**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 

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**ý**  Quarterly report pursuant to Section 13 or15(d) of the Securities Exchange Act of 1934

** **

# **For the period ended February28, 2006**

 

**Commission file number:  33-83868**

 

**AMERICAN CRYSTAL SUGAR COMPANY**

(Exact name ofregistrant as specified in its charter)

 

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

 

**101 NorthThird Street**

**Moorhead,Minnesota  56560**

(Address ofprincipal executive offices)

 

**TelephoneNumber (218) 236-4400**

(Registrant’stelephone number, including area code)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months, and (2) has been subject to such filing requirements for the past 90days.
| YES ý |   | NO o |
|-----------------|--------|-----------|

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one)
| Large accelerated filer o |   | Accelerated filer o | Non-accelerated filer ý |
|--------------------------------|--------|--------------------------|------------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in rule 12b-2 of theAct).
| YES o |   | NO ý |
|------------|--------|----------------|

 

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

 

| ** **                               | ** ** | **Outstanding at**     | ** ** |
|------------------------------------------|------------|-----------------------------|------------|
| **Class of Common Stock** | ** ** | **April 3, 2006** | ** ** |
| **$10 Par Value**                        | ** ** | **2,875**                   | ** ** |

 

 

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**AMERICANCRYSTAL 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**

**ConsolidatedBalance Sheets**

**(Unaudited)**

**(In Thousands)**

 

**Assets**

 
| ** **                                     | ** ** | **February 28** | ** ** | **August 31** | ** ** |
|------------------------------------------------|------------|----------------------|------------|--------------------|------------|
| ** **                                     | ** ** | **2006**             | ** ** | **2005**           | ** ** | **2005*** | ** ** |
| **Current  Assets:**                           |       |                 |       |               |       |   |   |
| Cash and Cash  Equivalents                     |       | $                    | 818        |               | $          | 672 |   | $ | 337 |   |
| Receivables:                                   |       |                 |       |               |       |   |   |
| Trade                                          |       | 41,655               |       | 60,932             |       | 39,752 |   |
| Members                                        |       | 1                    |       | 6                  |       | 3,683 |   |
| Other                                          |       | 2,155                |       | 2,267              |       | 3,490 |   |
| Advances to  Related Parties                   |       | 6,075                |       | 9,191              |       | 15,108 |   |
| Inventories                                    |       | 433,045              |       | 401,278            |       | 122,627 |   |
| Prepaid Expenses                               |       | 6,176                |       | 5,131              |       | 5,582 |   |
| ** **                                     |       |                 |       |               |       |   |   |
| **Total  Current Assets**                      |       | 489,925              |       | 479,477            |       | 190,579 |   |
|                                           |       |                 |       |               |       |   |   |
| **Property  and Equipment:**                   |       |                 |       |               |       |   |   |
| Land                                           |       | 53,660               |       | 43,235             |       | 53,728 |   |
| Buildings                                      |       | 98,757               |       | 94,377             |       | 96,816 |   |
| Equipment                                      |       | 773,285              |       | 761,294            |       | 767,698 |   |
| Construction in  Progress                      |       | 12,968               |       | 8,849              |       | 14,345 |   |
| Less Accumulated  Depreciation                 |       | (625,321             | )          | (594,197           | )          | (602,727 | ) |
| ** **                                     |       |                 |       |               |       |   |   |
| **Net  Property and Equipment**                |       | 313,349              |       | 313,558            |       | 329,860 |   |
|                                           |       |                 |       |               |       |   |   |
| **Net  Property and Equipment Held for Lease** |       | 145,666              |       | 155,766            |       | 150,892 |   |
|                                           |       |                 |       |               |       |   |   |
| **Other  Assets:**                             |       |                 |       |               |       |   |   |
| Investments in  CoBank, ACB                    |       | 14,940               |       | 18,045             |       | 16,716 |   |
| Investments in  Marketing Cooperatives         |       | 6,179                |       | 4,601              |       | 6,060 |   |
| Investments in  Crystech, LLC                  |       | 15,909               |       | 15,886             |       | 15,376 |   |
| Prepaid Pension  Expense                       |       | 43,052               |       | 31,757             |       | 43,789 |   |
| Other Assets                                   |       | 19,412               |       | 25,537             |       | 20,752 |   |
| ** **                                     |       |                 |       |               |       |   |   |
| **Total  Other Assets**                        |       | 99,492               |       | 95,826             |       | 102,693 |   |
|                                           |       |                 |       |               |       |   |   |
| **Total  Assets**                              |       | $                    | 1,048,432  |               | $          | 1,044,627 |   | $ | 774,024 |   |

 

The Accompanying Notes are an Integral Part of TheseConsolidated Financial Statements.

 

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* Derived from audited financial statements

 

1

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**Liabilities and Members' Investments**

 
| ** **                                           | ** ** | **February 28** | ** ** | **August 31** | ** ** |
|------------------------------------------------------|------------|----------------------|------------|--------------------|------------|
| ** **                                           | ** ** | **2006**             | ** ** | **2005**           | ** ** | **2005*** | ** ** |
| **Current  Liabilities:**                            |       |                 |       |               |       |   |   |
| Short-Term Debt                                      |       | $                    | 172,443    |               | $          | 165,363 |   | $ | 30,685 |   |
| Current  Maturities of Long-Term Debt                |       | 20,947               |       | 20,932             |       | 20,947 |   |
| Accounts Payable                                     |       | 19,673               |       | 20,311             |       | 27,165 |   |
| Advances Due to  Related Parties                     |       | 8,020                |       | 10,608             |       | 8,031 |   |
| Accrued  Continuing Costs                            |       | 68,715               |       | 44,839             |       | — |   |
| Other Current  Liabilities                           |       | 22,614               |       | 19,588             |       | 22,803 |   |
| Amounts Due  Growers                                 |       | 144,883              |       | 148,114            |       | 33,434 |   |
| ** **                                           |       |                 |       |               |       |   |   |
| **Total  Current Liabilities**                       |       | 457,295              |       | 429,755            |       | 143,065 |   |
|                                                 |       |                 |       |               |       |   |   |
| **Long-Term  Debt, Net of Current Maturities**       |       | 193,475              |       | 223,108            |       | 216,842 |   |
|                                                 |       |                 |       |               |       |   |   |
| **Accrued  Employee Benefits**                       |       | 40,146               |       | 36,627             |       | 37,990 |   |
|                                                 |       |                 |       |               |       |   |   |
| **Other  Liabilities**                               |       | 8,399                |       | 9,497              |       | 8,897 |   |
| ** **                                           |       |                 |       |               |       |   |   |
| **Total  Liabilities**                               |       | 699,315              |       | 698,987            |       | 406,794 |   |
|                                                 |       |                 |       |               |       |   |   |
| **Commitments  and Contingencies**                   |       |                 |       |               |       |   |   |
|                                                 |       |                 |       |               |       |   |   |
| **Minority  Interest in ProGold Limited Liability**  |       | 53,684               |       | 49,306             |       | 51,532 |   |
|                                                 |       |                 |       |               |       |   |   |
| **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                                         |       | 127,898              |       | 130,299            |       | 148,972 |   |
| Equity Retention                                     |       | 2,700                |       | 2,708              |       | 2,703 |   |
| Accumulated  Other Comprehensive Income              |       | (832                 | )          | (376               | )          | (832 | ) |
| Retained  Earnings (Accumulated Deficit)             |       | (24,898              | )          | (26,862            | )          | (25,710 | ) |
| ** **                                           |       |                 |       |               |       |   |   |
| **Total  Members’ Investments**                 |       | 295,433              |       | 296,334            |       | 315,698 |   |
|                                                 |       |                 |       |               |       |   |   |
| **Total  Liabilities and Members’ Investments** |       | $                    | 1,048,432  |               | $          | 1,044,627 |   | $ | 774,024 |   |

 

The Accompanying Notes are an Integral Part of TheseConsolidated Financial Statements.

