Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND 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

** **

# **Forthe quarterly period ended May 31, 2009**

# ** **

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

## ** **

**AMERICANCRYSTAL SUGAR COMPANY**

(Exact name ofregistrant as specified in its charter)

 

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

 

**101 NorthThird Street**

**Moorhead,Minnesota  56560**

(Address ofprincipal executive offices)

 

**TelephoneNumber (218) 236-4400**

(Registrant’stelephone number, including area code)

 

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

| YES  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 |
|------------------|--------|-----------------|

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,”“accelerated filer” and “smaller reporting company” in Rule 12b-2 of theExchange Act.

 

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

 

Indicate by check markwhether the registrant is a shell company (as defined in rule 12b-2 of theAct).

| YES  o |   | NO  x |
|------------------|--------|-----------------|

 

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

 

| **Class of  Common Stock** | ** ** | **Outstanding  at  July 8, 2009** |
|---------------------------------|------------|----------------------------------------|
| **$10 Par Value**               | ** ** | **2,813**                              |

 

 

 

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**AMERICANCRYSTAL 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 ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** | **13**       |
| **ITEM 3.**      | **QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**                                 | **21**       |
| **ITEM 4T.**     | **CONTROLS AND  PROCEDURES**                                                                    | **21**       |
|             |                                                                                            |         |
| **PART II** | **OTHER INFORMATION**                                                                           |         |
|             |                                                                                            |         |
| **ITEM 1.**      | **LEGAL PROCEEDINGS**                                                                           | **21**       |
| **ITEM 1A.**     | **RISK FACTORS**                                                                                | **22**       |
| **ITEM 2.**      | **UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**                                | **22**       |
| **ITEM 3.**      | **DEFAULTS UPON  SENIOR SECURITIES**                                                            | **22**       |
| **ITEM 4.**      | **SUBMISSION OF  MATTERS TO A VOTE OF SECURITY HOLDERS**                                        | **22**       |
| **ITEM 5.**      | **OTHER INFORMATION**                                                                           | **22**       |
| **ITEM  6.**     | **EXHIBITS**                                                                                    | **23**       |
|             |                                                                                            |         |
| **SIGNATURES**   | ** **                                                                                      | **25**       |

 

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**American Crystal Sugar Company**

**ConsolidatedBalance Sheets**

**(Unaudited)**

**(In Thousands)**

 

**Assets**

 
| ** **                                     | ** ** | **May 31** | ** ** | **August 31** | ** ** |
|------------------------------------------------|------------|-----------------|------------|--------------------|------------|
| ** **                                     | ** ** | **2009**        | ** ** | **2008**           | ** ** | **2008*** | ** ** |
| **Current Assets:**                            |       |            |       |               |       |   |   |
| Cash and Cash Equivalents                      |       | $               | 125        |               | $          | 4,483 |   | $ | 128 |   |
| Receivables:                                   |       |            |       |               |       |   |   |
| Trade                                          |       | 64,850          |       | 64,994             |       | 66,149 |   |
| Members                                        |       | 5,108           |       | 1,948              |       | 2,535 |   |
| Other                                          |       | 281             |       | 1,069              |       | 2,767 |   |
| Advances to Related Parties                    |       | 14,131          |       | 13,054             |       | 20,391 |   |
| Inventories                                    |       | 381,026         |       | 393,307            |       | 188,328 |   |
| Prepaid Expenses                               |       | 1,465           |       | 1,584              |       | 1,163 |   |
|                                           |       |            |       |               |       |   |   |
| **Total Current Assets**                       |       | 466,986         |       | 480,439            |       | 281,461 |   |
|                                           |       |            |       |               |       |   |   |
| **Property and Equipment:**                    |       |            |       |               |       |   |   |
| Land and Land Improvements                     |       | 63,259          |       | 58,292             |       | 60,110 |   |
| Buildings                                      |       | 115,096         |       | 111,127            |       | 112,170 |   |
| Equipment                                      |       | 877,245         |       | 870,885            |       | 877,113 |   |
| Construction in Progress                       |       | 13,731          |       | 19,323             |       | 5,322 |   |
| Less Accumulated Depreciation                  |       | (739,588        | )          | (710,398           | )          | (703,134 | ) |
|                                           |       |            |       |               |       |   |   |
| **Net Property and Equipment**                 |       | 329,743         |       | 349,229            |       | 351,581 |   |
|                                           |       |            |       |               |       |   |   |
| **Net Property and Equipment Held  for Lease** |       | 113,075         |       | 122,502            |       | 120,001 |   |
|                                           |       |            |       |               |       |   |   |
| **Other Assets:**                              |       |            |       |               |       |   |   |
| Investments in CoBank, ACB                     |       | 10,111          |       | 9,946              |       | 9,946 |   |
| Investments in Marketing Cooperatives          |       | 4,306           |       | 5,836              |       | 4,152 |   |
| Pension Asset                                  |       | 35,713          |       | 37,485             |       | 35,101 |   |
| Other Assets                                   |       | 10,589          |       | 11,622             |       | 11,057 |   |
|                                           |       |            |       |               |       |   |   |
| **Total Other Assets**                         |       | 60,719          |       | 64,889             |       | 60,256 |   |
|                                           |       |            |       |               |       |   |   |
| **Total Assets**                               |       | $               | 970,523    |               | $          | 1,017,059 |   | $ | 813,299 |   |

