystal Sugar Company                                                                     |       | See  Exhibit 3.2                                                                                                                                                                    |                 |
|         |       |                                                                                                                    |       |                                                                                                                                                                                     |                 |
| 10.1         |       | Form of  Operating Agreement between Registrant and ProGold Limited Liability Company                              |       | Incorporated by  reference to Exhibit 10(u) from the Company’s Registration Statement on  Form S-1 (File No. 33-83868), declared effective November 23,  1994.  |                 |
|         |       |                                                                                                                    |       |                                                                                                                                                                                     |                 |
| 10.2         |       | Form of  Member Control Agreement between Registrant and ProGold Limited Liability  Company                        |       | Incorporated by  reference to Exhibit 10(v) from the Company’s Registration Statement on  Form S-1 (File No. 33-83868), declared effective November 23,  1994.  |                 |
|         |       |                                                                                                                    |       |                                                                                                                                                                                     |                 |
| +10.3        |       | Coal Supply  Agreement between Registrant and Spring Creek Coal Company, dated  August 25, 1995                    |       | Incorporated by  reference to Exhibit 10(y) from the Company’s Registration Statement on  Form S-1 (File No. 333-11693), declared effective November 13,  1996. |                 |
|         |       |                                                                                                                    |       |                                                                                                                                                                                     |                 |
| +10.4        |       | Coal  Transportation Agreement between Registrant and Northern Coal Transportation  Company, dated August 25, 1995 |       | Incorporated by  reference to Exhibit 10(z) from the Company’s Registration Statement on  Form S-1 (File No. 333-11693), declared effective November 13,  1996. |                 |
|         |       |                                                                                                                    |       |                                                                                                                                                                                     |                 |
| 10.5         |       | Pledge Agreement  between Registrant and First Union Trust Company, NA                                                  |       | Incorporated by  reference to Exhibit 10(ee) from the Company’s Annual Report on  Form 10-K for the year ended August 31, 1998.                                      |                 |
|         |       |                                                                                                                    |       |                                                                                                                                                                                     |                 |
| 10.6         |       | Indemnity  Agreement between Registrant, Newcourt Capital USA Inc., Crystech, LLC and  Crystech Senior Lender Trust     |       | Incorporated by  reference to Exhibit 10(ff) from the Company’s Annual Report on  Form 10-K for the year ended August 31, 1998.                                      |                 |
|         |       |                                                                                                                    |       |                                                                                                                                                                                     |                 |
| 10.7         |       | Tolling Services  Agreement between Crystech, LLC and Registrant                                                        |       | Incorporated by  reference to Exhibit 10(gg) from the Company’s Annual Report on  Form 10-K for the year ended August 31, 1998.                                      |                 |

 

17

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| 10.8   |   | Operations and  Maintenance Agreement between Crystech, LLC and Registrant                                                     |   | Incorporated by  reference to Exhibit 10(hh) from the Company’s Annual Report on  Form 10-K for the year ended August 31, 1998. |   |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                           |   |                                                                                                                                                |   |
| +10.9  |   | Limited  Liability Company Agreement of Crystech, LLC                                                                          |   | Incorporated by  reference to Exhibit 10(ii) from the Company’s Annual Report on  Form 10-K for the year ended August 31, 1998. |   |
|   |   |                                                                                                                           |   |                                                                                                                                                |   |
| 10.10  |   | Registrant’s Senior Note Purchase Agreement                                                                               |   | Incorporated by  reference to Exhibit 10.24 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 1999   |   |
|   |   |                                                                                                                           |   |                                                                                                                                                |   |
| 10.11  |   | Registrant’s Senior Note Inter-creditor and Collateral Agency Agreement                                                   |   | Incorporated by  reference to Exhibit 10.25 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 1999   |   |
|   |   |                                                                                                                           |   |                                                                                                                                                |   |
| 10.12  |   | Registrant’s Senior Note Restated Mortgage and Security Agreement                                                         |   | Incorporated by  reference to Exhibit 10.26 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 1999   |   |
|   |   |                                                                                                                           |   |                                                                                                                                                |   |
| 10.13  |   | Employment  Agreement between the Registrant and James J. Horvath                                                              |   | Incorporated by  reference to Exhibit 10.28 from the Company’s Annual Report on  Form 10-K form the year ended August 31, 1999  |   |
|   |   |                                                                                                                           |   |                                                                                                                                                |   |
| 10.14  |   | Stipulation Agreement  between Registrant and State of Minnesota Pollution Control Agency, dated  April 4, 2000           |   | Incorporated by  reference to Exhibit 10.28 from the Company’s Form 10-Q for the  quarter ended May 31, 2000                    |   |
|   |   |                                                                                                                           |   |                                                                                                                                                |   |
| 10.15  |   | Board of  Directors Deferred Compensation Plan, dated June 30, 1994                                                       |   | Incorporated by  reference to Exhibit 10.29 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2000   |   |
|   |   |                                                                                                                           |   |                                                                                                                                                |   |
| 10.16  |   | Long Term  Incentive Plan, dated June 23, 1999                                                                            |   | Incorporated by  reference to Exhibit 10.31 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2000   |   |
|   |   |                                                                                                                           |   |                                                                                                                                                |   |
| 10.17  |   | Uniform Member  Sugar Marketing Agreement between the Registrant and United Sugars  Corporation dated September 1, 2001.  |   | Incorporated by  reference to Exhibit 10.27 from the Company’s Form 10-Q for the  quarter ended November 30, 2001               |   |
|   |   |                                                                                                                           |   |                                                                                                                                                |   |
| 10.18  |   | Uniform Member  Marketing Agreement between the Registrant and Midwest Agri-Commodities  Company dated September 1, 2001. |   | Incorporated by  reference to Exhibit 10.28 from the Company’s Form 10-Q for the  quarter ended November 30, 2001               |   |
|   |   |                                                                                                                           |   |                                                                                                                                                |   |
| 10.19  |   | Registrant’s Senior Note Purchase Agreement dated January 15, 2003                                                   |   | Incorporated by  reference to Exhibit 10.29 from the Company’s Form 10-Q for the  quarter ended February 28, 2003               |   |
|   |   |                                                                                                                           |   |                                                                                                                                                |   |
| 10.20  |   | Growers’  Contract (5-year Agreement) for the crop years 2003 through 2007                                                |   | Incorporated by  reference to Exhibit 10.30 from the Company’s Form 10-Q for the  quarter ended February 28, 2003               |   |