 

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* Derived from audited financial statements

 

2

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**American Crystal SugarCompany**

**Consolidated Statements of Operations**

**(Unaudited)**

**(In Thousands)**

 
| ** **                                                      | ** ** | **For the Six Months  Ended February 28** | ** ** | **For the Three Months  Ended February 28** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                                                      | ** ** | **2006**                                                           | ** ** | **2005**                                                             | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Net  Revenue**                                                |       | $                                                                  | 449,320    |                                                                 | $          | 458,847 |   | $ | 218,049 |   | $ | 211,511 |   |
| ** **                                                      |       |                                                               |       |                                                                 |       |   |   |   |   |
| **Cost of  Sales**                                              |       | (766                                                               | )          | 58,651                                                               |       | (14,658 | ) | 534 |   |
| ** **                                                      |       |                                                               |       |                                                                 |       |   |   |   |   |
| **Gross  Proceeds**                                             |       | 450,086                                                            |       | 400,196                                                              |       | 232,707 |   | 210,977 |   |
| ** **                                                      |       |                                                               |       |                                                                 |       |   |   |   |   |
| **Selling,  General and Administrative Expenses**               |       | 97,872                                                             |       | 94,592                                                               |       | 47,888 |   | 43,175 |   |
| **Accrued  Continuing Costs**                                   |       | 68,715                                                             |       | 44,839                                                               |       | 32,227 |   | 24,218 |   |
| ** **                                                      |       |                                                               |       |                                                                 |       |   |   |   |   |
| **Operating  Proceeds**                                         |       | 283,499                                                            |       | 260,765                                                              |       | 152,592 |   | 143,584 |   |
| ** **                                                      |       |                                                               |       |                                                                 |       |   |   |   |   |
| **Other  Income (Expense):**                                    |       |                                                               |       |                                                                 |       |   |   |   |   |
| Interest Income                                                 |       | 176                                                                |       | 161                                                                  |       | 32 |   | 29 |   |
| Interest  Expense, Net                                          |       | (9,549                                                             | )          | (9,520                                                               | )          | (5,619 | ) | (5,088 | ) |
| Other, Net                                                      |       | 935                                                                |       | (330                                                                 | )          | 7 |   | (219 | ) |
|                                                            |       |                                                               |       |                                                                 |       |   |   |   |   |
| **Total  Other (Expense)**                                      |       | (8,438                                                             | )          | (9,689                                                               | )          | (5,580 | ) | (5,278 | ) |
| **Proceeds  Before Minority Interest and Income Tax Expense**   |       | 275,061                                                            |       | 251,076                                                              |       | 147,012 |   | 138,306 |   |
| ** **                                                      |       |                                                               |       |                                                                 |       |   |   |   |   |
| **Minority  Interest**                                          |       | (2,152                                                             | )          | (1,944                                                               | )          | (1,068 | ) | (1,022 | ) |
| ** **                                                      |       |                                                               |       |                                                                 |       |   |   |   |   |
| **Income  Tax Expense**                                         |       | (575                                                               | )          | (11                                                                  | )          | (299 | ) | (11 | ) |
|                                                            |       |                                                               |       |                                                                 |       |   |   |   |   |
| **Net  Proceeds Resulting from Member and Non-Member Business** |       | $                                                                  | 272,334    |                                                                 | $          | 249,121 |   | $ | 145,645 |   | $ | 137,273 |   |
| ** **                                                      |       |                                                               |       |                                                                 |       |   |   |   |   |
| **Distributions  of Net Proceeds:**                             |       |                                                               |       |                                                                 |       |   |   |   |   |
| Credited to  Members’ Investments:                         |       |                                                               |       |                                                                 |       |   |   |   |   |
| Non-Member  Business Income                                     |       | $                                                                  | 812        |                                                                 | $          | 1,323 |   | $ | 413 |   | $ | 768 |   |
| Unit Retains  Declared to Members                               |       | —                                                             |       | —                                                               |       | — |   | — |   |
| Net Credit to  Members’ Investments                        |       | 812                                                                |       | 1,323                                                                |       | 413 |   | 768 |   |
| Payments to  Members for Sugarbeets,                            |       |                                                               |       |                                                                 |       |   |   |   |   |
| Net of Unit  Retains Declared                                   |       | 271,522                                                            |       | 247,798                                                              |       | 145,232 |   | 136,505 |   |
| **Total**                                                       |       | $                                                                  | 272,334    |                                                                 | $          | 249,121 |   | $ | 145,645 |   | $ | 137,273 |   |

 

The Accompanying Notes are an IntegralPart of These Consolidated Financial Statements.

 

3

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**American Crystal SugarCompany**

