Table of Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 

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**x****           Quarterly reportpursuant to Section 13 or 15(d) of the Securities Exchange Act of1934**

 

**For thequarterly period ended May 31, 2010**

 

**Commission file number: 33-83868**

 

**AMERICAN CRYSTAL SUGAR COMPANY**

(Exact name of registrant as specified in its charter)

 

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

 

**101 North Third Street**

**Moorhead, Minnesota 56560**

(Address of principal executive offices)

 

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

(Registrant’s telephone number, including area code)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months, and (2) has been subject to suchfiling requirements for the past 90 days. YES x NO o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files). YES o NO o

 

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

 

| Large accelerated filer o                     |   | Accelerated filer o         |
|-----------------------------------------------|--------|-----------------------------|
|                                          |   |                        |
| Non-accelerated filer x                       |   | Smaller reporting company o |
| (Do not check if a smaller reporting company) |   |                        |

 

Indicateby check mark whether the registrant is a shell company (as defined in rule 12b-2of the Act). YES o NO x

 

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date.

 

| ** **                               | ** ** | **Outstanding at**    |
|------------------------------------------|------------|----------------------------|
| **Class of Common Stock** | ** ** | **July 7, 2010** |
| **$10 Par Value**                        | ** ** | **2,768**                  |

 

 

 

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**AMERICAN CRYSTAL SUGAR COMPANY**

 

**FORM 10-Q**

 

**INDEX**

 
| ** **       | ** **                                                                                      | **PAGE NO.** |
|------------------|-------------------------------------------------------------------------------------------------|--------------|
|             |                                                                                            |         |
| **PART I**  | **FINANCIAL INFORMATION**                                                                       |         |
|             |                                                                                            |         |
| **ITEM 1.**      | **CONSOLIDATED FINANCIAL  STATEMENTS**                                                          |         |
|             |                                                                                            |         |
| ** **       | **CONSOLIDATED  BALANCE SHEETS**                                                                | **1**        |
|             |                                                                                            |         |
| ** **       | **CONSOLIDATED STATEMENTS OF OPERATIONS**                                                       | **3**        |
|             |                                                                                            |         |
| ** **       | **CONSOLIDATED STATEMENTS OF CASH FLOWS**                                                       | **4**        |
|             |                                                                                            |         |
| ** **       | **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**                                              | **5**        |
|             |                                                                                            |         |
| **ITEM 2.**      | **MANAGEMENT’S  DISCUSSION AND ANALYSISOF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS** | **13**       |
| **ITEM 3.**      | **QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**                                 | **19**       |
| **ITEM 4T.**     | **CONTROLS AND  PROCEDURES**                                                                    | **19**       |
|             |                                                                                            |         |
| **PART II** | **OTHER INFORMATION**                                                                           |         |
|             |                                                                                            |         |
| **ITEM 1.**      | **LEGAL PROCEEDINGS**                                                                           | **20**       |
| **ITEM 1A.**     | **RISK FACTORS**                                                                                | **20**       |
| **ITEM 2.**      | **UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**                                | **21**       |
| **ITEM 3.**      | **DEFAULTS UPON  SENIOR SECURITIES**                                                            | **21**       |
| **ITEM 4.**      | **SUBMISSION OF  MATTERS TO A VOTE OF SECURITY HOLDERS**                                        | **21**       |
| **ITEM 5.**      | **OTHER INFORMATION**                                                                           | **21**       |
| **ITEM 6.**      | **EXHIBITS**                                                                                    | **22**       |
|             |                                                                                            |         |
| **SIGNATURES**   |                                                                                            | **24**       |

 

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**American Crystal Sugar Company**

**ConsolidatedBalance Sheets**

**(Unaudited)**

**(In Thousands)**

 

**Assets**

 
| ** **                                     | ** ** | **May 31** | ** ** | **August 31** | ** ** |
|------------------------------------------------|------------|-----------------|------------|--------------------|------------|
| ** **                                     | ** ** | **2010**        | ** ** | **2009**           | ** ** | **2009*** | ** ** |
| **Current Assets:**                            |       |            |       |               |       |   |   |
| Cash and Cash Equivalents                      |       | $               | 122        |               | $          | 125 |   | $ | 127 |   |
| Receivables:                                   |       |            |       |               |       |   |   |
| Trade                                          |       | 67,265          |       | 64,850             |       | 61,665 |   |
| Members                                        |       | 4,907           |       | 5,108              |       | 4,480 |   |
| Other                                          |       | 730             |       | 281                |       | 2,565 |   |
| Advances to Related Parties                    |       | 958             |       | 14,131             |       | 22,744 |   |
| Inventories                                    |       | 367,753         |       | 381,026            |       | 181,311 |   |
| Prepaid Expenses                               |       | 1,623           |       | 1,465              |       | 864 |   |
|                                           |       |            |       |               |       |   |   |
| **Total Current Assets**                       |       | 443,358         |       | 466,986            |       | 273,756 |   |
|                                           |       |            |       |               |       |   |   |
| **Property and Equipment:**                    |       |            |       |               |       |   |   |
| Land and Land Improvements                     |       | 69,745          |       | 63,259             |       | 67,011 |   |
| Buildings                                      |       | 122,562         |       | 115,096            |       | 116,907 |   |
| Equipment                                      |       | 909,040         |       | 877,245            |       | 892,678 |   |
| Construction in Progress                       |       | 21,433          |       | 13,731             |       | 14,522 |   |
| Less Accumulated Depreciation                  |       | (776,657        | )          | (739,588           | )          | (737,182 | ) |
|                                           |       |            |       |               |       |   |   |
| **Net Property and Equipment**                 |       | 346,123         |       | 329,743            |       | 353,936 |   |
|                                           |       |            |       |               |       |   |   |
| **Net Property and Equipment Held  for Lease** |       | 104,869         |       | 113,075            |       | 111,015 |   |
|                                           |       |            |       |               |       |   |   |
| **Other Assets:**                              |       |            |       |               |       |   |   |
| Investments in CoBank, ACB                     |       | 8,771           |       | 10,111             |       | 10,111 |   |
| Investments in Marketing Cooperatives          |       | 481             |       | 4,306              |       | 135 |   |
| Pension Asset                                  |       | —          |       | 35,713             |       | — |   |
| Other Assets                                   |       | 11,864          |       | 10,589             |       | 12,305 |   |
|                                           |       |            |       |               |       |   |   |
| **Total Other Assets**                         |       | 21,116          |       | 60,719             |       | 22,551 |   |
|                                           |       |            |       |               |       |   |   |
| **Total Assets**                               |       | $               | 915,466    |               | $          | 970,523 |   | $ | 761,258 |   |

 

The Accompanying Notes are an Integral Part of These ConsolidatedFinancial Statements.

 

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* Derived from audited financial statements

 

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**American Crystal Sugar Company**

**Consolidated Balance Sheets**

**(Unaudited)**

**(In Thousands)**

 

**Liabilities and Members’ Investments**

 
| ** **                                                      | ** ** | **May 31** | ** ** | **August 31** | ** ** |
|-----------------------------------------------------------------|------------|-----------------|------------|--------------------|------------|
| ** **                                                      | ** ** | **2010**        | ** ** | **2009**           | ** ** | **2009*** | ** ** |
| **Current Liabilities:**                                        | ** ** | ** **      |       |               |       |   |   |
| Short-Term Debt                                                 |       | $               | 136,037    |               | $          | 193,770 |   | $ | 45,989 |   |
| Current Maturities of Long-Term Debt                            |       | 11,522          |       | 19,503             |       | 18,789 |   |
| Accounts Payable                                                |       | 20,235          |       | 14,292             |       | 35,381 |   |
| Advances Due to Related Parties                                 |       | 1,662           |       | 1,087              |       | 1,863 |   |
| Accrued Continuing Costs                                        |       | 86,126          |       | 77,046             |       | — |   |
| Other Current Liabilities                                       |       | 36,488          |       | 29,484             |       | 34,034 |   |
| Amounts Due Growers                                             |       | 106,388         |       | 89,624             |       | 87,218 |   |
|                                                            |       |            |       |               |       |   |   |
| **Total Current Liabilities**                                   |       | 398,458         |       | 424,806            |       | 223,274 |   |
|                                                            |       |            |       |               |       |   |   |
| **Long-Term Debt, Net of Current  Maturities**                  |       | 130,552         |       | 139,012            |       | 143,073 |   |
|                                                            |       |            |       |               |       |   |   |
| **Accrued Employee Benefits**                                   |       | 46,529          |       | 35,091             |       | 46,458 |   |
|                                                            |       |            |       |               |       |   |   |
| **Other Liabilities**                                           |       | 11,694          |       | 7,621              |       | 8,925 |   |
|                                                            |       |            |       |               |       |   |   |
| **Total Liabilities**                                           |       | 587,233         |       | 606,530            |       | 421,730 |   |
|                                                            |       |            |       |               |       |   |   |
| **Commitments and Contingencies**                               | ** ** | ** **      |       |               |       |   |   |
|                                                            |       |            |       |               |       |   |   |
| **Members’ Investments:**                                  | ** ** | ** **      |       |               |       |   |   |
| Preferred Stock                                                 |       | 38,275          |       | 38,275             |       | 38,275 |   |
| Common Stock                                                    |       | 28              |       | 28                 |       | 28 |   |
| Additional Paid-In Capital                                      |       | 152,261         |       | 152,261            |       | 152,261 |   |
| Unit Retains                                                    |       | 164,249         |       | 150,577            |       | 181,601 |   |
| Equity Retention                                                |       | —          |       | —             |       | — |   |
| Accumulated Other Comprehensive Income (Loss)                   |       | (58,370         | )          | (8,152             | )          | (63,705 | ) |
| Retained Earnings (Accumulated Deficit)                         |       | (20,123         | )          | (24,919            | )          | (23,882 | ) |
|                                                            |       |            |       |               |       |   |   |
| Total American Crystal Sugar Company Members’  Investments | ** ** | 276,320         |       | 308,070            |       | 284,578 |   |
|                                                            |       |            |       |               |       |   |   |
| Noncontrolling Interests                                        |       | 51,913          |       | 55,923             |       | 54,950 |   |
|                                                            |       |            |       |               |       |   |   |
| **Total Members’ Investments**                             |       | 328,233         |       | 363,993            |       | 339,528 |   |
|                                                            |       |            |       |               |       |   |   |
| **Total Liabilities and Members’  Investments**            |       | $               | 915,466    |               | $          | 970,523 |   | $ | 761,258 |   |

 

The Accompanying Notes are an Integral Part of These ConsolidatedFinancial Statements.