 

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

 

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* Derived from audited financialstatements

 

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**American Crystal Sugar Company**

**Consolidated Balance Sheets**

**(Unaudited)**

**(In Thousands)**

 

**Liabilities and Members’ Investments**

** **
| ** **                                                     | ** ** | **May 31** | ** ** | **August 31** | ** ** |
|----------------------------------------------------------------|------------|-----------------|------------|--------------------|------------|
| ** **                                                     | ** ** | **2009**        | ** ** | **2008**           | ** ** | **2008*** | ** ** |
| **Current Liabilities:**                                       |       |            |       |               |       |   |   |
| Short-Term Debt                                                |       | $               | 193,770    |               | $          | 210,134 |   | $ | 15,297 |   |
| Current Maturities of Long-Term Debt                           |       | 19,503          |       | 20,992             |       | 20,991 |   |
| Accounts Payable                                               |       | 14,292          |       | 12,263             |       | 35,836 |   |
| Advances Due to Related Parties                                |       | 1,087           |       | 1,970              |       | 3,343 |   |
| Accrued Continuing Costs                                       |       | 77,046          |       | 92,160             |       | — |   |
| Other Current Liabilities                                      |       | 29,484          |       | 24,673             |       | 27,286 |   |
| Amounts Due Growers                                            |       | 89,624          |       | 72,133             |       | 120,933 |   |
|                                                           |       |            |       |               |       |   |   |
| **Total Current Liabilities**                                  |       | 424,806         |       | 434,325            |       | 223,686 |   |
|                                                           |       |            |       |               |       |   |   |
| **Long-Term Debt, Net of Current  Maturities**                 |       | 139,012         |       | 156,879            |       | 157,801 |   |
|                                                           |       |            |       |               |       |   |   |
| **Accrued Employee Benefits**                                  |       | 35,091          |       | 38,875             |       | 33,805 |   |
|                                                           |       |            |       |               |       |   |   |
| **Other Liabilities**                                          |       | 7,621           |       | 9,737              |       | 6,892 |   |
|                                                           |       |            |       |               |       |   |   |
| **Total Liabilities**                                          |       | 606,530         |       | 639,816            |       | 422,184 |   |
|                                                           |       |            |       |               |       |   |   |
| **Commitments and Contingencies**                              |       |            |       |               |       |   |   |
|                                                           |       |            |       |               |       |   |   |
| **Minority Interest in ProGold  Limited****Liability Company** |       | 55,923          |       | 61,518             |       | 59,839 |   |
|                                                           |       |            |       |               |       |   |   |
| **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                                                   |       | 150,577         |       | 151,289            |       | 174,506 |   |
| Equity Retention                                               |       | —          |       | 1,157              |       | 1,155 |   |
| Accumulated Other Comprehensive Income (Loss)                  |       | (8,152          | )          | (8,571             | )          | (8,984 | ) |
| Retained Earnings (Accumulated Deficit)                        |       | (24,919         | )          | (18,714            | )          | (25,965 | ) |
|                                                           |       |            |       |               |       |   |   |
| **Total Members’ Investments**                            |       | 308,070         |       | 315,725            |       | 331,276 |   |
|                                                           |       |            |       |               |       |   |   |
| **Total Liabilities and Members’  Investments**           |       | $               | 970,523    |               | $          | 1,017,059 |   | $ | 813,299 |   |
|                                                           |       |            |       |               |       |   |   |