**Consolidated Statements of Cash Flows**

**For the Six Months EndedFebruary 28**

**(Unaudited)**

**(In Thousands)**

 
| ** **                                                            | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|-----------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **Cash Provided By (Used In) Operating Activities:**                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net Proceeds  Resulting from Member and Non-Member Business           |       | $          | 272,334    |       | $          | 249,121 |   |
| Payments To/Due  Members for Sugarbeets, Net of Unit Retains Declared |       | (271,522   | )          | (247,798   | )          |
| Add (Deduct)  Non-Cash Items:                                         |       |       |       |       |       |
| Depreciation and  Amortization                                        |       | 35,384     |       | 34,860     |       |
| Income from  Equity Method Investees                                  |       | (567       | )          | (562       | )          |
| Loss on the  Disposition of Property and Equipment                    |       | 448        |       | 1,248      |       |
| Deferred Gain  Recognition                                            |       | (99        | )          | (99        | )          |
| Minority  Interest in ProGold Limited Liability Company               |       | 2,152      |       | 1,944      |       |
| Changes in  Assets and Liabilities:                                   |       |       |       |       |       |
| Receivables                                                           |       | 3,114      |       | 24,691     |       |
| Inventories                                                           |       | (310,418   | )          | (271,993   | )          |
| Prepaid Expenses                                                      |       | (594       | )          | (285       | )          |
| Long-Term  Prepaid Pension Expense                                    |       | 737        |       | (1,823     | )          |
| Advances To/Due  to Related Parties                                   |       | 9,022      |       | 7,061      |       |
| Accounts Payable                                                      |       | (7,492     | )          | (6,752     | )          |
| Accrued  Continuing Costs                                             |       | 68,715     |       | 44,839     |       |
| Other  Liabilities                                                    |       | 1,469      |       | 973        |       |
| Amounts Due  Growers                                                  |       | 111,449    |       | 77,627     |       |
| **Net Cash Used In Operating Activities**                             |       | (85,868    | )          | (86,948    | )          |
| ** **                                                            |       |       |       |       |       |
| **Cash Provided By (Used In) Investing Activities:**                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Purchases of  Property and Equipment                                  |       | (12,526    | )          | (12,280    | )          |
| Purchases of  Property and Equipment Held for Lease                   |       | (334       | )          | (655       | )          |
| Proceeds from  the Sale of Property and Equipment                     |       | 127        |       | 2          |       |
| Equity Refund  from CoBank, ACB                                       |       | 1,776      |       | 1,024      |       |
| Changes in Other  Assets                                              |       | (8         | )          | (426       | )          |
| **Net Cash Used In Investing Activities**                             |       | (10,965    | )          | (12,335    | )          |
| ** **                                                            |       |       |       |       |       |
| **Cash Provided By (Used In) Financing Activities:**                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net Proceeds  from (Payments on) Short-Term Debt                      |       | 141,758    |       | 135,164    |       |
| Proceeds from  Issuance of Long-Term Debt                             |       | 5,000      |       | —     |       |
| Long-Term Debt  Repayment                                             |       | (28,367    | )          | (26,978    | )          |
| Payment of Unit  Retains and Equity Retention                         |       | (21,077    | )          | (8,415     | )          |
| **Net Cash Provided By Financing Activities**                         |       | 97,314     |       | 99,771     |       |
| **Increase In Cash and Cash Equivalents**                             |       | 481        |       | 488        |       |
| **Cash and Cash Equivalents, Beginning of Year**                      |       | 337        |       | 184        |       |
| ** **                                                            |       |       |       |       |       |
| **Cash and Cash Equivalents, End of Period**                          |       | $          | 818        |       | $          | 672 |   |

 

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

 

4

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# **AMERICAN CRYSTAL SUGARCOMPANY**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**FOR THE SIXMONTHS AND THREE MONTHS ENDED**

**February28, 2006 AND 2005**

**(Unaudited)**

 

**Note 1:  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 notinclude all the information and footnotes required by accounting principlesgenerally accepted in the United States of America. However, in the opinion ofmanagement, all adjustments, consisting of normal recurring accruals,considered necessary for a fair presentation have been 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.

 

Allmaterial inter-company transactions have been eliminated.

 

Theoperating results for the six month period ended February 28, 2006, are notnecessarily indicative of the results that may be expected for the year endedAugust 31, 2006.

 

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 2005 Red River Valley sugarbeet crop (RRV crop). The amount paid tonon-member growers for sugarbeets (non-member beet payment) depends on thefuture selling prices of sugar and the related selling expenses associated withthe 2005 Sidney Sugars sugarbeet crop (Sidney crop). For the purposes of thisreport, the amount of the beet payments, future revenues and costs have beenestimated. Therefore, adjustments with respect to these estimates may benecessary in the future, as additional information 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-K forthe year ended August 31, 2005.

 

Certainreclassifications have been made to the February 28, 2005, consolidated financialstatements to conform with the February 28, 2006, presentation. Thesereclassifications had no effect on previously reported results of operations orMembers’ Investments.

 

**Note 2:  Inventories**

 

Themajor components of inventories are as follows (In Thousands):

 
| ** **                                                             | ** ** | **February 28  2006** | ** ** | **February 28  2005** | ** ** | **August 31  2005** | ** ** |
|------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|---------------------|------------|
| Refined Sugar,  Pulp, Molasses, Other Agri-Products and Sugarbeet Seed |       | $                     | 319,425    |                  | $          | 260,769             |       | $ | 96,647 |   |
| Unprocessed  Sugarbeets                                                |       | 85,415                |       | 119,699               |       | —              |       |
| Maintenance  Parts and Supplies                                        |       | 28,205                |       | 20,810                |       | 25,980              |       |
|                                                                   |       |                  |       |                  |       |                |       |
| Total  Inventories                                                     |       | $                     | 433,045    |                  | $          | 401,278             |       | $ | 122,627 |   |

 

5

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

 

# **Note3:  Short-Term Debt**

# ** **

TheCompany has a seasonal line of credit with a consortium of lenders led byCoBank, ACB of $280 million and a line of credit with Wells Fargo Bank for$1 million. The Company’s commercial paper program provides short-termborrowings of up to $225 million.  Any borrowings under the commercialpaper program along with outstanding short-term letters of credit will act toreduce the available credit under the CoBank, ACB seasonal line of credit by acommensurate amount. The Company also utilizes the Commodity Credit Corporation(CCC) to meet its short-term borrowing needs.

 

As of February 28, 2006,the Company had outstanding commercial paper of $172.4****millionat an average interest rate of 4.86% and maturity dates between March 1, 2006,and May 31, 2006. The Company had no outstanding short-term debt with CoBank,ACB or the CCC as of February 28, 2006. The Company had $5.9 million ofshort-term letters of credit outstanding as of February 28, 2006. The unusedseasonal line of credit as of February 28, 2006, was $102.7 million.

 

As of February 28, 2005,the Company had outstanding commercial paper of $165.4****millionat an average interest rate of 2.8% and maturity dates between March 1, 2005,and May 31, 2005. The Company had no outstanding short-term debt with CoBank,ACB or the CCC as of February 28, 2005. The Company had $5.9 million ofshort-term letters of credit outstanding as of February 28, 2005.

 

**Note 4:  Interest Paid**

 

Interestpaid, net of amounts capitalized, was $9.8 million and $9.6 million for the sixmonths ended February 28, 2006 and 2005, respectively, and $7.2 million and $6.2million for the three months ended February 28, 2006 and 2005, respectively.

 

**Note 5:  Accrued Continuing Costs**

 

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

 

Accrued continuing costsrepresent the difference between the net proceeds as determined above andactual member business crop year and Sidney Sugars fiscal year revenuesrealized and expenses incurred through the end of the reporting period. Accruedcontinuing costs are reflected in the Consolidated Financial Statements as acost on the Consolidated Statements of Operations and as a current liability onthe Consolidated Balance Sheets.