 

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* Derived from audited financial statements

 

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**American Crystal Sugar Company**

**ConsolidatedStatements of Operations**

**(Unaudited)**

**(In Thousands)**

 
| ** **                                                                              | ** ** | **For the Nine Months Ended** | ** ** | **For the Three Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-------------------------------|------------|--------------------------------|------------|
| ** **                                                                              | ** ** | **May 31**               | ** ** | **May 31**                | ** ** |
| ** **                                                                              | ** ** | **2010**                      | ** ** | **2009**                       | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Net Revenue**                                                                         |       | $                             | 917,219    |                           | $          | 900,215 |   | $ | 329,449 |   | $ | 303,628 |   |
|                                                                                    |       |                          |       |                           |       |   |   |   |   |
| **Cost of Sales**                                                                       |       | 143,308                       |       | 126,721                        |       | 97,845 |   | 51,206 |   |
|                                                                                    |       |                          |       |                           |       |   |   |   |   |
| **Gross Proceeds**                                                                      |       | 773,911                       |       | 773,494                        |       | 231,604 |   | 252,422 |   |
|                                                                                    |       |                          |       |                           |       |   |   |   |   |
| **Selling, General and  Administrative Expenses**                                       |       | 177,047                       |       | 179,883                        |       | 59,197 |   | 55,857 |   |
| **Accrued Continuing Costs**                                                            |       | 86,126                        |       | 77,046                         |       | 4,471 |   | 19,387 |   |
|                                                                                    |       |                          |       |                           |       |   |   |   |   |
| **Operating Proceeds**                                                                  |       | 510,738                       |       | 516,565                        |       | 167,936 |   | 177,178 |   |
|                                                                                    |       |                          |       |                           |       |   |   |   |   |
| **Other Income (Expense):**                                                             |       |                          |       |                           |       |   |   |   |   |
| Interest Income                                                                         |       | 15                            |       | 192                            |       | (18 | ) | 74 |   |
| Interest Expense, Net                                                                   |       | (6,622                        | )          | (7,250                         | )          | (2,144 | ) | (1,905 | ) |
| Other, Net                                                                              |       | (121                          | )          | 4,357                          |       | (41 | ) | (71 | ) |
|                                                                                    |       |                          |       |                           |       |   |   |   |   |
| **Total Other Income (Expense)**                                                        |       | (6,728                        | )          | (2,701                         | )          | (2,203 | ) | (1,902 | ) |
|                                                                                    |       |                          |       |                           |       |   |   |   |   |
| **Proceeds Before Income Tax  Expense**                                                 |       | 504,010                       |       | 513,864                        |       | 165,733 |   | 175,276 |   |
|                                                                                    |       |                          |       |                           |       |   |   |   |   |
| **Income Tax Expense**                                                                  |       | (2,778                        | )          | (1,046                         | )          | (876 | ) | (478 | ) |
|                                                                                    |       |                          |       |                           |       |   |   |   |   |
| **Consolidated Net Proceeds**                                                           |       | 501,232                       |       | 512,818                        |       | 164,857 |   | 174,798 |   |
|                                                                                    |       |                          |       |                           |       |   |   |   |   |
| **Less: Net Proceeds Attributable  to Noncontrolling Interests**                        |       | (5,006                        | )          | (4,445                         | )          | (1,806 | ) | (1,386 | ) |
|                                                                                    |       |                          |       |                           |       |   |   |   |   |
| **Net Proceeds Attributable to American  Crystal Sugar Company**                        |       | $                             | 496,226    |                           | $          | 508,373 |   | $ | 163,051 |   | $ | 173,412 |   |
|                                                                                    |       |                          |       |                           |       |   |   |   |   |
| **Distributions of Net Proceeds  Attributable to American Crystal Sugar Company:**      |       |                          |       |                           |       |   |   |   |   |
| Credited (Charged) to American Crystal Sugar Company’s  Members’ Investments: |       |                          |       |                           |       |   |   |   |   |
| Non-Member Business Income                                                              |       | $                             | 3,759      |                           | $          | 1,273 |   | $ | 1,015 |   | $ | 459 |   |
| Unit Retains Declared to Members                                                        |       | —                        |       | —                         |       | — |   | — |   |
| Net Credit to American Crystal Sugar Company’s  Members’ Investments          |       | 3,759                         |       | 1,273                          |       | 1,015 |   | 459 |   |
| Payments To/Due Members for Sugarbeets, Net of  Unit Retains Declared                   |       | 492,467                       |       | 507,100                        |       | 162,036 |   | 172,953 |   |
| **Total**                                                                               |       | $                             | 496,226    |                           | $          | 508,373 |   | $ | 163,051 |   | $ | 173,412 |   |

 

The Accompanying Notes are an Integral Part of These ConsolidatedFinancial Statements.

 

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**American Crystal Sugar Company**

**ConsolidatedStatements of Cash Flows**

**(Unaudited)**

**(In Thousands)**

 
| ** **                                                            | ** ** | **For the Nine Months Ended** | ** ** |
|-----------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                            | ** ** | **May 31**               | ** ** |
| ** **                                                            | ** ** | **2010**                      | ** ** | **2009** | ** ** |
| **Cash Provided By (Used In)  Operating Activities:**                 | ** ** | ** **                    | ** ** | ** ** | ** ** |
| Net Proceeds Attributable to American Crystal  Sugar Company          |       | $                             | 496,226    |   | $ | 508,373 |   |
| Payments To/Due Members for Sugarbeets, Net of  Unit Retains Declared |       | (492,467                      | )          | (507,100 | ) |
| Add (Deduct) Non-Cash Items:                                          |       |                          |       |   |   |
| Depreciation and Amortization                                         |       | 50,611                        |       | 50,530 |   |
| (Income)/Loss from Equity Method Investees                            |       | 5                             |       | (28 | ) |
| Loss on the Disposition of Property and Equipment                     |       | 182                           |       | 610 |   |
| Non-Cash Portion of Patronage Dividend from  CoBank, ACB              |       | (147                          | )          | (165 | ) |
| Deferred Gain Recognition                                             |       | (47                           | )          | (81 | ) |
| Noncontrolling Interests                                              |       | 5,006                         |       | 4,445 |   |
| Changes in Assets and Liabilities:                                    |       |                          |       |   |   |
| Receivables                                                           |       | (4,192                        | )          | 1,212 |   |
| Inventories                                                           |       | (186,442                      | )          | (192,698 | ) |
| Prepaid Expenses                                                      |       | (801                          | )          | (300 | ) |
| Non Current Pension Asset/Liability                                   |       | 3,290                         |       | 473 |   |
| Advances To/Due to Related Parties                                    |       | 21,585                        |       | 4,004 |   |
| Accounts Payable                                                      |       | (11,445                       | )          | (17,446 | ) |
| Accrued Continuing Costs                                              |       | 86,126                        |       | 77,046 |   |
| Other Liabilities                                                     |       | 7,079                         |       | 3,686 |   |
| Amounts Due Growers                                                   |       | 19,170                        |       | (31,309 | ) |
| **Net Cash Used In Operating  Activities**                            |       | (6,261                        | )          | (98,748 | ) |
|                                                                  |       |                          |       |   |   |
| **Cash Provided By (Used In)  Investing Activities:**                 |       |                          |       |   |   |
| Purchases of Property and Equipment                                   |       | (37,473                       | )          | (24,307 | ) |
| Purchases of Property and Equipment Held for Lease                    |       | (2,357                        | )          | (1,591 | ) |
| Proceeds from the Sale of Property and Equipment                      |       | 18                            |       | 6 |   |
| Equity Refund from CoBank, ACB                                        |       | 1,487                         |       | — |   |
| Changes in Other Assets                                               |       | (284                          | )          | (114 | ) |
| **Net Cash Used In Investing  Activities**                            |       | (38,609                       | )          | (26,006 | ) |
|                                                                  |       |                          |       |   |   |
| **Cash Provided By (Used In)  Financing Activities:**                 |       |                          |       |   |   |
| Net Proceeds from Short-Term Debt                                     |       | 90,048                        |       | 178,473 |   |
| Proceeds from Issuance of Long-Term Debt                              |       | —                        |       | 68,700 |   |
| Long-Term Debt Repayment                                              |       | (19,788                       | )          | (88,977 | ) |
| Distributions to Noncontrolling Interests                             |       | (8,043                        | )          | (8,361 | ) |
| Payment of Unit Retains and Equity Retention                          |       | (17,352                       | )          | (25,084 | ) |
| **Net Cash Provided By Financing  Activities**                        |       | 44,865                        |       | 124,751 |   |
| **Decrease In Cash and Cash  Equivalents**                            |       | (5                            | )          | (3 | ) |
| **Cash and Cash Equivalents,  Beginning of Year**                     |       | 127                           |       | 128 |   |
|                                                                  |       |                          |       |   |   |
| **Cash and Cash Equivalents, End of  Period**                         |       | $                             | 122        |   | $ | 125 |   |
|                                                                  |       |                          |       |   |   |

 

**Non-Cash Investing Activities:**Purchases ofProperty and Equipment include the changes in accounts payable related to thesepurchases of ($3,703,000) and ($4,098,000) for the nine months ended May 31,2010 and 2009, respectively.

 

The Accompanying Notes are an Integral Part of These ConsolidatedFinancial Statements.

 

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** **

**AMERICANCRYSTAL SUGAR COMPANY**

**NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS**

**FOR THE NINE MONTHS ANDTHREE MONTHS ENDED**

**May 31, 2010 and 2009**

**(Unaudited)**

 

**Note 1:  Basis of Presentation**

 

Theunaudited consolidated financial statements of American Crystal Sugar Company(Company) contained herein have been prepared pursuant to the rules andregulations of the Securities and Exchange Commission.  Accordingly, they do not include all theinformation and footnotes required by accounting principles generally acceptedin the United States of America. However, in the opinion of management, all adjustments, consisting ofnormal recurring accruals, considered necessary for a fair presentation havebeen included.  These financialstatements should be read in conjunction with the consolidated financialstatements and notes included in the Company’s Annual Report on Form 10-Kfor the year ended August 31, 2009.