 

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

 

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* Derived from auditedfinancial 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**                | ** ** |
| ** **                                                            | ** ** | **2009**                      | ** ** | **2008**                       | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Net Revenue**                                                       |       | $                             | 900,215    |                           | $          | 890,671 |   | $ | 303,571 |   | $ | 333,618 |   |
|                                                                  |       |                          |       |                           |       |   |   |   |   |
| **Cost of Sales**                                                     |       | 126,721                       |       | 111,487                        |       | 51,088 |   | 88,879 |   |
|                                                                  |       |                          |       |                           |       |   |   |   |   |
| **Gross Proceeds**                                                    |       | 773,494                       |       | 779,184                        |       | 252,483 |   | 244,739 |   |
|                                                                  |       |                          |       |                           |       |   |   |   |   |
| **Selling, General and  Administrative Expenses**                     |       | 179,883                       |       | 189,717                        |       | 55,857 |   | 69,969 |   |
| **Accrued Continuing Costs**                                          |       | 77,046                        |       | 92,160                         |       | 19,387 |   | 28,912 |   |
|                                                                  |       |                          |       |                           |       |   |   |   |   |
| **Operating Proceeds**                                                |       | 516,565                       |       | 497,307                        |       | 177,239 |   | 145,858 |   |
|                                                                  |       |                          |       |                           |       |   |   |   |   |
| **Other Income (Expense):**                                           |       |                          |       |                           |       |   |   |   |   |
| Interest Income                                                       |       | 163                           |       | 349                            |       | 60 |   | 13 |   |
| Interest Expense, Net                                                 |       | (7,220                        | )          | (11,269                        | )          | (1,890 | ) | (3,347 | ) |
| Other, Net                                                            |       | 4,356                         |       | 71                             |       | (133 | ) | (552 | ) |
|                                                                  |       |                          |       |                           |       |   |   |   |   |
| **Total Other (Expense)**                                             |       | (2,701                        | )          | (10,849                        | )          | (1,963 | ) | (3,886 | ) |
|                                                                  |       |                          |       |                           |       |   |   |   |   |
| **Proceeds Before Minority Interest  and****Income Tax Expense**      |       | 513,864                       |       | 486,458                        |       | 175,276 |   | 141,972 |   |
| ** **                                                            |       |                          |       |                           |       |   |   |   |   |
| **Minority Interest**                                                 |       | (4,445                        | )          | (5,450                         | )          | (1,386 | ) | (1,523 | ) |
|                                                                  |       |                          |       |                           |       |   |   |   |   |
| **Income Tax Expense**                                                |       | (1,046                        | )          | (1,717                         | )          | (478 | ) | 226 |   |
|                                                                  |       |                          |       |                           |       |   |   |   |   |
| **Net Proceeds Resulting from  Member and****Non-Member  Business**   |       | $                             | 508,373    |                           | $          | 479,291 |   | $ | 173,412 |   | $ | 140,675 |   |
|                                                                  |       |                          |       |                           |       |   |   |   |   |
| **Distributions of Net Proceeds:**                                    |       |                          |       |                           |       |   |   |   |   |
| Credited (Charged) to Members’ Investments:                      |       |                          |       |                           |       |   |   |   |   |
| Non-Member Business Income                                            |       | $                             | 1,273      |                           | $          | 2,464 |   | $ | 459 |   | $ | (327 | ) |
| Unit Retains Declared to Members                                      |       | —                        |       | —                         |       | — |   | — |   |
| Net Credit (Charge) to Members’ Investments                      |       | 1,273                         |       | 2,464                          |       | 459 |   | (327 | ) |
| Payments To/Due Members for Sugarbeets, Net of  Unit Retains Declared |       | 507,100                       |       | 476,827                        |       | 172,953 |   | 141,002 |   |
| **Total**                                                             |       | $                             | 508,373    |                           | $          | 479,291 |   | $ | 173,412 |   | $ | 140,675 |   |