 

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 six months and three monthsended February 28, 2006 and 2005:

 

***Components of Net PeriodicPension Cost***

(In Thousands)

 
| ** **                            | ** ** | **For the Six Months Ended** | ** ** | **For the Three Months Ended** | ** ** |
|---------------------------------------|------------|------------------------------|------------|--------------------------------|------------|
| ** **                            | ** ** | **February 28**              | ** ** | **February 28**                | ** ** |
| ** **                            | ** ** | **2006**                     | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Service Cost                          |       | $                            | 2,111      |                           | $          | 1,633 |   | $ | 1,055 |   | $ | 817 |   |
| Interest Cost                         |       | 3,592                        |       | 3,543                          |       | 1,796 |   | 1,771 |   |
| Expected Return on Plan Assets        |       | (4,928                       | )          | (4,031                         | )          | (2,464 | ) | (2,016 | ) |
| Multiple Employer Adjustment          |       | (30                          | )          | (79                            | )          | (15 | ) | (40 | ) |
| Amortization of Net Transition Assets |       | —                       |       | (11                            | )          | — |   | (5 | ) |
| Amortization of Prior Service Costs   |       | 686                          |       | 512                            |       | 343 |   | 256 |   |
| Amortization of Net (Gain) Loss       |       | 1,494                        |       | 665                            |       | 747 |   | 333 |   |
| Net Periodic Pension Cost             |       | $                            | 2,925      |                           | $          | 2,232 |   | $ | 1,462 |   | $ | 1,116 |   |

 

***Components of Net PeriodicPost-Retirement Cost***

(In Thousands)

 
| ** **                        | ** ** | **For the Six Months Ended** | ** ** | **For the Three Months Ended** | ** ** |
|-----------------------------------|------------|------------------------------|------------|--------------------------------|------------|
| ** **                        | ** ** | **February 28**              | ** ** | **February 28**                | ** ** |
| ** **                        | ** ** | **2006**                     | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Service Cost                      |       | $                            | 705        |                           | $          | 550 |   | $ | 352 |   | $ | 275 |   |
| Interest Cost                     |       | 1,044                        |       | 1,086                          |       | 522 |   | 543 |   |
| Amortization of Net (Gain) Loss   |       | 194                          |       | 144                            |       | 97 |   | 72 |   |
| Net Periodic Post-Retirement Cost |       | $                            | 1,943      |                           | $          | 1,780 |   | $ | 971 |   | $ | 890 |   |

 

For the six months ended February28, 2006, the Company contributed $1.7 million to the pension plans. TheCompany expects total contributions to be approximately $5.7 million for thecurrent fiscal year. The Company has made payments for post-retirement benefitsof approximately $399,000 for the six months ended February 28, 2006, andexpects total payments for the current fiscal year to be approximately $800,000.

 

**Note 7:  Members’ Investments**

 
| ** **         | ** ** | ** **         | ** ** | **Shares**     | ** ** | **Shares Issued**     | ** ** |
|--------------------|------------|--------------------|------------|----------------|------------|----------------------------|------------|
| ** **         | ** ** | **Par Value** | ** ** | **Authorized** | ** ** | **& Outstanding** | ** ** |
| Preferred Stock:   |       |               |       |           |       |                       |       |
| April 3, 2006      |       | $                  | 76.77      |           | 600,000    |                       | 498,570    |   |
| February 28,  2006 |       | $                  | 76.77      |           | 600,000    |                       | 498,570    |   |
| August 31, 2005    |       | $                  | 76.77      |           | 600,000    |                       | 498,570    |   |
| February 28,  2005 |       | $                  | 76.77      |           | 600,000    |                       | 498,570    |   |
|               |       |               |       |           |       |                       |       |
| Common Stock:      |       |               |       |           |       |                       |       |
| April 3, 2006      |       | $                  | 10.00      |           | 4,000      |                       | 2,875      |   |
| February 28,  2006 |       | $                  | 10.00      |           | 4,000      |                       | 2,867      |   |
| August 31, 2005    |       | $                  | 10.00      |           | 4,000      |                       | 2,904      |   |
| February 28,  2005 |       | $                  | 10.00      |           | 4,000      |                       | 2,868      |   |

 

7

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**Note 8: Shipping and HandlingCosts**

 

Thecosts incurred for the shipping and handling of products sold are classified inthe financial statements as a selling expense on the Statements of Operations. Shippingand handling costs were $62.6 million and $59.8 million for the six monthsended February 28, 2006 and 2005, respectively and $30.5 million and $28.1million for the three months ended February 28, 2006 and 2005, respectively.

 

**Note 9: Segment Reporting**

 

The Company hasidentified two reportable segments: Sugar and Leasing. The sugar segment isengaged primarily in the production and marketing of sugar from sugarbeets. Italso sells agri-products and sugarbeet seed. The leasing segment is engaged inthe leasing of a corn wet-milling plant used in the production of high-fructosecorn syrup sweetener. The segments are managed separately. There are nointer-segment sales. The leasing segment has a major customer that accounts forall of that segment’s revenue.

 

Summarized financialinformation concerning the Company’s reportable segments for the six months andthree months ended February 28, 2006 and 2005, is shown below:

 
| ** **                          | ** ** | **For the Six Months Ended February 28, 2006** | ** ** |
|-------------------------------------|------------|------------------------------------------------|------------|
| ** **                          | ** ** | **(Dollars In Thousands)**                     | ** ** |
| ** **                          | ** ** | **Sugar**                                      | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from External Customers |       | $                                              | 436,627    |   | $ | 12,693 |   | $ | 449,320 |   |
| Gross Proceeds                      |       | $                                              | 443,425    |   | $ | 6,661 |   | $ | 450,086 |   |
| Depreciation and Amortization       |       | $                                              | 29,824     |   | $ | 5,560 |   | $ | 35,384 |   |
| Interest Income                     |       | $                                              | 156        |   | $ | 20 |   | $ | 176 |   |
| Interest Expense                    |       | $                                              | 7,313      |   | $ | 2,236 |   | $ | 9,549 |   |
| Income from Equity Method Investees |       | $                                              | 567        |   | $ | — |   | $ | 567 |   |
| Other Income/(Expense), Net         |       | $                                              | 368        |   | $ | — |   | $ | 368 |   |
| Net Proceeds                        |       | $                                              | 270,094    |   | $ | 2,240 |   | $ | 272,334 |   |
|                                |       |                                           |       |   |   |   |   |
| Capital Expenditures                |       | $                                              | 12,526     |   | $ | 334 |   | $ | 12,860 |   |
|                                |       |                                           |       |   |   |   |   |

 
| ** **                          | ** ** | **For the Six Months Ended February 28, 2005** | ** ** |
|-------------------------------------|------------|------------------------------------------------|------------|
| ** **                          | ** ** | **(Dollars In Thousands)**                     | ** ** |
| ** **                          | ** ** | **Sugar**                                      | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from External Customers |       | $                                              | 445,833    |   | $ | 13,014 |   | $ | 458,847 |   |
| Gross Proceeds                      |       | $                                              | 393,186    |   | $ | 7,010 |   | $ | 400,196 |   |
| Depreciation and Amortization       |       | $                                              | 29,328     |   | $ | 5,532 |   | $ | 34,860 |   |
| Interest Income                     |       | $                                              | 155        |   | $ | 6 |   | $ | 161 |   |
| Interest Expense                    |       | $                                              | 6,525      |   | $ | 2,995 |   | $ | 9,520 |   |
| Income from Equity Method Investees |       | $                                              | 562        |   | $ | — |   | $ | 562 |   |
| Other Income/(Expense), Net         |       | $                                              | (892       | ) | $ | — |   | $ | (892 | ) |
| Net Proceeds                        |       | $                                              | 247,097    |   | $ | 2,024 |   | $ | 249,121 |   |
|                                |       |                                           |       |   |   |   |   |
| Capital Expenditures                |       | $                                              | 12,280     |   | $ | 655 |   | $ | 12,935 |   |