 

TheCompany’s consolidated financial statements are comprised of: American CrystalSugar Company; 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. All material inter-company transactions have been eliminated.

 

Inaccordance with authoritative guidance issued by the Financial AccountingStandards Board (FASB), the Company has, on a retrospective basis for allperiods presented in this report, included the net proceeds attributable tononcontrolling interests, previously referred to as minority interest, as acomponent of consolidated net proceeds reflected on the Consolidated Statementsof Operations. In addition, noncontrolling interests on the ConsolidatedBalance Sheets are now reflected as a component of Total Members’ Investments.

 

Certainother reclassifications have been made to the May 31, 2009 consolidatedfinancial statements to conform with the May 31, 2010 presentation.  These reclassifications had no effect onpreviously reported results of operations or Members’ Investments.

 

Theoperating results for the nine months ended May 31, 2010, are notnecessarily indicative of the results that may be expected for the year ended August 31,2010.  The amount paid to shareholdersfor sugarbeets (member beet payment) depends on the future selling prices ofsugar and agri-products as well as processing and other costs incurred duringthe remainder of the fiscal year associated with the 2009 Red River Valleysugarbeet crop (RRV crop).  The amountpaid to non-member growers for sugarbeets (non-member beet payment) depends onthe future selling prices of sugar and the related selling expenses associatedwith the 2009 Sidney Sugars sugarbeet crop (Sidney crop).  For the purposes of this report, the amountof the beet payments, future revenues and costs have been estimated.  Therefore, adjustments with respect to theseestimates may be necessary in the future, as additional information becomesavailable.

 

**Note 2:Recently Issued Accounting Pronouncements**

 

InDecember 2008, the FASB issued authoritative guidance regarding anemployer’s disclosure about plan assets of a defined benefit pension plan orother postretirement plan.  This guidancebecomes effective for the Company in the fourth quarter of fiscal 2010.  The Company does not expect that the adoptionof this guidance will have a material effect on the Company’s financial statements.

 

In June and December 2009,the FASB issued authoritative guidance to improve the relevance,representational faithfulness, and comparability of the information that areporting entity provides in its financial reports about a transfer offinancial assets; the effects of a transfer on its financial position,financial performance, and cash flows; and a transferor’s continuinginvolvement in transferred financial

 

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assets.  This guidance becomes effective for theCompany in fiscal 2011.  The Company doesnot expect that the adoption of this guidance will have a material effect onthe Company’s financial statements.

 

In June and December 2009,the FASB issued authoritative guidance to improve financial reporting byenterprises involved with variable interest entities and to provide morerelevant and reliable information to users of financial statements. This guidancebecomes effective for the Company in fiscal 2011.  The Company does not expect that the adoptionof this guidance will have a material effect on the Company’s financialstatements.

 

In October 2009, theFASB issued an update to the authoritative guidance which contains amendmentsto the criteria for separating consideration in multiple-deliverablearrangements and expands disclosures related to such arrangements.  The guidance provided by this update becomeseffective for the Company in fiscal 2011. The Company does not expect that theadoption of this guidance will have a material effect on the Company’sfinancial statements.

 

In January 2010, theFASB issued an update to the authoritative guidance which contains amendmentsand clarification to the guidance related to the disclosures involvingrecurring or nonrecurring fair value measurements. The new disclosures andclarifications became effective and were adopted by the Company in the thirdquarter of fiscal 2010 except for the disclosures about purchases, sales,issuances and settlements in the roll forward activity in Level 3 fair valuemeasurements which becomes effective for the Company in the first quarter offiscal 2012. The Company does not expect that the adoption of this guidancewill have a material effect on the Company’s financial statements.

 

**Note 3:  Inventories**

 

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

 
| ** **                                                     | ** ** | **May 31  2010** | ** ** | **May 31  2009** | ** ** | **August 31  2009** | ** ** |
|----------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|--------------------------|------------|
| Sugar, Pulp, Molasses, Other Agri-Products and  Sugarbeet Seed |       | $                     | 326,917    |                  | $          | 346,319                  |       | $ | 138,039 |   |
| Unprocessed Sugarbeets                                         |       | —                |       | —                |       | —                   |       |
| Maintenance Parts and Supplies                                 |       | 40,836                |       | 34,707                |       | 43,272                   |       |
|                                                           |       |                  |       |                  |       |                     |       |
| Total Inventories                                              |       | $                     | 367,753    |                  | $          | 381,026                  |       | $ | 181,311 |   |

 

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

 

**Note 4: Short-Term Debt**

 

The Company has a seasonal line of credit through July 30, 2012,with a consortium of lenders led by CoBank, ACB of $320.0 million and aline of credit with Wells Fargo Bank for $1.0 million.  The Company’s commercial paper programprovides short-term borrowings of up to $320 million.  Any borrowings under the commercial paperprogram along with outstanding short-term letters of credit will act to reducethe available credit under the CoBank, ACB seasonal line of credit by acommensurate amount.  The Company also utilizesthe Commodity Credit Corporation (CCC) to meet its short-term borrowing needs.

 

As of May 31, 2010, the Company had outstanding commercial paperof $136.0****million at average interest rates of..43% to .57% and maturity dates between June 1, 2010 and June 16,2010.  The Company had no outstandingshort-term debt with CoBank, ACB or the CCC as of May 31, 2010.  The Company had $3.0 million of short-termletters of credit outstanding as of May 31, 2010.  The unused seasonal line of credit as of May 31,2010 was $182.0 million.

 

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As of May 31, 2009, the Company had outstanding commercial paperof $163.8****million at an average interest rate of1.21% and maturity dates between June 1, 2009 and July 10, 2009.  The Company also had outstanding short-termdebt with CoBank, ACB as of May 31, 2009 of $30.0 million at an interestrate of 1.69% and a maturity date of June 8, 2009.  The Company had $2.7 million of short-termletters of credit outstanding as of May 31, 2009.  The unused seasonal line of credit as of May 31,2009 was $149.5 million.

 

**Note 5:  Long-Term Debt**

 

The Company has long-term debt availability through December 31,2011, with CoBank, ACB of****$156.6 million,of which $22.3 million in loans and $69.4 million in long-term letters ofcredit were outstanding as of May 31, 2010.  The unused long-term line of credit as of May 31,2010, was $64.9 million.  In addition,the Company had long-term debt outstanding, as of May 31, 2010, of$50 million from a private placement of Senior Notes that occurred in September of1998 and $69.8 million from five separate issuances of Pollution Controland Industrial Development Revenue Bonds.

 

As of May 31, 2009, the Company had long-term debt availabilitywith CoBank, ACB of****$174.6 million,of which $36.3 million in loans and $70.1 million in long-term letters ofcredit were outstanding.  The unusedlong-term line of credit as of May 31, 2009, was $68.2 million.  In addition, the Company had long-term debtoutstanding, as of May 31, 2009, of $50.0 million from a privateplacement of Senior Notes that occurred in September of 1998; $2.1 millionfrom a private placement of Senior Notes that occurred in January of 2003;and $70.1 million from seven separate issuances of Pollution Control andIndustrial Development Revenue Bonds.

 

**Note 6:  Interest Paid andInterest Capitalized**

 

Interestpaid, net of amounts capitalized, was $5.9 million and $7.0 million for thenine months ended May 31, 2010 and 2009, respectively and $3.0 million and$ 1.8 million for the three months ended May 31, 2010 and 2009,respectively.  Interest capitalized was $..3 million and $ .6 million for the nine months ended May 31, 2010 and2009, respectively and $ .1 million and $ .2 million for the three months endedMay 31, 2010 and 2009, respectively.

 

**Note 7:  Derivative Instrumentsand Hedging Activities**

 

The Company, as a result of its operating and financing activities, isexposed to changes in foreign currency exchange rates and interest rates whichmay adversely affect its results of operations and financial position.  In seeking to minimize the risks and/or costsassociated with such activities, the Company may enter into derivativecontracts.

 

The Company manages its foreign currency related risks primarilythrough the use of foreign currency forward contracts. The contracts held bythe Company are denominated in Euros. The Company has entered into foreign currencyforward contracts that are designated as cash flow hedges of exchange rate riskrelated to foreign currency-denominated purchases of equipment.  At May 31, 2010, the Company had cashflow hedges for approximately 178,000 Euros with maturity dates of June 1,2010 to October 15, 2010.  At May 31,2010, the fair value of the open contracts was a loss of approximately $32,000recorded in accumulated other comprehensive income/(loss) in members’equity.  Amounts deferred to accumulatedother comprehensive income/(loss) will be reclassified into the cost of theequipment when the actual purchase takes place.

 

The Company is exposed to interest risk primarily through its borrowingactivities.  On December 24, 2009,the Company entered into an interest rate swap contract associated with a $27.3million tax exempt variable rate demand bond issue that matures on September 1,2019.  The interest rate swap contractrequires payment of a fixed interest rate of 2.827 % and the receipt of avariable rate of interest based on the Securities Industry and Financial MarketAssociation (SIFMA) index of .272 % as of May 31, 2010 on $27.3 million ofindebtedness. The Company has designated this interest rate swap contract as acash flow hedge.  As of May 31,2010, the fair value of the cash flow hedge, which is a loss of approximately$602,000, is deferred to accumulated other comprehensive income/(loss) and willbe

 

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reclassified to interest expense over the life of the swap contract. Noineffectiveness was recognized in earnings during the quarter ended May 31,2010.  The current period loss of$170,000 is classified as interest expense on the statements ofoperations.  As of May 31, 2010,$566,000 of deferred net losses on the interest rate swap contract contained inaccumulated other comprehensive income/(loss) are expected to be reclassifiedto earnings during the next 12 months.

 
| ** **                                     | ** ** | **Asset Derivatives as of May 31** | ** ** |
|------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                     | ** ** | ** **                              | ** ** | **Fair Value (In Thousands)** | ** ** |
| ** **                                     | ** ** | **Balance Sheet Location**              | ** ** | **2010** | ** ** | **2009** | ** ** |
| Derivatives Designated as Hedging Instruments: |       |                                    |       |   |   |   |   |
| Foreign Currency Forward Contracts             |       | Prepaid  Expenses                       |       | $ | — |   | $ | 3 |   |
|                                           |       |                                    |       |   |   |   |   |
| Total Asset Derivatives                        |       |                                    |       | $ | — |   | $ | 3 |   |

 
| ** **                                     | ** ** | **Liability Derivatives as of May 31** | ** ** |
|------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                     | ** ** | ** **                                  | ** ** | **Fair Value (In Thousands)** | ** ** |
| ** **                                     | ** ** | **Balance Sheet Location**                  | ** ** | **2010** | ** ** | **2009** | ** ** |
| Derivatives Designated as Hedging Instruments: |       |                                        |       |   |   |   |   |
| Foreign Currency Forward Contracts             |       | Other  Current Liabilities                  |       | $ | 32 |   | $ | — |   |
| Interest Rate Contracts                        |       | Other  Long-Term Liabilities                |       | 602 |   | — |   |
|                                           |       |                                        |       |   |   |   |   |
| Total Liability Derivatives                    |       |                                        |       | $ | 634 |   | $ | — |   |

 

**Note 8:  Accrued Continuing Costs**

 

For interim reporting, the net proceeds from member business is basedon the forecasted gross beet payment and the percentage of the tons ofsugarbeets processed to the total estimated tons of sugarbeets to be processedfor 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 be processedfor a given fiscal year.