 

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

 

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**American Crystal Sugar Company**

**ConsolidatedStatements of Cash Flows**

**(Unaudited)**

**(In Thousands)**

 
| ** **                                                            | ** ** | **For the Nine Months Ended** | ** ** |
|-----------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                            | ** ** | **May 31**               | ** ** |
| ** **                                                            | ** ** | **2009**                      | ** ** | **2008** | ** ** |
| **Cash Provided By (Used In)  Operating Activities:**                 | ** ** | ** **                    | ** ** | ** ** | ** ** |
| Net Proceeds Resulting from Member and Non-Member  Business           |       | $                             | 508,373    |   | $ | 479,291 |   |
| Payments To/Due Members for Sugarbeets, Net of  Unit Retains Declared |       | (507,100                      | )          | (476,827 | ) |
| Add (Deduct) Non-Cash Items:                                          |       |                          |       |   |   |
| Depreciation and Amortization                                         |       | 50,530                        |       | 52,043 |   |
| Income from Equity Method Investees                                   |       | (28                           | )          | (30 | ) |
| Loss on the Disposition of Property and Equipment                     |       | 610                           |       | 240 |   |
| Non-Cash Portion of Patronage Dividend from  CoBank, ACB              |       | (165                          | )          | (121 | ) |
| Deferred Gain Recognition                                             |       | (81                           | )          | (148 | ) |
| Minority Interest Gain                                                |       | 4,445                         |       | 5,450 |   |
| Changes in Assets and Liabilities:                                    |       |                          |       |   |   |
| Receivables                                                           |       | 1,212                         |       | 17,277 |   |
| Inventories                                                           |       | (192,698                      | )          | (176,744 | ) |
| Prepaid Expenses                                                      |       | (300                          | )          | (399 | ) |
| Non Current Pension Asset                                             |       | 473                           |       | (85 | ) |
| Advances To/Due to Related Parties                                    |       | 4,004                         |       | (6,162 | ) |
| Accounts Payable                                                      |       | (21,544                       | )          | (26,735 | ) |
| Accrued Continuing Costs                                              |       | 77,046                        |       | 92,160 |   |
| Other Liabilities                                                     |       | 3,686                         |       | (7,097 | ) |
| Amounts Due Growers                                                   |       | (31,309                       | )          | (71,127 | ) |
| **Net Cash Used In Operating  Activities**                            |       | (102,846                      | )          | (119,014 | ) |
|                                                                  |       |                          |       |   |   |
| **Cash Provided By (Used In)  Investing Activities:**                 |       |                          |       |   |   |
| Purchases of Property and Equipment                                   |       | (20,209                       | )          | (27,230 | ) |
| Purchases of Property and Equipment Held for Lease                    |       | (1,591                        | )          | (1,043 | ) |
| Proceeds from the Sale of Property and Equipment                      |       | 6                             |       | 38 |   |
| Equity Refund from CoBank, ACB                                        |       | —                        |       | 1,802 |   |
| Changes in Other Assets                                               |       | (114                          | )          | 2,155 |   |
| **Net Cash Used In Investing  Activities**                            |       | (21,908                       | )          | (24,278 | ) |
|                                                                  |       |                          |       |   |   |
| **Cash Provided By (Used In)  Financing Activities:**                 |       |                          |       |   |   |
| Net Proceeds from Short-Term Debt                                     |       | 178,473                       |       | 185,154 |   |
| Proceeds from Issuance of Long-Term Debt                              |       | 68,700                        |       | 19,183 |   |
| Long-Term Debt Repayment                                              |       | (88,977                       | )          | (30,513 | ) |
| Distributions to Minority Interest                                    |       | (8,361                        | )          | (5,667 | ) |
| Payment of Unit Retains and Equity Retention                          |       | (25,084                       | )          | (20,604 | ) |
| **Net Cash Provided By Financing  Activities**                        |       | 124,751                       |       | 147,553 |   |
| **Increase (Decrease) In Cash and  Cash Equivalents**                 |       | (3                            | )          | 4,261 |   |
| **Cash and Cash Equivalents,  Beginning of Year**                     |       | 128                           |       | 222 |   |
|                                                                  |       |                          |       |   |   |
| **Cash and Cash Equivalents, End of  Period**                         |       | $                             | 125        |   | $ | 4,483 |   |