 

8

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| ** **                          | ** ** | **For the Three Months Ended February 28, 2006** | ** ** |
|-------------------------------------|------------|--------------------------------------------------|------------|
| ** **                          | ** ** | **(Dollars In Thousands)**                       | ** ** |
| ** **                          | ** ** | **Sugar**                                        | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from External Customers |       | $                                                | 211,774    |   | $ | 6,275 |   | $ | 218,049 |   |
| Gross Proceeds                      |       | $                                                | 229,449    |   | $ | 3,258 |   | $ | 232,707 |   |
| Depreciation and Amortization       |       | $                                                | 15,001     |   | $ | 2,781 |   | $ | 17,782 |   |
| Interest Income                     |       | $                                                | 21         |   | $ | 11 |   | $ | 32 |   |
| Interest Expense                    |       | $                                                | 4,554      |   | $ | 1,065 |   | $ | 5,619 |   |
| Income from Equity Method Investees |       | $                                                | 283        |   | $ | — |   | $ | 283 |   |
| Other Income/(Expense), Net         |       | $                                                | (276       | ) | $ | — |   | $ | (276 | ) |
| Net Proceeds                        |       | $                                                | 144,534    |   | $ | 1,111 |   | $ | 145,645 |   |
|                                |       |                                             |       |   |   |   |   |
| Capital Expenditures                |       | $                                                | 6,023      |   | $ | 96 |   | $ | 6,119 |   |

 
| ** **                          | ** ** | **For the Three Months Ended February 28, 2005** | ** ** |
|-------------------------------------|------------|--------------------------------------------------|------------|
| ** **                          | ** ** | **(Dollars In Thousands)**                       | ** ** |
| ** **                          | ** ** | **Sugar**                                        | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from External Customers |       | $                                                | 204,954    |   | $ | 6,557 |   | $ | 211,511 |   |
| Gross Proceeds                      |       | $                                                | 207,424    |   | $ | 3,553 |   | $ | 210,977 |   |
| Depreciation and Amortization       |       | $                                                | 14,670     |   | $ | 2,768 |   | $ | 17,438 |   |
| Interest Income                     |       | $                                                | 26         |   | $ | 3 |   | $ | 29 |   |
| Interest Expense                    |       | $                                                | 3,646      |   | $ | 1,442 |   | $ | 5,088 |   |
| Income from Equity Method Investees |       | $                                                | 287        |   | $ | — |   | $ | 287 |   |
| Other Income/(Expense), Net         |       | $                                                | (506       | ) | $ | — |   | $ | (506 | ) |
| Net Proceeds                        |       | $                                                | 136,208    |   | $ | 1,065 |   | $ | 137,273 |   |
|                                |       |                                             |       |   |   |   |   |
| Capital Expenditures                |       | $                                                | 6,495      |   | $ | 378 |   | $ | 6,873 |   |

 
| ** **                  | ** ** | **As of February 28, 2006** | ** ** |
|-----------------------------|------------|-----------------------------|------------|
| ** **                  | ** ** | **(Dollars In Thousands)**  | ** ** |
| ** **                  | ** ** | **Sugar**                   | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Property and Equipment, Net |       | $                           | 313,349    |   | $ | — |   | $ | 313,349 |   |
| Assets Held for Lease, Net  |       | $                           | —     |   | $ | 145,666 |   | $ | 145,666 |   |
| Segment Assets              |       | $                           | 891,804    |   | $ | 156,628 |   | $ | 1,048,432 |   |

 
| ** **                  | ** ** | **As of February 28, 2005** | ** ** |
|-----------------------------|------------|-----------------------------|------------|
| ** **                  | ** ** | **(Dollars In Thousands)**  | ** ** |
| ** **                  | ** ** | **Sugar**                   | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Property and Equipment, Net |       | $                           | 313,557    |   | $ | 1 |   | $ | 313,558 |   |
| Assets Held for Lease, Net  |       | $                           | —     |   | $ | 155,766 |   | $ | 155,766 |   |
| Segment Assets              |       | $                           | 876,957    |   | $ | 167,670 |   | $ | 1,044,627 |   |

 

**Note 11: Legal Matters:**

 

Asof the date of this report, four administrative proceedings have been broughtagainst the United States Department of Agriculture (USDA) seeking reversal ofprior decisions regarding the determination and transfer of sugar marketingallocations made by the USDA. While the Company is not a party to any of these administrativeproceedings, it is, solely or in coordination with other sugar processors, anintervenor in these administrative proceedings. As of the date of this report,three of these proceedings have completed the administrative process and thedecisions by the chief judicial officer of 

 

9

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the USDA in each were such that the Companywould not experience a reduction in its marketing allocations. Subsequent tothe date of this report, the fourth proceeding also completed theadministrative process. The decision by the chief judicial officer of the USDA inthe fourth proceeding also was such that the Company would not experience areduction in its marketing allocations. Any decision made by the chief judicialofficer of the USDA can be further appealed in federal court. The Companyintends to vigorously pursue favorable outcomes in these matters.

 

**Item2. Management’s Discussion and Analysis of Results of Operations and FinancialCondition for the Six Months and Three Months Ended February 28, 2006 and 2005**

** **

This report containsforward-looking statements that involve risks and uncertainties. Suchforward-looking statements include, among others, those statements includingthe words “expect”, “anticipate”, “believe”, “may” and similar expressions. TheCompany’s actual results could differ materially from those indicated. Importantfactors that could cause or contribute to such differences include, withoutlimitation, market factors, weather and general economic conditions, farm andtrade policy, available quantity and quality of sugarbeets. For a more completediscussion of “Important Factors”, please refer to the Company’s 2005 Form10-K.

 

Theharvest of the sugarbeet crop grown during 2005 and to be processed duringfiscal 2006 produced a total of 9.6 million tons of sugarbeets, orapproximately 19.0 tons of sugarbeets per acre from approximately 507,000 acres.This represents a decrease in total tons harvested of approximately 5.7 percentcompared to the 2004 crop. The sugar content of the 2005 crop is 18.3 percentas compared to the 17.8 percent sugar content of the 2004 crop. The Companyexpects to produce a total of approximately 29.2 million hundredweight ofsugar from the 2005 crop, a decrease of approximately 4.3 percent compared tothe 2004 crop. While the Company expects lower production volumes of itsproducts this fiscal year as compared to the previous fiscal year, the averageselling prices for these products are anticipated to increase slightly due tosupply and demand factors.