 

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

 

**Note 9:  Net Periodic Pension and Post-Retirement Costs**

 

The following schedules provide the components of theNet Periodic Pension and Post-Retirement Costs for the nine months and threemonths ended May 31, 2010 and 2009:

 

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***Components of Net Periodic PensionCost***

(In Thousands)

 
| ** **                          | ** ** | **For the Nine Months Ended** | ** ** | **For the Three Months Ended** | ** ** |
|-------------------------------------|------------|-------------------------------|------------|--------------------------------|------------|
| ** **                          | ** ** | **May 31**               | ** ** | **May 31**                | ** ** |
| ** **                          | ** ** | **2010**                      | ** ** | **2009**                       | ** ** | **2010** | ** ** | **2009** | ** ** |
| Service Cost                        |       | $                             | 2,724      |                           | $          | 3,148 |   | $ | 908 |   | $ | 1,049 |   |
| Interest Cost                       |       | 6,845                         |       | 8,005                          |       | 2,282 |   | 2,668 |   |
| Expected Return on Plan Assets      |       | (7,443                        | )          | (11,593                        | )          | (2,481 | ) | (3,864 | ) |
| Amortization of Prior Service Costs |       | 987                           |       | 1,233                          |       | 329 |   | 411 |   |
| Amortization of Net Actuarial Loss  |       | 5,205                         |       | 53                             |       | 1,735 |   | 18 |   |
| FAS 158 Measurement Date Adjustment |       | —                        |       | (169                           | )          | — |   | (56 | ) |
| Net Periodic Pension Cost           |       | $                             | 8,318      |                           | $          | 677 |   | $ | 2,773 |   | $ | 226 |   |

 

***Components of Net Periodic Post-RetirementCost***

(InThousands)

 
| ** **                         | ** ** | **For the Nine Months Ended** | ** ** | **For the Three Months Ended** | ** ** |
|------------------------------------|------------|-------------------------------|------------|--------------------------------|------------|
| ** **                         | ** ** | **May 31**               | ** ** | **May 31**                | ** ** |
| ** **                         | ** ** | **2010**                      | ** ** | **2009**                       | ** ** | **2010** | ** ** | **2009** | ** ** |
| Service Cost                       |       | $                             | 726        |                           | $          | 726 |   | $ | 242 |   | $ | 242 |   |
| Interest Cost                      |       | 1,391                         |       | 1,415                          |       | 464 |   | 472 |   |
| Amortization of Net Actuarial Gain |       | (515                          | )          | (506                           | )          | (172 | ) | (169 | ) |
| Net Periodic Post-Retirement Cost  |       | $                             | 1,602      |                           | $          | 1,635 |   | $ | 534 |   | $ | 545 |   |

 

TheCompany has made contributions to the pension plans of approximately $4.3million during the nine months ended May 31, 2010 and is not anticipatingmaking any additional contributions to the pension plans during the remainderof this fiscal year.  The Company hascontributed and made benefit payments of approximately $66,000 related to theSupplemental Executive Retirement Plans during the nine months ended May 31,2010.  The Company expects to contributeand make benefit payments totaling approximately $99,000 this fiscal yearrelated to the Supplemental Executive Retirement Plans.

 

TheCompany has contributed and made benefit payments of approximately $846,000 related to the post-retirement plans duringthe nine months ended May 31, 2010. The Company expects to contributeand make benefit payments of approximately $1.0 million related to thepost-retirement plans during the current fiscal year.

 

**Note 10:  Members’ Investments**

 
| ** **           | ** ** | ** **    | ** ** | **Shares**     | ** ** | **Shares Issued**     | ** ** |
|----------------------|------------|---------------|------------|----------------|------------|-----------------------|------------|
| ** **           | ** ** | **Par Value** | ** ** | **Authorized** | ** ** | **& Outstanding** | ** ** |
| Preferred Stock:     |       |          |       |           |       |                  |       |
| July 7, 2010    |       | $             | 76.77      |           | 600,000    |                  | 498,570    |   |
| May 31, 2010    |       | $             | 76.77      |           | 600,000    |                  | 498,570    |   |
| August 31, 2009 |       | $             | 76.77      |           | 600,000    |                  | 498,570    |   |
| May 31, 2009    |       | $             | 76.77      |           | 600,000    |                  | 498,570    |   |
|                 |       |          |       |           |       |                  |       |
| Common Stock:        |       |          |       |           |       |                  |       |
| July 7, 2010    |       | $             | 10.00      |           | 4,000      |                  | 2,768      |   |
| May 31, 2010    |       | $             | 10.00      |           | 4,000      |                  | 2,765      |   |
| August 31, 2009 |       | $             | 10.00      |           | 4,000      |                  | 2,812      |   |
| May 31, 2009    |       | $             | 10.00      |           | 4,000      |                  | 2,795      |   |

 

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**Note 11: Shipping and Handling Costs**

 

The costs incurred for the shipping and handling of products sold areclassified in the financial statements as a selling expense on the Statementsof Operations.  Shipping and handlingcosts were $118.2 million and $120.9 million for the nine months ended May 31,2010 and 2009, respectively and $40.7 million and $38.2 million for the threemonths ended May 31, 2010 and 2009, respectively.

 

**Note 12: Segment Reporting**

 

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

 

Summarized financial information concerning the Company’s reportablesegments for the nine months and three months ended May 31, 2010 and 2009,is shown below:

 
| ** **                           | ** ** | **For the Nine Months Ended May 31, 2010** | ** ** |
|--------------------------------------|------------|--------------------------------------------|------------|
| ** **                           | ** ** | **(Dollars In Thousands)**                 | ** ** |
| ** **                           | ** ** | **Sugar**                                  | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from  External Customers |       | $                                          | 898,436    |   | $ | 18,783 |   | $ | 917,219 |   |
| Gross Proceeds                       |       | $                                          | 763,542    |   | $ | 10,369 |   | $ | 773,911 |   |
| Depreciation and  Amortization       |       | $                                          | 42,197     |   | $ | 8,414 |   | $ | 50,611 |   |
| Interest Income                      |       | $                                          | 15         |   | $ | — |   | $ | 15 |   |
| Interest Expense                     |       | $                                          | 6,621      |   | $ | 1 |   | $ | 6,622 |   |
| Loss from Equity  Method Investees   |       | $                                          | (5         | ) | $ | — |   | $ | (5 | ) |
| Other  Income/(Expense), Net         |       | $                                          | (26        | ) | $ | (90 | ) | $ | (116 | ) |
| Consolidated Net  Proceeds           |       | $                                          | 491,015    |   | $ | 10,217 |   | $ | 501,232 |   |
|                                 |       |                                       |       |   |   |   |   |
| Capital  Additions                   |       | $                                          | 33,770     |   | $ | 2,357 |   | $ | 36,127 |   |

 
| ** **                          | ** ** | **For the  Nine Months Ended May 31, 2009** | ** ** |
|-------------------------------------|------------|---------------------------------------------|------------|
| ** **                          | ** ** | **(Dollars  In Thousands)**                 | ** ** |
| ** **                          | ** ** | **Sugar**                                   | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from External Customers |       | $                                           | 882,491    |   | $ | 17,724 |   | $ | 900,215 |   |
| Gross Proceeds                      |       | $                                           | 764,147    |   | $ | 9,347 |   | $ | 773,494 |   |
| Depreciation and Amortization       |       | $                                           | 42,153     |   | $ | 8,377 |   | $ | 50,530 |   |
| Interest Income                     |       | $                                           | 190        |   | $ | 2 |   | $ | 192 |   |
| Interest Expense                    |       | $                                           | 7,250      |   | $ | — |   | $ | 7,250 |   |
| Income from Equity Method Investees |       | $                                           | 28         |   | $ | — |   | $ | 28 |   |
| Other Income/(Expense), Net         |       | $                                           | 4,469      |   | $ | (140 | ) | $ | 4,329 |   |
| Consolidated Net Proceeds           |       | $                                           | 503,746    |   | $ | 9,072 |   | $ | 512,818 |   |
|                                |       |                                        |       |   |   |   |   |
| Capital Additions                   |       | $                                           | 20,209     |   | $ | 1,591 |   | $ | 21,800 |   |

 