 

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

 

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# **AMERICAN CRYSTAL SUGAR COMPANY**

**NOTES TO THE CONSOLIDATEDFINANCIAL STATEMENTS**

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

**May 31, 2009 and 2008**

**(Unaudited)**

 

**Note 1:  Basis of Presentation**

 

Theunaudited consolidated financial statements of American Crystal Sugar Company(the Company) contained herein have been prepared pursuant to the rules andregulations of the Securities and Exchange Commission.  Accordingly, they do 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, 2008.

 

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.

 

Theoperating results for the nine months ended May 31, 2009, are notnecessarily indicative of the results that may be expected for the year ended August 31,2009.  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 2008 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 2008 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.

 

Certainreclassifications have been made to the May 31, 2008, consolidatedfinancial statements to conform with the May 31, 2009, presentation.  These reclassifications had no effect onpreviously reported results of operations or Members’ Investments.

 

**Note 2: Recently IssuedAccounting Pronouncements**

 

The Financial AccountingStandards Board (FASB) has issued Statement No. 157, *Fair ValueMeasurements*(SFAS 157).  Thisstatement defines fair value, establishes a framework for measuring fair valuein accordance with generally accepted accounting principles (GAAP), and expandsdisclosures about fair value measurements. This statement became effective for the Company in the first quarter offiscal 2009.  Relative to SFAS 157, theFASB issued FASB Staff Positions (FSP) 157-1, 157-2, 157-3 and 157-4. FSP 157-1amends SFAS 157 to exclude SFAS No. 13, *Accountingfor Leases*, and its related interpretive accounting pronouncementsthat address leasing transactions, while FSP 157-2 delays the effective date ofthe application of SFAS 157 for the Company to the first quarter of fiscal 2010for all non-financial assets and non-financial liabilities that are recognizedor disclosed at fair value in the financial statements on a nonrecurringbasis.  FSP 157-3 became effective October 10,2008 for determining the fair value of a financial asset when the market forthat asset is not active.  FSP 157-4,which becomes effective for the Company in the fourth quarter of fiscal 2009,provides additional guidance for estimating fair value in accordance with SFAS157, when the volume and level of activity for the asset or liability havesignificantly decreased. This FSP also includes guidance on identifyingcircumstances that indicate a transaction is not orderly.  The Company does not expect that the adoptionof these statements will have a material effect on the Company’s financialstatements.

 

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The FASB has issued FSP FAS107-1 and APB 28-1.  The FSP, whichbecomes effective for the Company in the fourth quarter of fiscal 2009, amendsFASB Statement No. 107, *Disclosuresabout Fair Value of Financial Instruments,*to require disclosuresabout fair value of financial instruments for interim reporting periods ofpublicly traded companies as well as in annual financial statements. This FSPalso amends APB Opinion No. 28, *InterimFinancial Reporting,*to require those disclosures in summarizedfinancial information at interim reporting periods.  The Company does not expect that the adoptionof this FSP will have a material effect on the Company’s financial statements.

 

The FASB has issued FSP FAS115-2 and FAS 124-2. The FSP, which becomes effective for the Company in thefourth quarter of fiscal 2009, amends the other-than-temporary impairmentguidance in U.S. GAAP for debt securities to make the guidance more operationaland to improve the presentation and disclosure of other-than-temporaryimpairments on debt and equity securities in the financial statements. TheCompany does not expect that the adoption of this FSP will have a materialeffect on the Company’s financial statements.

 

TheFASB has issued Statement No. 158, *Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans—an amendment of FASBStatements No. 87, 88, 106, and 132(R)*.  This statement requires the Company torecognize the over-funded or under-funded status of a defined benefitpostretirement plan as an asset or liability in its statement of financialposition and to recognize changes in that funded status in the year in whichthe changes occur through comprehensive income. This requirement became effective and was adopted by the Company as of August 31,2007.  This statement also requires theCompany in this fiscal year to change the annual measurement date of the fundedstatus of the plans from May 31 to August 31, the date of itsyear-end statement of financial position.