 

**Comparisonof the Six Months Ended February 28, 2006 and 2005**

 

Revenuefor the six months ended February 28, 2006, was $449.3 million, a decrease of$9.5 million from the same period last year. The table below reflects the percentagechanges in product revenues, prices and volumes for the six months endedFebruary 28, 2006, as compared to the same period last year.

 
| **Product** | ** ** | **Revenue** | ** ** | **Selling Price** | ** ** | **Volume** | ** ** |
|-------------|------------|-------------|------------|-------------------|------------|------------|------------|
| Sugar       |       | -2.7        | %          | 4.6               | %          | -7.0       | %          |
| Pulp        |       | 13.5        | %          | 5.7               | %          | 7.3        | %          |
| Molasses    |       | -27.2       | %          | 18.7              | %          | -38.7      | %          |
| CSB         |       | -9.5        | %          | 13.7              | %          | -20.4      | %          |
| Betaine     |       | 14.8        | %          | 21.1              | %          | -5.2       | %          |

 

Rentalrevenue on the ProGold operating lease was $12.7 million and $13.0 million forthe six months ended February 28, 2006 and 2005, respectively.

 

Costof sales for the six months ended February 28, 2006, exclusive of payments tomembers for sugarbeets, decreased $59.4 million as compared to the same periodlast year. The change in the net realizable value of product inventoriesimpacted the cost of sales favorably by $70.2 million. The costs associatedwith sugar purchased to meet customer needs decreased by $10.6 million due toan earlier campaign start-up this year. The cost recognized associated with thenon-member sugarbeets increased  $2.1million or 6.1 percent for the six months ended February 28, 2006, whencompared to the same period last year. This increase was primarily due to ahigher estimated grower payment resulting from an increase in the projectedsugar net selling price this year. Direct processing costs for sugar and pulpincreased 20.8 percent. The increase was due in part to processing 6.1 percentmore sugarbeets in the first six months this year as compared to the sameperiod last year. Also adding to the increase in direct 

 

10

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processing costs were higher prices relatedto energy products and major supplies. Fixed and committed expenses increased 3.6percent reflecting general cost increases.

 

Selling,general and administrative expenses increased $3.3 million for the six monthsended February 28, 2006, as compared to the same period last year. Sellingexpenses increased $ 3.6 million primarily due to an increase in freight,warehousing and packaging costs. General and Administrative expenses decreased$ .3 million due to general cost reductions.

 

Interestexpense remained relatively the same for the six months ended February 28, 2006and 2005. This reflects decreased average borrowing levels for long-term debt,partially offset by higher average borrowing levels for short-term debt andhigher short-term and long-term interest rates.

 

Non-memberbusiness activities resulted in a gain of $ .8 million for the six months endedFebruary 28, 2006, as compared to a gain of $1.3 million for the same periodlast year. The gain in both years was due primarily to activities related toSidney Sugars.

 

**Comparisonof the Three Months Ended February 28, 2006 and 2005**

 

Revenuefor the three months ended February 28, 2006, was $218.0 million, an increaseof $6.5 million from the same period last year. The table below reflects thepercentage changes in product revenues, prices and volumes for the three monthsended February 28, 2006, as compared to the same period last year.

 
| **Product** | ** ** | **Revenue** | ** ** | **Selling Price** | ** ** | **Volume** | ** ** |
|-------------|------------|-------------|------------|-------------------|------------|------------|------------|
| Sugar       |       | 3.0         | %          | 7.7               | %          | -4.4       | %          |
| Pulp        |       | 8.1         | %          | 2.9               | %          | 5.1        | %          |
| Molasses    |       | 2.5         | %          | 16.0              | %          | -11.7      | %          |
| CSB         |       | 17.6        | %          | 19.2              | %          | -1.3       | %          |
| Betaine     |       | -5.5        | %          | 26.6              | %          | -25.4      | %          |

 

Rentalrevenue on the ProGold operating lease was $6.3 million and $6.6 million forthe three months ended February 28, 2006 and 2005, respectively.

 

Costof sales for the three months ended February 28, 2006, exclusive of payments tomembers for sugarbeets, decreased $15.2 million as compared to the same periodlast year. The change in the net realizable value of product inventoriesimpacted the cost of sales favorably by $27.4 million. The cost recognizedassociated with the non-member sugarbeets increased $1.7 million or 9.1 percentfor the three months ended February 28, 2006, when compared to the same periodlast year. This increase was primarily due to a higher estimated grower paymentresulting from an increase in the projected sugar net selling price this year. Directprocessing costs for sugar and pulp increased 23.2 percent. The increase wasdue in part to processing 3.5 percent more sugarbeets in the second quarterthis year as compared to the same period last year. Also adding to the increasein direct processing costs were higher prices related to energy products andmajor supplies. Fixed and committed expenses increased 5.0 percent reflectinggeneral cost increases.

 

Selling,general and administrative expenses increased $4.7 million for the three monthsended February 28, 2006, as compared to the same period last year. Sellingexpenses increased $ 4.0 million primarily due to an increase in freight,warehousing and packaging costs. General and Administrative expenses increased$ .7 million due to general cost increases.

 

Interestexpense increased $ .5 million for the three months ended February 28, 2006, ascompared to the same period last year. This reflects a higher average borrowinglevel for short-term debt and higher short-term and long-term interest ratespartially offset by decreased average borrowing levels for long-term debt.

 

11

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Non-memberbusiness activities resulted in a gain of $ .4 million for the three monthsended February 28, 2006, as compared to a gain of $ .8 million for the sameperiod last year. The gain in both years was due primarily to activities relatedto Sidney Sugars.

 

**TheDominican Republic - Central American Free Trade Agreement**

 

TheDominican Republic - Central American Free Trade Agreement (DR-CAFTA) wassigned into law on August 2, 2005, and is anticipated to be implemented in2006. As a result, the Company expects an increase in the amount of sugar thatwill be imported into the United States. The impact of this trade agreement onthe Company can not be fully assessed at this time. It is possible, however,that the trade agreement 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’s earnings. The magnitude of the impact can not bedetermined at this time.

 

**Regionaland Bilateral Free Trade Agreements**

 

TheUnited States government is pursuing an aggressive agenda on internationaltrade. It is seeking to negotiate new free trade agreements with a number ofcountries and regions that are major producers of sugar. The Company believesthese agreements, if they reach fruition, could negatively impact the Company’sprofitability. The primary agreements under consideration, to the Company’sknowledge, are the Free Trade Area of the Americas; the Andean Free TradeAgreement; the Thailand Free Trade Agreement; the U.S.-Panama Free TradeAgreement; and the South African Customs Union Free Trade Agreement. Many ofthe countries included in these agreements are major sugar producers andexporters. If increases in guaranteed access or reductions in sugar tariffs areincluded in these agreements, excess sugar from these regions could enter theU.S. market and put pressure on domestic sugar prices. The U.S. sugar industryand the Company, as an influential member of such industry, recognize thepotential 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 sugar industry intend to continue to focussignificant attention on trade issues in the 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 thepassage of various trade agreements could have a material adverse effect on theCompany through 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 impact can not bedetermined at this time.