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| ** **                          | ** ** | **For the Three Months Ended May 31, 2010** | ** ** |
|-------------------------------------|------------|--------------------------------------------------|------------|
| ** **                          | ** ** | **(Dollars In Thousands)**                       | ** ** |
| ** **                          | ** ** | **Sugar**                                        | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from External Customers |       | $                                                | 322,903    |   | $ | 6,546 |   | $ | 329,449 |   |
| Gross Proceeds                      |       | $                                                | 227,866    |   | $ | 3,738 |   | $ | 231,604 |   |
| Depreciation and Amortization       |       | $                                                | 12,628     |   | $ | 2,808 |   | $ | 15,436 |   |
| Interest Income                     |       | $                                                | (18        | ) | $ | — |   | $ | (18 | ) |
| Interest Expense                    |       | $                                                | 2,143      |   | $ | 1 |   | $ | 2,144 |   |
| Loss from Equity Method Investees   |       | $                                                | (4         | ) | $ | — |   | $ | (4 | ) |
| Other Income/(Expense), Net         |       | $                                                | (4         | ) | $ | (33 | ) | $ | (37 | ) |
| Consolidated Net Proceeds           |       | $                                                | 161,172    |   | $ | 3,685 |   | $ | 164,857 |   |
|                                |       |                                             |       |   |   |   |   |
| Capital Additions                   |       | $                                                | 14,158     |   | $ | 1,070 |   | $ | 15,228 |   |

 
| ** **                          | ** ** | **For the Three Months Ended May 31, 2009** | ** ** |
|-------------------------------------|------------|--------------------------------------------------|------------|
| ** **                          | ** ** | **(Dollars In Thousands)**                       | ** ** |
| ** **                          | ** ** | **Sugar**                                        | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from External Customers |       | $                                                | 297,911    |   | $ | 5,717 |   | $ | 303,628 |   |
| Gross Proceeds                      |       | $                                                | 249,497    |   | $ | 2,925 |   | $ | 252,422 |   |
| Depreciation and Amortization       |       | $                                                | 12,464     |   | $ | 2,792 |   | $ | 15,256 |   |
| Interest Income                     |       | $                                                | 73         |   | $ | 1 |   | $ | 74 |   |
| Interest Expense                    |       | $                                                | 1,905      |   | $ | — |   | $ | 1,905 |   |
| Income from Equity Method Investees |       | $                                                | 18         |   | $ | — |   | $ | 18 |   |
| Other Income/(Expense), Net         |       | $                                                | (89        | ) | $ | — |   | $ | (89 | ) |
| Consolidated Net Proceeds           |       | $                                                | 171,969    |   | $ | 2,829 |   | $ | 174,798 |   |
|                                |       |                                             |       |   |   |   |   |
| Capital Additions                   |       | $                                                | 7,048      |   | $ | 534 |   | $ | 7,582 |   |

 
| ** **                  | ** ** | **As of May 31, 2010** | ** ** |
|-----------------------------|------------|-----------------------------|------------|
| ** **                  | ** ** | **(Dollars In Thousands)**  | ** ** |
| ** **                  | ** ** | **Sugar**                   | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Property and Equipment, Net |       | $                           | 346,123    |   | $ | — |   | $ | 346,123 |   |
| Assets Held for Lease, Net  |       | $                           | —     |   | $ | 104,869 |   | $ | 104,869 |   |
| Segment Assets              |       | $                           | 806,487    |   | $ | 108,979 |   | $ | 915,466 |   |

 
| ** **                  | ** ** | **As of May 31, 2009** | ** ** |
|-----------------------------|------------|-----------------------------|------------|
| ** **                  | ** ** | **(Dollars In Thousands)**  | ** ** |
| ** **                  | ** ** | **Sugar**                   | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Property and Equipment, Net |       | $                           | 329,743    |   | $ | — |   | $ | 329,743 |   |
| Assets Held for Lease, Net  |       | $                           | —     |   | $ | 113,075 |   | $ | 113,075 |   |
| Segment Assets              |       | $                           | 852,960    |   | $ | 117,563 |   | $ | 970,523 |   |

 

**Note 13: Fair Value of Financial Instruments**

 

Fairvalue is defined as the price that would be received for an asset or paid totransfer a liability (an exit price) in the principal or most advantageousmarket for the asset or liability in an orderly transaction between marketparticipants on the measurement date. Quoted market prices are generally not available for the Company’sfinancial instruments.  Fair values arebased on judgments regarding anticipated cash flows, future expected lossexperience, current economic conditions, risk characteristics of variousfinancial instruments and other factors. These estimates involve uncertainties and matters of 

 

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judgment, and therefore, cannot be determinedwith precision.  Changes in assumptionscould significantly affect the estimates.

 

*Long-Term Debt, Inclusive of Current Maturities* - Based uponcurrent borrowing rates with similar maturities, the fair value of thelong-term debt as of May 31, 2010 was approximately $135.9 million incomparison to the carrying value of $142.1 million.

 

*Foreign Currency Forward Contracts* — Based on a variety ofpricing factors, which include the market price of the foreign currency forwardcontract available in the dealer-market, the fair value of the open contractsas of May 31, 2010 was a loss of approximately $32,000.

 

*Interest Rate Contracts* — Based on the zero couponmethod in which the term, notional amount, and repricing date of the interestrate swap match the term, repricing date, and principal amount of theinterest-bearing liability on which the hedging interest payments are due, thefair value of the interest rate contract as of May 31, 2010 was a loss ofapproximately $602,000.

 

*Investments in CoBank, ACB and Investments in Marketing Cooperatives* - The Companybelieves it is not practical to estimate the fair value of these investmentswithout incurring excessive costs because there is no established market forthese securities and equity interests, and it is inappropriate to estimatefuture cash flows which are largely dependent on future earnings of theseorganizations.

 

**Note 14: Environmental Matters**

 

TheCompany is subject to extensive federal and state environmental laws andregulations with respect to water and air quality, solid waste disposal andodor and noise control.  The Companyconducts an ongoing compliance program designed to meet these environmentallaws and regulations.  The Companybelieves that it is in substantial compliance with applicable environmentallaws and regulations.  From time to time,however, the Company may be involved in investigations or determinationsregarding matters that may arise in the ordinary course of business.  The Company works closely with all affectedgovernment agencies to resolve environmental issues that have arisen andbelieves such issues will be resolved without any material adverse effect onthe Company.

 

TheCompany’s sugar manufacturing process is energy intensive and generates carbondioxide and other “Greenhouse Gases” (GHGs). Several bills have been passed or introduced in the United States Senateand House of Representatives that would regulate GHGs and carbon dioxideemissions to reduce the impact of global climate change.  The Company believes it is likely thatindustries generating GHGs, including the Company, will be subject to eitherfederal or state regulation relating to climate change policies in the relativelynear future.  These policies, if adopted,will increase the Company’s energy and other operating costs.  Depending on how these policies addressimports, the domestic sugar market may have a competitive disadvantage comparedwith imported sugar.  These policiescould have a significant negative impact on the Company’s beet payment toshareholders if the Company is not able to pass the increased costs on to theCompany’s customers.

 

On June 26th,2009, the House of Representatives passed H.R. 2454, the American Clean Energyand Security Act (ACES), a bill that will place a cap on GHG emissions.  Similar legislation isbeing considered in the U.S. Senate.  Separately, the EnvironmentalProtection Agency (EPA) finalized findings that GHG emissions endanger publichealth and welfare through their impact on climate change, and that motorvehicles “cause or contribute” to dangerous GHG pollution.  The findings,which respond to the Supreme Court’s 2007 decision in *Massachusetts v. EPA*, legally obligatesthe EPA to issue GHG standards for motor vehicles under the Clean Air Act andsupports the EPA’s effort to use existing legal authority to regulateGHGs.  As an emitter of GHGs covered by ACES, the Company is watchinglegislative and regulatory developments carefully yet cannot predict whethernew proposed laws or regulations will have a material impact on the Company.

 

OnNovember 25, 2008, the Company entered into a stipulation agreement withthe Minnesota Pollution Control Agency (MPCA) related to hydrogen sulfideemissions from its Crookston, East Grand Forks and Moorhead, Minnesotafactories.  As part of the stipulationagreement, the Company has agreed to make certain capital expenditures over thesubsequent three years and implement specified changes in

 

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

 

Includingthe expenditures related to the MPCA stipulation agreement, the Company hasidentified capital expenditures for environmental related projects over thenext three years at the Company’s factory locations of approximately $21.2million.

 

**Note 15: Legal Matters**

 

OnSeptember 21, 2009 the U.S. District Court (District Court) ruled againstthe U.S. Department of Agriculture (USDA) finding that the USDA violatedfederal law by failing to prepare an Environmental Impact Statement (EIS)before deregulating Roundup Ready® sugarbeets. On January 19, 2010, a motion was filed in Federal Court seeking apreliminary injunction to halt the planting and processing of Roundup Ready®sugarbeets for both the seed and root crops. On March 16, 2010 the U.S. District Court denied the plaintiffs’request for the preliminary injunction. While there is always some possibilityof interim developments, the Company believes it is unlikely that there will beany interference with the 2010 commercial root crop.

 

TheDistrict Court has scheduled a hearing for August of 2010 regardingremedies that will be imposed while the EIS is being completed.  The timing of the hearing is subject tochange by the District Court.  Theresults of this hearing will determine the actual direct impact of the decisionon the Company and its sugarbeet producers. There is no way to predict how the District Court will rule in theremedy phase. It is possible that theDistrict Court could in some way restrict the use of Roundup Ready®sugarbeet seed for the seed and/or commercial root crops pending completion ofthe EIS.  The number of years required to complete theEIS is currently uncertain.

 

**Note16: Subsequent Events**

 

TheCompany has evaluated events through the date that the financial statementswere issued for potential recognition or disclosure in the May 31, 2010financial statements.

 

**Item 2.   Management’s Discussion and Analysis of FinancialCondition and Results of Operations for the Nine Months and Three Months Ended May 31,2010 and 2009**

 

This report contains forward-looking statements that involve risks anduncertainties.  Such forward-lookingstatements include, among others, those statements including the words “expect”,“anticipate”, “believe”, “may” and similar expressions.  The Company’s actual results could differmaterially from those indicated.  Riskfactors that could cause or contribute to such differences include, withoutlimitation, market factors, weather and general economic conditions, farm andtrade policy, and available quantity and quality of sugarbeets.  For a more complete discussion of “RiskFactors”, please refer to the Company’s 2009 Form 10-K.

 

**OVERVIEW**

 

The harvest of the Red River Valley and Sidney sugarbeet crops grownduring 2009 and processed during fiscal 2010 produced a total of10.5 million tons of sugarbeets, or approximately 22.5 tons of sugarbeetsper acre from approximately 467,000 acres. This represents a decrease in total tons harvested of approximately 1.9percent compared to the 2008 crop.  Thesugar content of the 2009 crop is 16.7 percent as compared to the 17.6 percentsugar content of the 2008 crop.  TheCompany expects to produce a total of approximately 29.0 millionhundredweight of sugar from the 2009 crop, a decrease of approximately 5.5percent compared to the 2008 crop.