 

TheFASB has issued Statement No. 160, *Noncontrolling Interestsin Consolidated Financial Statements — an amendment of ARB  No. 51*.  This statement requires all entities toreport noncontrolling (minority) interests in subsidiaries as equity in theconsolidated financial statements*.*  Itsintention is to eliminate the diversity in practice regarding the accountingfor transactions between an entity and noncontrolling interests.  This statement becomes effective forthe Company in the first quarter of fiscal 2010.  At that time, the Company will be required toreport the minority interest in ProGold as a component of equity.

 

TheFASB has issued statement No. 141R, *Business Combinations.*  This statement replaces FASB Statement No. 141,*Business Combinations. *This Statement retains thefundamental requirements in Statement 141 that the acquisition method ofaccounting (which Statement 141 called the *purchasemethod*) be used for all business combinations and for an acquirer tobe identified for each business combination. This Statement defines the acquirer as the entity that obtains controlof one or more businesses in the business combination and establishes theacquisition date as the date that the acquirer achieves control.  The FASB also released FSP No. FAS141(R)-1,*Accounting for Assets Acquired andLiabilities Assumed in a Business Combination That Arise from Contingencies,*to address some of the application issues under SFAS No. 141(R) *Business Combinations*. FSP No. FAS141(R)-1 deals with the initial recognition and measurement of an assetacquired or a liability assumed in a business combination that arises from acontingency provided the asset or liability’s fair value on the date ofacquisition can be determined. When the fair value can’t be determined, the FSPrequires using the guidance under SFAS No. 5,*Accounting for Contingencies* and FASB Interpretation (FIN) No. 14,*Reasonable Estimation of the Amount of a Loss*.These statements become effective for the Company in fiscal 2010.  The Company does not expect that the adoptionof these statements will have a material effect on the Company’s financialstatements.

 

TheFASB has issued FSP FAS 142-3, *Determination of theUseful Life of Intangible Assets. *ThisFSP amends the factors that should be considered in developing renewal orextension assumptions used to determine the useful life of a recognizedintangible asset under FASB Statement No. 142, *Goodwill and Other Intangible Assets*.  The intent of this FSP is to improve theconsistency between the useful life of a recognized intangible asset underStatement 142 and the period of expected cash flows used to measure the fairvalue of the asset under FASB Statement No. 141 (revised 2007), *Business Combinations,*and other U.S.generally accepted accounting principles (GAAP).  This FSP becomes 

 

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effectivefor the Company in Fiscal 2010.  The Companydoes not expect that the adoption of this FSP will have a material effect onthe Company’s financial statements.

 

TheFASB has issued FSP FAS 132(R)-1 *Employers’ Disclosuresabout Postretirement Benefit Plan Assets.*  This FSP amends FASB Statement No. 132(revised 2003), *Employers’ Disclosures about Pensions andOther Postretirement Benefits,* to provide guidance on an employer’sdisclosure about plan assets of a defined benefit pension plan or otherpostretirement plan.  This FSP becomeseffective for the Company in Fiscal 2010. The Company does not expect that the adoption of this FSP will have amaterial effect on the Company’s financial statements.

 

The FASB has issuedstatement No. 165, *Subsequent Events.* This statement establishes general standardsof accounting for and disclosure of events that occur after the balance sheetdate but before financial statements are issued or are available to be issued.This statement becomes effective for the Company in the fourth quarter offiscal 2009.  The Company does not expectthat the adoption of this statement will have a material effect on the Company’sfinancial statements.

 

The FASB has issuedstatement No. 166, *Accounting for Transfersof Financial Assets an amendment of FASB Statement No.140.* This statementimproves the relevance, representational faithfulness, and comparability of theinformation that a reporting entity provides in its financial reports about atransfer of financial assets; the effects of a transfer on its financialposition, financial performance, and cash flows; and a transferor’s continuinginvolvement in transferred financial assets. This statement becomes effective for the Company in fiscal 2011.  The Company does not expect that the adoptionof this statement will have a material effect on the Company’s financialstatements.