 

**EnergyPrices**

 

Theprices paid by the Company for energy related products, such as natural gas,coal and coke, have increased significantly due to supply and demand imbalances.The Company uses substantial amounts of these products in its manufacturingprocess. The Company believes that the prices for energy related productsincluding natural gas, coal and coke will remain high. The Company expects thatthe prices for these products will increase approximately 40 percent in fiscal2006 over that of fiscal 2005. The Company also expects that higher fuel priceswill increase the costs of many goods and services it acquires. These higherprices may materially increase the cost of production, thus impacting thefinancial results of the Company.

 

**Liquidity and Capital Resources**

 

Underthe Company’s Bylaws and Member Grower Contracts, payments for member deliveredsugarbeets, the principal raw material used in producing the sugar andagri-products it sells, are subordinated to all member business expenses. Inaddition, the beet payments made to member growers and non-member growers arepaid in three payments over the course of a year, and the member payments aremade net of any anticipated unit retain for the crop. These procedures have theeffect of providing the 

 

12

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Company with an additional source ofshort-term financing. This member financing arrangement may result in anadditional source of liquidity and reduced need for outside financing incomparison to a similar business operated on a non-cooperative basis.

 

Becausesugar is sold throughout the year (while sugarbeets are processed primarily inthe fall, winter and spring) and because substantial amounts of equipment arerequired for its operations, the Company has utilized substantial outsidefinancing on both a seasonal and long-term basis to fund its operations. Themajority of such financing has been provided by a consortium of lenders led byCoBank, ACB.

 

TheCompany has long-term debt availability with CoBank, ACB of****$224.1 million,of which $107.7 million in loans and $51.8 million in long-term letters ofcredit were outstanding as of February 28, 2006. The unused long-term line ofcredit as of February 28, 2006, was $64.6 million. In addition, the Company haslong-term debt outstanding, as of February 28, 2006, of $50 million from aprivate placement of Senior Notes that occurred in September of 1998; $11.4million from a private placement of Senior Notes that occurred in January of2003; $42.9 million from nine separate issuances of Pollution Control andIndustrial Development Revenue Bonds; and a term loan with Bank of North Dakotaof $2.4 million.

 

TheCompany also has a seasonal line of credit with a consortium of lenders led byCoBank, ACB of $280 million, against which there was no outstandingbalance as of February 28, 2006, and a line of credit with Wells Fargo Bank for$1 million, against which there was no outstanding balance as of February28, 2006. The Company’s commercial paper program provides short-term borrowingsof up to $225 million of which approximately $172.4 million was outstanding asof February 28, 2006. The Company had $5.9 million of short-term letters ofcredit outstanding as of February 28, 2006. The unused short-term line ofcredit as of February 28, 2006, was $102.7 million. Any borrowings under thecommercial paper program along with outstanding short-term letters of creditwill act to reduce the available credit under the CoBank, ACB seasonal line ofcredit by a commensurate amount.

 

TheCompany had outstanding purchase commitments totaling $11.1 million as of February28, 2006, for equipment and construction contracts related to various capitaland maintenance projects.

 

Thechanges that have occurred in the Company’s financial statements from August31, 2005, to February 28, 2006, were primarily due to normal businessseasonality. The first six months of the Company’s fiscal year includes: thecompletion of the sugarbeet harvest; start of the processing campaign; thefinal payments to growers for sugarbeets delivered from the previous year’scrop; and the initial payments to growers for sugarbeets delivered from thecurrent year’s crop.

 

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 Company accounts for its investment using the equitymethod. As of February 28, 2006, Crystech had outstanding debt of $15.4 million.

 

Thenet cash used by operations was $85.9 million for the six months ended February28, 2006, as compared to $86.9 million for the same period last year. Thisdecrease of $1.0 million was primarily due to changes in inventories of $38.4million and a change in receivables of $21.6 million partially offset bychanges in the amounts due growers of $33.8 million and accrued continuingcosts of $23.9 million. The change in the amounts due growers was due to lesscash required this year to fund the previous crop year’s final grower paymentwhich occurs in November each year along with a lower estimated current yeargrower payment due to the smaller crop this year. The change in inventories wasdue primarily to increased sugar production resulting from an earlier campaignstart-up this year and an increase in the net realizable value of sugar as ofFebruary 28, 2006, as compared to that of February 28, 2005.

 

Thenet cash used in investing activities was $11.0 million for the six monthsended February 28, 2006, as compared to $12.3 million for same period last year.The decrease of $1.3 million was primarily related to increased equity refundsreceived from CoBank, ACB.

 

13

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Thenet cash provided by financing activities was $97.3 million for the six monthsended February 28, 2006, as compared to $99.8 million for the same period lastyear. This decrease of $2.5 million was primarily due to the revolvement thisyear of the 1998 crop unit retains of $2.00 per ton versus the revolvement lastyear of the 1997 crop unit retains of $1.00 per ton along with increased long-termdebt repayment this year. These were partially offset by increased net proceedsfrom short-term debt and the issuance of long term debt.

 

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 Disclosures about Market Risk**

 

Marketrisk is the risk of loss to future earnings, to fair values or to future cashflows that may result from changes in the price of a financial instrument. Thevalue of a financial instrument may change as a result of changes in theinterest rates, exchange rates, commodity prices, equity prices and othermarket changes. Market risk is attributed to all market-risk sensitivefinancial instruments, including long term debt.

 

TheCompany does not believe that there is any material market risk exposure withrespect to interest rates, exchange rates, commodity prices, equity prices andother market changes that would require disclosure under this item.

 

**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) promulgated under theSecurities Exchange Act of 1934) as of February 28, 2006. Based on that reviewand evaluation, which included inquiries made to certain other employees of theCompany, the chief executive officer and chief financial officer have concludedthat the Company’s current disclosure controls and procedures, as designed andimplemented, are effective in ensuring that information relating to the Companyrequired to be disclosed in the reports the Company files or submits under theSecurities Exchange Act of 1934 is recorded, processed, summarized and reportedwithin the time periods specified in the Security and Exchange Commission’srules and forms, including ensuring that such information is accumulated andcommunicated to the Company’s management, including the chief executive officerand the chief financial officer, as appropriate to allow timely decisionsregarding required disclosure. There were no changes in the Company’s internalcontrols over financial reporting that occurred during the Company’s mostrecent fiscal quarter that may have materially affected, or are reasonably likelyto materially affect, the Company’s internal control over financial reporting.