 

Net proceeds attributable to American Crystal Sugar Company for fiscal2010 is expected to be approximately 7 percent lower than in fiscal 2009.  This expected decrease is primarily due tofewer tons harvested and a decline in the sugar content of the sugarbeetsresulting in the decreased production of sugar and agri-products. Alsocontributing to this expected decrease are a lower anticipated net selling 

 

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price for pulp and increased operating costs. These anticipateddecreases will be partially offset by anticipated higher net selling prices forsugar.

 

**RESULTSOF OPERATIONS**

 

**Comparisonof the Nine Months Ended May 31, 2010 and 2009**

 

Revenuefor the nine months ended May 31, 2010, was $917.2 million, an increase of$17.0 million from the nine months ended May 31, 2009.  The table below reflects the percentagechanges in product revenues, prices and volumes for the nine months ended May 31,2010, as compared to the nine months ended May 31, 2009.

 
| **Product** | ** ** | **Revenue** | ** ** | **Selling Price** | ** ** | **Volume** | ** ** |
|-------------|------------|-------------|------------|-------------------|------------|------------|------------|
| Sugar       |       | 4.9         | %          | 10.4              | %          | -5.1       | %          |
| Pulp        |       | -16.5       | %          | -28.1             | %          | 16.1       | %          |
| Molasses    |       | -11.4       | %          | 8.7               | %          | -18.5      | %          |
| CSB         |       | -10.7       | %          | -5.7              | %          | -5.3       | %          |
| Betaine     |       | 4.8         | %          | 18.6              | %          | -11.6      | %          |

 

Theincreases in selling prices for sugar, molasses and betaine reflect strongmarkets due to supply and demand factors. The decrease in the selling price ofpulp is the result of lower prices for competing alternative products in themarketplace.  The decreases in thevolumes of sugar and molasses sold are primarily due to lower beginninginventories this year as compared to the previous year along with reduced sugarproduction this year.  The increase inthe volume of pulp sold reflects the impact of more product availability due tohigher beginning inventories of pulp this year as compared to the previousyear.  The decreases in the volumes ofCSB and betaine sold are primarily due to lower production this year.

 

Rentalrevenue on the ProGold operating lease was $18.8 million and $17.7 million forthe nine months ended May 31, 2010 and 2009, respectively.

 

Costof sales for the nine months ended May 31, 2010, exclusive of payments tomembers for sugarbeets, increased $16.6 million as compared to the nine monthsended May 31, 2009.  This increasewas primarily related to the following:

·                  At the end of each reporting period, productinventories are recorded at their net realizable value.  The change in the net realizable value of theproduct inventories from the beginning of the reporting period is recorded onthe balance sheet as either an increase or decrease to inventories with acorresponding dollar for dollar adjustment to cost of sales on the statement ofoperations.  The increase in the netrealizable value of product inventories for the nine months ended May 31,2010 was $187.2 million as compared to an increase of $194.8 million for theprevious year’s nine month period ended May 31, 2009 resulting in a $7.6million unfavorable change in the cost of sales between the two years as shownin the table below:

 

**Change in the Net Realizable Value of ProductInventories**

 
| ** **                                                   | ** ** | **For the Nine Months Ended May 31** | ** ** |
|--------------------------------------------------------------|------------|-------------------------------------------|------------|
| **(In  Millions)**                                           | ** ** | **2010**                                  | ** ** | **2009** | ** ** | **Change** | ** ** |
| Beginning Product Inventories at Net Realizable  Value       |       | $                                         | (137.6     | ) | $ | (150.6 | ) | $ | 13.0 | (1) |
| Ending Product Inventories at Net Realizable Value           |       | 324.8                                     |       | 345.4 |   | (20.6 | )(2) |
| Increase in the Net Realizable Value of Product  Inventories |       | $                                         | 187.2      |   | $ | 194.8 |   | $ | (7.6 | ) |

 

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(1)The change is primarily due to a 26 percent decrease in the hundredweight ofsugar inventory as of August 31, 2009 as compared to August 31, 2008partially offset by a 14 percent increase in the per hundredweight netrealizable value of sugar inventory as of August 31, 2009 as compared to August 31,2008, a 172 percent increase in the tons of pulp inventory as of August 31,2009 as compared to August 31, 2008 and a 68 percent increase in the perton net realizable value of pulp inventory as of August 31, 2009 ascompared to August 31, 2008.

(2)The change is primarily due to a 16.2 percent decrease in the hundredweight ofsugar inventory as of May 31, 2010 as compared to May 31, 2009, a 49percent decrease in the per ton net realizable value of pulp inventory as of May 

 

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31,2010 as compared to May 31, 2009 and a 13 percent decrease in the totaltons of pulp inventory on hand as of May 31, 2010 compared to May 31,2009 partially offset by a 16.9 percent increase in the per hundredweight netrealizable value of sugar as of May 31, 2010 compared to May 31,2009.

 

·                  The cost recognized associated with thenon-member sugarbeets increased $14.9 million for the nine months ended May 31,2010, when compared to the nine months ended May 31, 2009.  This increase was primarily due to anincrease in tons of sugarbeets harvested this year.

·                  Due to lower than anticipated sugarproduction and inventory levels during the first quarter of last year, theCompany’s sugar marketing agent, United Sugars Corporation, purchased and soldadditional sugar to meet our customers’ needs. As a result, the costs associated with purchased sugar were $7.8 millionlower for the nine months ended May 31, 2010, as compared to the ninemonths ended May 31, 2009.

 

Selling,general and administrative expenses decreased $2.8 million for the nine monthsended May 31, 2010, as compared to the nine months ended May 31,2009.  Selling expenses decreased $3.8million primarily due to the decreased freight costs resulting from lower salesvolumes.  General and administrativeexpenses increased $1.0 million due to general cost increases.

 

Interestexpense decreased $ .6 million for the nine months ended May 31, 2010, ascompared to the nine months ended May 31, 2009.  This was primarily due to decreased shortterm and long term average borrowing levels and lower short term and long termaverage interest rates.

 

OtherIncome/(Expense), Net  decreased $4.5million for the nine months ended May 31, 2010, as compared to the ninemonths ended May 31, 2009.  This wasdue primarily to the one-time receipt of $4.8 million in November 2008related to a legal settlement.

 

Netproceeds attributable to American Crystal Sugar Company decreased $12.1 millionfor the nine months ended May 31, 2010, as compared to the nine monthsended May 31, 2009.  Payments to/duemembers for sugarbeets decreased $14.6 million due to a decrease in tonsprocessed for the 2009 crop as compared to the 2008 crop partially offset by aslightly higher forecasted gross beet payment for the 2009 crop as compared tothat forecasted for the 2008 crop. Non-member business activities resulted in a gain of $3.8 million forthe nine months ended May 31, 2010 as compared to a gain of $1.3 millionfor the nine months ended May 31, 2009. The increase of $2.5 million was primarily related to the activities ofSidney Sugars.

 

**Comparisonof the Three Months Ended May 31, 2010 and 2009**

 

Revenuefor the three months ended May 31, 2010, was $329.4 million, an increaseof $25.8 million from the three months ended May 31, 2009.  The table below reflects the percentagechanges in product revenues, prices and volumes for the three months ended May 31,2010, as compared to the three months ended May 31, 2009.

 
| **Product** | ** ** | **Revenue** | ** ** | **Selling Price** | ** ** | **Volume** | ** ** |
|-------------|------------|-------------|------------|-------------------|------------|------------|------------|
| Sugar       |       | 12.2        | %          | 11.3              | %          | 0.9        | %          |
| Pulp        |       | -21.1       | %          | -33.0             | %          | 17.7       | %          |
| Molasses    |       | -27.0       | %          | -1.0              | %          | -26.3      | %          |
| CSB         |       | -8.2        | %          | -2.3              | %          | -6.0       | %          |
| Betaine     |       | -0.8        | %          | 0.0               | %          | -0.8       | %          |

 

Theincrease in the selling price for sugar reflects a strong market due to supplyand demand factors. The decrease in the selling price of pulp is the result oflower prices for competing alternative products in the marketplace.  The increase in the volume of pulp soldreflects the impact of more product availability due to higher beginninginventories this year as compared to the previous year.  The decrease in the volume of molasses andCSB sold is primarily due to the timing of deliveries this year as compared tothe previous year.

 

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Rentalrevenue on the ProGold operating lease was $6.5 million for the three monthsended May 31, 2010 compared to $5.7 million for the three months ended May 31,2009.

 

Costof sales for the three months ended May 31, 2010, exclusive of payments tomembers for sugarbeets, increased $46.6 million as compared to the three monthsended May 31, 2009.  This increasewas primarily related to the following:

·                  At the end of each reporting period, productinventories are recorded at their net realizable value.  The change in the net realizable value of theproduct inventories from the beginning of the reporting period is recorded onthe balance sheet as either an increase or decrease to inventories with acorresponding dollar for dollar adjustment to cost of sales on the statement ofoperations.  The decrease in the netrealizable value of product inventories for the three months ended May 31,2010 was $3.9 million as compared to a increase of $45.2 million for theprevious year’s three month period ended May 31, 2009 resulting in a $49.1million unfavorable change in the cost of sales between the two years as shownin the table below:

 

**Change in the Net Realizable Value of ProductInventories**

 
| ** **                                                              | ** ** | **For the Three Months Ended May 31** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| **(In  Millions)**                                                      | ** ** | **2010**                                   | ** ** | **2009** | ** ** | **Change** | ** ** |
| Beginning Product Inventories at Net Realizable  Value                  |       | $                                          | (328.7     | ) | $ | (300.2 | ) | $ | (28.5 | )(1) |
| Ending Product Inventories at Net Realizable Value                      |       | 324.8                                      |       | 345.4 |   | (20.6 | )(2) |
| Increase (Decrease) in the Net Realizable Value of  Product Inventories |       | $                                          | (3.9       | ) | $ | 45.2 |   | $ | (49.1 | ) |

 

----

(1)The change is primarily due to a 15.1 percent increase in the per hundredweightnet realizable value of sugar inventory as of February 28, 2010 ascompared to February 28, 2009 partially offset by a  48.4 percent decrease in the per ton netrealizable value of pulp inventory as of February 28, 2010 as compared to February 28,2009.