 

The FASB has issuedstatement No. 167, *Amendments to FASBInterpretation No 46(R).* This statement amends certain requirementsof FASB Interpretation No. 46 (revised December 2003), *Consolidation of Variable Interest Entities,*toimprove financial reporting by enterprises involved with variable interestentities and to provide more relevant and reliable information to users offinancial statements. This statement becomes effective for the Company infiscal 2011.  The Company does not expectthat the adoption of this statement will have a material effect on the Company’sfinancial statements.

 

The FASB has issuedstatement No. 168, *The FASB AccountingStandards Codification and the Hierarchy of Generally Accepted AccountingPrinciples.** *This statement replaces StatementNo.162 and establishes the *FASB AccountingStandards CodificationTM* (Codification) as the source ofauthoritative accounting principles recognized by the FASB to be applied bynongovernmental entities in the preparation of financial statements inconformity with GAAP.  Rules andinterpretive releases of the Securities and Exchange Commission (SEC) underauthority of federal securities laws are also sources of authoritative GAAP forSEC registrants.  All guidance contained in the Codification carries an equal level ofauthority.  This statement becomeseffective for the Company for the first quarter of fiscal 2010.  The Company does not expect that the adoptionof this statement will have a material effect on the Company’s financialstatements.

 

**Note3:  Inventories**

 

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

 
| ** **                                                             | ** ** | **May 31  2009** | ** ** | **May 31  2008** | ** ** | **August 31  2008** | ** ** |
|------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|--------------------------|------------|
| Refined  Sugar, Pulp, Molasses, Other Agri-Products and Sugarbeet Seed |       | $                     | 346,319    |                  | $          | 363,901                  |       | $ | 151,741 |   |
| Unprocessed  Sugarbeets                                                |       | —                |       | 392                   |       | —                   |       |
| Maintenance  Parts and Supplies                                        |       | 34,707                |       | 29,014                |       | 36,587                   |       |
|                                                                   |       |                  |       |                  |       |                     |       |
| Total  Inventories                                                     |       | $                     | 381,026    |                  | $          | 393,307                  |       | $ | 188,328 |   |

 

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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 with a consortium of lendersled by CoBank, ACB through August 1, 2010, of $345.0 million and aline of credit with Wells Fargo Bank for $1 million.  The Company’s commercial paper programprovides short-term borrowings of up to $325 million.  Any borrowingsunder the commercial paper program along with outstanding short-term letters ofcredit will act to reduce the available credit under the CoBank, ACB seasonalline of credit by a commensurate amount. The Company also utilizes the Commodity Credit Corporation (CCC) to meetits short-term borrowing needs.

 

As of May 31,2009, the Company had outstanding commercial paper of $163.8****million at an average interest rate of 1.21% and maturitydates 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.

 

As of May 31,2008, the Company had outstanding commercial paper of $102.9****million at an average interest rate of 4.41% and maturitydates between June 4, 2008 and June 30, 2008.  The Company also had outstanding short-termdebt with CoBank, ACB as of May 31, 2008 of $50.0 million at an averageinterest rate of 3.09% and a maturity date of June 30, 2008.  The Company had $2.1 million of short-termletters of credit outstanding as of May 31, 2008.  The unused seasonal line of credit, out of atotal seasonal line of credit of $391 million, as of May 31, 2008, was$236.0 million.  In addition, the Companyhad an outstanding non-recourse loan with the CCC of $57.2 million, againstwhich 2.5 million hundredweight of sugar was pledged as collateral.  The CCC loan carried an interest rate of 3.6%and a maturity date of September 30, 2008.

 

**Note5:  Long-Term Debt**

 

As of May 31,2009, the Company had long-term debt availability with CoBank, ACB of****$174.6 million, of which $36.3 million in loans and$70.1 million in long-term letters of credit were outstanding.  The unused long-term line of credit as of May 31, 2009, was $68.2million.  In addition, the Company hadlong-term debt outstanding, as of May 31, 2009, of $50.0 million froma private placement of Senior Notes that occurred in September of 1998;$2.1 million from a private placement of Senior Notes that occurred in January of2003; and $70.1 million from seven separate issuances of Pollution Controland Industrial Development Revenue Bonds.