 

18

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| +10.21 |   | Beet Loading and  Hauling Agreement between the Registrant and Transystems LLC for the crop  years 2003 through 2007                        |   | Incorporated by  reference to Exhibit 10.31 from the Company’s Form 10-Q for the  quarter ended May 31, 2003                  |   |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                        |   |                                                                                                                                              |   |
| 10.22  |   | Stipulation  Agreement between Registrant and State of Minnesota Pollution Control Agency,  dated August 5, 2003                       |   | Incorporated by  reference to Exhibit 10.30 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2003 |   |
|   |   |                                                                                                                                        |   |                                                                                                                                              |   |
| 10.23  |   | Term and  Seasonal Loan Agreements between the Registrant and CoBank, ACB dated  July 21, 2003                                         |   | Incorporated by  reference to Exhibit 10.31 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2003 |   |
|   |   |                                                                                                                                        |   |                                                                                                                                              |   |
| 10.24  |   | Supplements to  Term and Seasonal Loan Agreements between the Registrant and CoBank, ACB  dated July 20, 2004 and August 13, 2004 |   | Incorporated by  reference to Exhibit 10.25 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2004 |   |
|   |   |                                                                                                                                        |   |                                                                                                                                              |   |
| 10.25  |   | Crop year 2005,  2006 and 2007 Sugarbeet Delivery Agreements between Sidney Sugars  Incorporated and Growers                                |   | Filed herewith  electronically                                                                                                                    |   |
|   |   |                                                                                                                                        |   |                                                                                                                                              |   |
| 21.1   |   | List of  Subsidiaries of the Registrant                                                                                                     |   | Incorporated by  reference to Exhibit 21.1 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2004  |   |
|   |   |                                                                                                                                        |   |                                                                                                                                              |   |
| 31.1   |   | Rule 13a-14(a)/15(d)-14(a) Certification  of the Chief Executive Officer                                                          |   | Accompanying  herewith electronically                                                                                                             |   |
|   |   |                                                                                                                                        |   |                                                                                                                                              |   |
| 31.2   |   | Rule 13a-14(a)/15(d)-14(a) Certification  of the Chief Financial Officer                                                          |   | Accompanying  herewith electronically                                                                                                             |   |
|   |   |                                                                                                                                        |   |                                                                                                                                              |   |
| 32.1   |   | Section 1350  Certification of the Chief Executive Officer                                                                             |   | Accompanying  herewith electronically                                                                                                             |   |
|   |   |                                                                                                                                        |   |                                                                                                                                              |   |
| 32.2   |   | Section 1350  Certification of the Chief Financial Officer                                                                             |   | Accompanying  herewith electronically                                                                                                             |   |

 

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

 

19

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SIGNATURES

 

**Pursuantto the requirement of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.**

 

 
|      | **AMERICAN  CRYSTAL SUGAR COMPANY** |
|-----------|-------------------------------------|
|      |                                | **(Registrant)** |
|      |                                |   |
|      |                                |   |
| **Date:** | **July 15,  2005**             | ** ** |   | **/s/  Mark Kalvoda** |   |
|      |                                | **Mark  Kalvoda** |
|      |                                | **Corporate  Controller,** |
|      |                                | **Chief  Accounting Officer** |
|      |                                | **Duly Authorized Officer** |
|           |                                     |  |  |  |  |

 

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