(2)The change is primarily due to a 16.2 percent decrease in the hundredweight ofsugar inventory as of May 31, 2010 as compared to May 31, 2009, a 49percent decrease in the per ton net realizable value of pulp inventory as of May 31,2010 as compared to May 31, 2009 and a 13 percent decrease in the totaltons of pulp inventory on hand as of May 31, 2010 compared to May 31,2009 partially offset by a 16.9 percent increase in the per hundredweight netrealizable value of sugar as of May 31, 2010 compared to May 31,2009.

 

·                  Factory operating costs decreased $4.2million for the three months ended May 31, 2010, as compared to the threemonths ended May 31, 2009, primarily due to a shorter processing campaignthis year resulting from fewer sugarbeets to process.

 

Selling,general and administrative expenses increased $3.3 million for the three monthsended May 31, 2010, as compared to the three months ended May 31,2009.  Selling expenses increased $3.3million primarily due to the increased costs resulting from higher pulp salesvolume and increased freight costs related to the shipments of sugar. Generaland administrative expenses remained level for the three months ended May 31,2010 as compared to May 31, 2009.

 

Interestexpense increased $ .2 million for the three months ended May 31, 2010, ascompared to the three months ended May 31, 2009.  This was primarily due to an increased longterm average interest rate.

 

Net proceeds attributable to American Crystal Sugar Company decreased$10.4 million for the three months ended May 31, 2010, as compared to thethree months ended May 31, 2009. Payments to/due members for sugarbeets decreased $10.9 million primarilydue to a decrease in tons processed for the 2009 crop as compared to the 2008crop partially offset by a slightly higher forecasted gross beet payment forthe 2009 crop as compared to that forecasted for the 2008 crop.  Non-member business activities resulted in again of $1.0 million for the three months ended May 31, 2010 as comparedto a gain of $ .5 million for the three months ended May 31, 2009.  The increase was primarily related to theactivities of Sidney Sugars.

 

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**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.  In addition, the beet payments made to membergrowers and non-member growers are paid in three payments over the course of ayear, and the member payments are made net of any anticipated unit retain forthe crop.  These procedures have theeffect of providing the Company with an additional source of short-termfinancing.

 

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.  The majority of such financing has beenprovided by a consortium of lenders led by CoBank, ACB.

 

Duringthe current national economic downturn and financial market instability, theCompany, due to its strong financial position and relationships with itslenders, has continued to secure the necessary financing for its workingcapital requirements and capital expenditures.

 

TheCompany has a seasonal line of credit through July 30, 2012, with aconsortium of lenders led by CoBank, ACB of $320.0 million, against whichthere was no outstanding balance as of May 31, 2010 and a line of creditwith Wells Fargo Bank for $1.0 million, against which there was nooutstanding balance as of May 31, 2010. The Company’s commercial paper program provides short-term borrowings ofup to $320 million of which approximately $136.0 million was outstanding as of May 31,2010.  The Company had $3.0 million ofshort-term letters of credit outstanding as of May 31, 2010.  Any borrowings under the commercial paperprogram along with outstanding short-term letters of credit will act to reducethe available credit under the CoBank, ACB seasonal line of credit by acommensurate amount.  The unusedshort-term line of credit as of May 31, 2010, was $182.0 million.

 

TheCompany also has long-term debt availability through December 31, 2011,with CoBank, ACB of****$156.6 million,of which $22.3 million in loans and $69.4 million in long-term letters ofcredit were outstanding as of May 31, 2010.  The unused long-term line of credit as of May 31,2010 was $64.9 million.  In addition, theCompany had long-term debt outstanding, as of May 31, 2010, of$50.0 million from a private placement of Senior Notes that occurred in September of1998 and $69.8 million from five separate issuances of Pollution Controland Industrial Development Revenue Bonds.

 

TheCompany had outstanding purchase commitments totaling $32.7 million as of May 31,2010, for equipment and construction contracts related to various capitalprojects.

 

Theliquidity changes that have occurred in the Company’s financial statements fromAugust 31, 2009, to May 31, 2010, were primarily due to normalbusiness seasonality.  The first ninemonths of the Company’s fiscal year includes: the completion of the sugarbeetharvest; the processing campaign; the final payments to growers for sugarbeetsdelivered from the previous year’s crop; and the initial payments to growersfor sugarbeets delivered from the current year’s crop.

 

Thenet cash used by operations was $6.3 million for the nine months ended May 31,2010, as compared to $98.7 million for the nine months ended May 31,2009.  This decrease in the use of cashof $92.5 million was primarily the result of the following:

 

·                  Reflected in the change in the net cashprovided by operating activities is a net cash increase of $2.8 million fromthe prior year which was the result of a decrease in the forecasted membergross beet payment of $14.6 million and increased revenue of $17.0 millionpartially offset by increased costs of $28.8 million.

·                  There was a net favorable change in assetsand liabilities of $89.7 million primarily comprised of the following:

·                  The decrease in cash usedrelated to the Amount Due Growers of $50.5 million was due to a reduction of$33.7 million in the final grower payments issued in fiscal 2010 for theprevious year’s crop as compared to the final grower payments issued in fiscal2009. 

 

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Also adding to this favorable change was $16.8 million due to a largerincrease this year as compared to last year in the forecasted grower paymentssince the last payments were made to the growers in March of each yearpartially offset by a lower current year’s total estimated grower payment dueto a reduction in tons harvested.

·                  The decrease in cash usedrelated to changes in advances to related parties of $17.6 million wasprimarily due to the timing of the cash requirements of our marketing agents.

·                  The decrease in cash usedrelated to changes in accrued continuing costs of $9.1 million was the resultof a difference in the timing of revenues and expenses between the two years.

·                  The decrease in cash usedrelated to changes in accounts payable of $6.0 million, $3.4 in otherliabilities and $2.8 in non-current pension asset/liabilities is due to thetiming of payments.

·                  A decrease in cash usedrelated to the change in inventories of $6.3 million was primarily due to adecrease in finished product inventories as of May 31, 2010 related toless sugar and pulp on hand and a decreased net realizable value per ton ofpulp partially offset by an increased net realizable value per hundredweight ofsugar.

·                  These decreases in cash usedwere partially offset by an increase in receivables of $5.4 million due to thetiming of collections.

 

Thenet cash used in investing activities was $38.6 million for the nine monthsended May 31, 2010, as compared to $26.0 million for the nine months endedMay 31, 2009.  The increase of $12.6million was primarily due to increased purchases of property and equipment.

 

Thenet cash provided by financing activities was $44.9 million for the nine monthsended May 31, 2010, as compared to $124.8 million for the nine monthsended May 31, 2009.  This decreaseof $79.9 million was primarily due to decreased net proceeds from short-termdebt of $88.4 million and decreased proceeds from long term debt of $68.7million partially offset by decreased long term debt repayments of $69.2million and decreased payments of unit retains of $7.7 million.

 

TheCompany anticipates that the funds necessary for working capital requirementsand future capital expenditures will be derived from operations and unitretains along with short-term and long-term borrowings.

 

**OTHER**

 

**Environmental**

 

TheCompany is subject to extensive federal and state environmental laws andregulations with respect to water and air quality, solid waste disposal andodor and noise control.  The Companyconducts an ongoing compliance program designed to meet these environmentallaws and regulations.  The Companybelieves that it is in substantial compliance with applicable environmentallaws and regulations.  From time to time,however, the Company may be involved in investigations or determinations regardingmatters that may arise in the ordinary course of business.  The Company works closely with all affectedgovernment agencies to resolve environmental issues that have arisen andbelieves such issues will be resolved without any material adverse effect onthe Company.

 

TheCompany’s sugar manufacturing process is energy intensive and generates carbondioxide and other “Greenhouse Gases” (GHGs). Several bills have been passed or introduced in the United States Senateand House of Representatives that would regulate GHGs and carbon dioxideemissions to reduce the impact of global climate change.  The Company believes it is likely thatindustries generating GHGs, including the Company, will be subject to eitherfederal or state regulation relating to climate change policies in therelatively near future.  These policies,if adopted, will increase the Company’s energy and other operating costs.  Depending on how these policies addressimports, the domestic sugar market may have a competitive disadvantage comparedwith imported sugar.  These policiescould have a significant negative impact on the Company’s beet payment toshareholders if the Company is not able to pass the increased costs on to theCompany’s customers.

 

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On June 26th,2009, the House of Representatives passed H.R. 2454, the American Clean Energyand Security Act (ACES), a bill that will place a cap on GHG emissions.  Similar legislation isbeing considered in the U.S. Senate.  Separately, the EnvironmentalProtection Agency (EPA) finalized findings that GHG emissions endanger publichealth and welfare through their impact on climate change, and that motorvehicles “cause or contribute” to dangerous GHG pollution.  The findings,which respond to the Supreme Court’s 2007 decision in *Massachusetts v. EPA*, legally obligatesthe EPA to issue GHG standards for motor vehicles under the Clean Air Act andsupports the EPA’s effort to use existing legal authority to regulateGHGs.  As an emitter of GHGs covered by ACES, the Company is watchinglegislative and regulatory developments carefully yet cannot predict whethernew proposed laws or regulations will have a material impact on the Company.

 

OnNovember 25, 2008, the Company entered into a stipulation agreement withthe Minnesota Pollution Control Agency (MPCA) related to hydrogen sulfideemissions from its Crookston, East Grand Forks and Moorhead, Minnesota factories.  As part of the stipulation agreement, theCompany has agreed to make certain capital expenditures over the subsequentthree years and implement specified changes in operating procedures to containhydrogen sulfide emissions at the Minnesota factories. The Company is onschedule with the agreed to changes.

 

Includingthe expenditures related to the MPCA stipulation agreement, the Company hasidentified capital expenditures for environmental related projects over thenext three years at the Company’s factory locations of approximately $21.2million.

 

**Item 3.  Quantitative andQualitative 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.  The value of a financial instrument maychange as a result of changes in the interest rates, exchange rates, commodityprices, equity prices and other market changes. Market risk is attributed to all market-risk sensitive financialinstruments, including long-term debt.