 

## **PART II. OTHERINFORMATION**

 

#### **Item 1. LegalProceedings**

 

Fromtime to time and in the ordinary course of its business, the Company is namedas a defendant in legal proceedings related to various issues, including worker’scompensation claims, tort claims and contractual disputes. The Company iscurrently involved in certain legal proceedings, which have arisen in theordinary course of the Company’s business. The Company is also aware of certainother potential claims, which could result in the commencement of legalproceedings. The Company carries insurance, which provides protection againstcertain types of claims. With respect to current litigation and potentialclaims of which the Company is aware, the Company’s management believes that(i) the Company has insurance protection to cover all or a portion of anyjudgments which may be rendered against the Company with respect to certainclaims or actions and (ii) any judgments which may be entered against theCompany and which may exceed such insurance coverage or which may arise inactions involving potential liabilities not covered by insurance policies arenot likely to have a material adverse effect upon the Company, or its assets oroperations.

 

14

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Asof the date of this report, four administrative proceedings have been broughtagainst the United States Department of Agriculture (USDA) seeking reversal ofprior decisions regarding the determination and transfer of sugar marketingallocations made by the USDA. 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. As of the dateof this report, three of these proceedings have completed the administrativeprocess and the decisions by the chief judicial officer of the USDA in eachwere such that the Company would not experience a reduction in its marketingallocations. Subsequent to the date of this report, the fourth proceeding alsocompleted the administrative process. The decision by the chief judicialofficer of the USDA in the fourth proceeding also was such that the Companywould not experience a reduction in its marketing allocations. Any decisionmade by the chief judicial officer of the USDA can be further appealed infederal court. The Company intends to vigorously pursue favorable outcomes inthese matters.

 

Theoutcome of any contested matter is never certain and the eventual decisions ofthe administrative proceedings identified above may result in a change in thecurrent sugar marketing allocations. In the event these proceedings are decidedin a manner that reduces the Company’s sugar allocations, the amount of sugarthe Company can produce and market may be adversely impacted.

 

**Item 2. UnregisteredSales of Equity Securities and Use of Proceeds.**

 

None

 

**Item 3. DefaultsUpon Senior Securities**

 

None

 

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

 

None

 

**Item 5. OtherInformation.**

 

None.

 

15

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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              |       | 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.                                     |
|              |       |                                                                                                                 |       |                                                                                                                                                                     |
| 10.4              |       | 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.                                     |
|              |       |                                                                                                                 |       |                                                                                                                                                                     |
| 10.5              |       | 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.                                     |
|              |       |                                                                                                                 |       |                                                                                                                                                                     |
| 10.6              |       | 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.                                     |
|              |       |                                                                                                                 |       |                                                                                                                                                                     |
| +10.7             |       | 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.                                     |

 

16

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| 10.8    |   | 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.  |
|---------|--------|---------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                      |   |                                                                                                                                 |
| 10.9    |   | 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.  |
|    |   |                                                                                                                      |   |                                                                                                                                 |
| 10.10   |   | 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.  |
|    |   |                                                                                                                      |   |                                                                                                                                 |
| ++10.11 |   | 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. |
|    |   |                                                                                                                      |   |                                                                                                                                 |
| 10.12   |   | 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.                   |
|    |   |                                                                                                                      |   |                                                                                                                                 |
| ++10.13 |   | 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.  |
|    |   |                                                                                                                      |   |                                                                                                                                 |
| ++10.14 |   | 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.  |
|    |   |                                                                                                                      |   |                                                                                                                                 |
| 10.15   |   | 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.              |
|    |   |                                                                                                                      |   |                                                                                                                                 |
| 10.16   |   | 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.              |
|    |   |                                                                                                                      |   |                                                                                                                                 |
| 10.17   |   | 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.              |
|    |   |                                                                                                                      |   |                                                                                                                                 |
| 10.18   |   | Growers’ Contract  (5-year Agreement) for the crop years 2003 through 2007.                                          |   | Incorporated by  reference to Exhibit 10.30 from the Company’s Form 10-Q for the quarter ended  February 28, 2003.              |
|    |   |                                                                                                                      |   |                                                                                                                                 |
| +10.19  |   | 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.                   |
|    |   |                                                                                                                      |   |                                                                                                                                 |
| 10.20   |   | 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.  |

 

17

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| 10.21   |   | 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. |
|---------|--------|---------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                            |   |                                                                                                                                |
| 10.22   |   | Crop year 2005, 2006  and 2007 Sugarbeet Delivery Agreements between Sidney Sugars Incorporated and  Growers.                   |   | Incorporated by  reference to Exhibit 10.25 from the Company’s Form 10-Q for the quarter ended  May 31, 2005.                  |
|    |   |                                                                                                                            |   |                                                                                                                                |
| ++10.23 |   | Amendment  to Employment Agreement dated September 28, 2005 between the Company and  James J. Horvath.                          |   | Incorporated by  reference to Exhibit 10.1 from the Company’s Form 8-K dated September 30,  2005.                              |
|    |   |                                                                                                                            |   |                                                                                                                                |
| 10.24   |   | Supplements to Term and  Seasonal Loan Agreements between the Registrant and CoBank, ACB dated July 8,  2005 and July 11, 2005. |   | Incorporated by  reference to Exhibit 10.24 from the Company’s Annual Report on Form 10-K for  the year ended August 31, 2005. |
|    |   |                                                                                                                            |   |                                                                                                                                |
| ++10.25 |   | Long Term Incentive  Plan, dated August 24, 2005.                                                                               |   | Incorporated by  reference to Exhibit 10.25 from the Company’s Annual Report on Form 10-K for  the year ended August 31, 2005. |
|    |   |                                                                                                                            |   |                                                                                                                                |
| 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, 2005.  |
|    |   |                                                                                                                            |   |                                                                                                                                |
| 31.1    |   | Rule  13a-14(a)/15(d)-14(a) Certification of the Chief Executive Officer.                                                       |   | Accompanying herewith  electronically.                                                                                              |
|    |   |                                                                                                                            |   |                                                                                                                                |
| 31.2    |   | Rule  13a-14(a)/15(d)-14(a) Certification of the Chief Financial Officer.                                                       |   | Accompanying herewith  electronically.                                                                                              |
|    |   |                                                                                                                            |   |                                                                                                                                |
| 32.1    |   | Section 1350  Certification of the Chief Executive Officer.                                                                     |   | Accompanying herewith  electronically.                                                                                              |
|    |   |                                                                                                                            |   |                                                                                                                                |
| 32.2    |   | Section 1350  Certification of the Chief Financial Officer.                                                                     |   | Accompanying herewith  electronically.                                                                                              |

 

----

+              Confidential treatment under Rule24b-2 of the Securities and Exchange Act of 1934, as amended, has been grantedwith respect to designated portions of this document.

 

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

 

18

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SIGNATURES

 

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

 

 
|       | **AMERICAN CRYSTAL SUGAR COMPANY** |
|------------|------------------------------------|
|       |                               | **(Registrant)** |
| ** ** | ** **                         |
| ** ** | ** **                         |
| **Date:**  | **April 14, 2006**                 | ** ** |   | **/s/ Mark Kalvoda** |   |
|       |                               | **Mark Kalvoda** |
|       |                               | **Corporate Controller,** |
|       |                               | **Chief Accounting Officer** |
|       |                               | **Duly  Authorized Officer** |
|            |                                    |  |  |  |  |  |

 

19

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