 

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 4T.   Controls andProcedures**

 

TheCompany’s chief executive officer and chief financial officer have reviewed andevaluated the effectiveness of the Company’s disclosure controls and procedures(as defined in Rules 240.13a-15(e) and 15d-15(e) promulgatedunder the Securities Exchange Act of 1934) as of May 31, 2010.  Based on that review and evaluation, whichincluded inquiries made to certain other employees of the Company, the chiefexecutive officer and chief financial officer have concluded that the Company’scurrent disclosure controls and procedures, as designed and implemented, areeffective in ensuring that information relating to the Company required to bedisclosed in the reports the Company files or submits under the SecuritiesExchange Act of 1934 is recorded, processed, summarized and reported within thetime periods specified in the Securities and Exchange Commission’s rules andforms, including ensuring that such information is accumulated and communicatedto the Company’s management, including the chief executive officer and thechief financial officer, as appropriate to allow timely decisions regardingrequired disclosure.  There were nochanges in the Company’s internal controls over financial reporting thatoccurred during the Company’s most recent fiscal quarter that may havematerially affected, or are reasonably likely to materially affect, the Company’sinternal control over financial reporting.

 

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**PART II.OTHER INFORMATION**

 

**Item1.  Legal Proceedings**

 

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

 

OnSeptember 21, 2009 the U.S. District Court (District Court) ruled againstthe U.S. Department of Agriculture (USDA) finding that the USDA violatedfederal law by failing to prepare an Environmental Impact Statement (EIS)before deregulating Roundup Ready® sugarbeets. On January 19, 2010, a motion was filed in Federal Court seeking apreliminary injunction to halt the planting and processing of Roundup Ready®sugarbeets for both the seed and root crops. On March 16, 2010 the U.S. District Court denied the plaintiffs’request for the preliminary injunction. While there is always some possibilityof interim developments, the Company believes it is unlikely that there will beany interference with the 2010 commercial root crop.

 

TheDistrict Court has scheduled a hearing for August of 2010 regardingremedies that will be imposed while the EIS is being completed.  The timing of the hearing is subject tochange by the District Court.  Theresults of this hearing will determine the actual direct impact of the decisionon the Company and its sugarbeet producers. There is no way to predict how the District Court will rule in theremedy phase. It is possible that theDistrict Court could in some way restrict the use of Roundup Ready®sugarbeet seed for the seed and/or commercial root crops pending completion ofthe EIS.  The number of years required to complete theEIS is currently uncertain.

 

**Item 1A.  Risk Factors.**

 

**HealthcareLegislation**

 

InMarch 2010, the Patient Protection and Affordable Care Act (PPACA) and theHealth Care and Education Reconciliation Act which amends certain provisions ofthe PPACA were signed into law.  TheCompany believes healthcare costs could increase as a result of this legislation,negatively affecting the Company’s profitability.

 

**Financial Regulation Legislation**

 

Financialregulation legislation, including a Section 404 permanent exemption fornon-accelerated filers, is currently under consideration by the U.S.Congress.  This Section 404 permanent exemption would eliminatethe requirement for our independent registered public accounting firmauditing our financial statements of attesting to and reporting on management’sassessment of the effectiveness of our internal controls over financialreporting.

 

Fora detailed discussion of certain risk factors that could affect the Company’soperations, financial condition or results for future periods, see Item 1A,Risk factors, in the Company’s 2009 Annual Report on Form 10-K.

 

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**Item 2.  Unregistered Sales ofEquity Securities and Use of Proceeds.**

 

None

 

**Item 3.  Defaults Upon SeniorSecurities**

 

None

 

**Item 4.  Submission of Matters toa Vote of Security Holders**

 

None.

 

**Item 5.  Other Information.**

 

None.

 

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**Item 6. Exhibits**

 
| **Item  No.** | ** ** | ** **                                                                                 | ** ** | **Method of Filing**                                                                                                                                                                          |
|---------------|------------|--------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **    | ** ** | ** **                                                                                 | ** ** | ** **                                                                                                                                                                                    |
| 3.1           |       | Restated  Articles of Incorporation of American Crystal Sugar Company                      |       | Incorporated  by reference to Exhibit 3(i) from the Company’s Registration  Statement on Form S-1 (File No. 33-83868), declared effective  November 23, 1994.   |
|          |       |                                                                                       |       |                                                                                                                                                                                          |
| 3.2           |       | Restated  By-laws of American Crystal Sugar Company                                        |       | Incorporated  by reference to Exhibit 3(ii) from the Company’s Registration  Statement on Form S-1 (File No. 333-11693), declared effective  November 13, 1996. |
|          |       |                                                                                       |       |                                                                                                                                                                                          |
| 4.1           |       | Restated  Articles of Incorporation of American Crystal Sugar Company                      |       | See  Exhibit 3.1                                                                                                                                                                         |
|          |       |                                                                                       |       |                                                                                                                                                                                          |
| 4.2           |       | Restated  By-laws of American Crystal Sugar Company                                        |       | See  Exhibit 3.2                                                                                                                                                                         |
|          |       |                                                                                       |       |                                                                                                                                                                                          |
| 10.1          |       | Form of  Operating Agreement between Registrant and ProGold Limited Liability Company |       | Incorporated  by reference to Exhibit 10(u) from the Company’s Registration  Statement on Form S-1 (File No. 33-83868), declared effective  November 23, 1994.  |
|          |       |                                                                                       |       |                                                                                                                                                                                          |
| 10.2          |       | 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                                             |
|          |       |                                                                                       |       |                                                                                                                                                                                          |
| 10.3          |       | 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                                             |
|          |       |                                                                                       |       |                                                                                                                                                                                          |
| 10.4          |       | 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                                             |
|          |       |                                                                                       |       |                                                                                                                                                                                          |
| ++10.5        |       | 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                                             |
|          |       |                                                                                       |       |                                                                                                                                                                                          |
| 10.6          |       | 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                                                         |
|          |       |                                                                                       |       |                                                                                                                                                                                          |
| ++10.7        |       | 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                                             |

 

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| ++10.8  |   | Employment Agreement dated March 21, 2007  between the Registrant and David A. Berg.                                                           |   | Incorporated  by reference to Exhibit 10.26 from the Company’s Form 10-Q for the  quarter ended February 28, 2007.            |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.9    |   | Growers’  Contract (5-year Agreement) for the crop years 2008 through 2012                                                                     |   | Incorporated  by reference to Exhibit 10.24 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2007 |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.10   |   | Amended  and Restated Uniform Member Sugar Marketing Agreement between the Registrant  and United Sugars Corporation dated September 20, 2007. |   | Incorporated  by reference to Exhibit 10.22 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2008 |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.11   |   | Stipulation  Agreement between Registrant and State of Minnesota Pollution Control Agency,  dated November 25, 2008                            |   | Incorporated  by reference to Exhibit 10.19 from the Company’s Form 10-Q for the  quarter ended November 30, 2008             |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| ++10.12 |   | Restated  Supplemental Executive Retirement Plan, dated December 5, 2008                                                                       |   | Incorporated  by reference to Exhibit 10.20 from the Company’s Form 10-Q for the  quarter ended November 30, 2008             |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| ++10.13 |   | Restated  Board of Directors Deferred Compensation Plan, dated December 8, 2008                                                                |   | Incorporated  by reference to Exhibit 10.21 from the Company’s Form 10-Q for the  quarter ended November 30, 2008             |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| ++10.14 |   | First  Amendment to 2005 Long-Term Incentive Plan, dated December 20, 2006.                                                                    |   | Incorporated  by reference to Exhibit 10.22 from the Company’s Form 10-Q for the  quarter ended February 28, 2009             |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| ++10.15 |   | Second  Amendment to 2005 Long-Term Incentive Plan, dated November 5, 2007.                                                                    |   | Incorporated  by reference to Exhibit 10.23 from the Company’s Form 10-Q for the  quarter ended February 28, 2009             |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| ++10.16 |   | Third  Amendment to 2005 Long-Term Incentive Plan, dated December 11, 2008.                                                                    |   | Incorporated  by reference to Exhibit 10.24 from the Company’s Form 10-Q for the  quarter ended February 28, 2009             |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.17   |   | Amended and Restated Credit Agreement between the  Registrant and CoBank, ACB dated July 30, 2009.                                             |   | Incorporated  by reference to Exhibit 10.17 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2009 |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.18   |   | Amended  and Restated Uniform Member Marketing Agreement between the Registrant and  Midwest Agri-Commodities Company dated September 1, 2009. |   | Incorporated  by reference to Exhibit 10.18 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2009 |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.19   |   | Amended  and Restated Member Control Agreement between Registrant and Golden Growers  Cooperative dated September 1, 2009.                     |   | Incorporated  by reference to Exhibit 10.19 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2009 |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 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, 2009  |

 

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| 31.1   |   | Rule 13a-14(a)/15(d)-14(a) Certification  of the Chief Executive Officer |   | Accompanying  herewith electronically |
|--------|--------|------------------------------------------------------------------------------------|--------|---------------------------------------|
|   |   |                                                                               |   |                                  |
| 31.2   |   | Rule 13a-14(a)/15(d)-14(a) Certification  of the Chief Financial Officer |   | Accompanying  herewith electronically |
|   |   |                                                                               |   |                                  |
| 32.1   |   | Section 1350  Certification of the Chief Executive Officer                    |   | Accompanying  herewith electronically |
|   |   |                                                                               |   |                                  |
| 32.2   |   | Section 1350  Certification of the Chief Financial Officer                    |   | Accompanying  herewith electronically |

 

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

 

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

 

 

SIGNATURES

 

 

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

 

 
|      |                   |       | **AMERICAN  CRYSTAL SUGAR COMPANY** |
|-----------|------------------------|------------|-------------------------------------|
|      |                   |       | **(Registrant)**                    |
|      |                   |       |                                |
|      |                   |       |                                |
| **Date:** | **July 15, 2010** | ** ** | **/s/  Teresa Warne**               |
|      |                   |       | **Teresa  Warne**                   |
|      |                   |       | **Corporate  Controller,**          |
|      |                   |       | **Chief  Accounting Officer**       |
|      |                   |       | **Duly  Authorized Officer**        |
|           |                        |            |                                     |  |

 

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