 

As of May 31, 2008, theCompany had long-term debt availability with CoBank, ACB of****$174.8 million,of which $55.3 million in loans and $69.5 million in long-term letters ofcredit were outstanding.  The unusedlong-term line of credit as of May 31, 2008, was $50.0 million.  In addition, the Company had long-term debtoutstanding, as of May 31, 2008, of$50 million from a private placement of Senior Notes that occurred in September of1998; $5.0 million from a private placement of Senior Notes that occurred in January of2003; $66.8 million from ten separate issuances of Pollution Control andIndustrial Development Revenue Bonds; and a term loan with Bank of North Dakotaof $ .8 million.

 

**Note6:  Interest Paid and InterestCapitalized**

 

Interestpaid, net of amounts capitalized, was $5.9 million and $10.0 million for thenine months ended May 31, 2009 and 2008,respectively and $ .7 million and $2.6 million for the three months ended May 31, 2009 and 2008,respectively.  Interest capitalized was $..6 million and $ .8 million for the nine months ended May 31, 2009 and 2008, respectivelyand $ .2 million and $ .1 million for the three months ended May 31, 2009 and 2008,respectively.

 

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**Note7:  Accrued Continuing Costs**

 

For interimreporting, the net proceeds from member business is based on the forecastedgross beet payment and the percentage of the tons of sugarbeets processed tothe total estimated tons of sugarbeets to process for a given crop year.  The net proceeds from the operations of SidneySugars is based on the forecasted net income for the fiscal year and thepercentage of the tons of non-member sugarbeets processed to the totalestimated tons of non-member sugarbeets to process for a given fiscal year.

 

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

 

**Note8: ****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 31,2009 and 2008:

 

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

(InThousands)

 
| ** **                          | ** ** | **For the Nine Months Ended** | ** ** | **For the Three Months Ended** | ** ** |
|-------------------------------------|------------|-------------------------------|------------|--------------------------------|------------|
| ** **                          | ** ** | **May 31**               | ** ** | **May 31**                | ** ** |
| ** **                          | ** ** | **2009**                      | ** ** | **2008**                       | ** ** | **2009** | ** ** | **2008** | ** ** |
| Service Cost                        |       | $                             | 3,148      |                           | $          | 2,822 |   | $ | 1,049 |   | $ | 940 |   |
| Interest Cost                       |       | 8,005                         |       | 6,115                          |       | 2,668 |   | 2,039 |   |
| Expected Return on Plan Assets      |       | (11,593                       | )          | (9,724                         | )          | (3,864 | ) | (3,241 | ) |
| Amortization of Prior Service Costs |       | 1,233                         |       | 988                            |       | 411 |   | 329 |   |
| Amortization of Net Actuarial Loss  |       | 53                            |       | 45                             |       | 18 |   | 15 |   |
| FAS 158 Measurement Date Adjustment |       | (169                          | )          | —                         |       | (56 | ) | — |   |
| Net Periodic Pension Cost           |       | $                             | 677        |                           | $          | 246 |   | $ | 226 |   | $ | 82 |   |

 

***Components of NetPeriodic Post-Retirement Cost***

(In Thousands)

 
| ** **                         | ** ** | **For the Nine Months Ended** | ** ** | **For the  Three Months Ended** | ** ** |
|------------------------------------|------------|-------------------------------|------------|---------------------------------|------------|
| ** **                         | ** ** | **May 31**               | ** ** | **May 31**                 | ** ** |
| ** **                         | ** ** | **2009**                      | ** ** | **2008**                        | ** ** | **2009** | ** ** | **2008** | ** ** |
| Service Cost                       |       | $                             | 726        |                            | $          | 807 |   | $ | 242 |   | $ | 269 |   |
| Interest Cost                      |       | 1,415                         |       | 1,398                           |       | 472 |   | 466 |   |
| Amortization of Net Actuarial Gain |       | (506                          | )          | (169                            | )          | (169 | ) | (57 | ) |
| Net Periodic Post-Retirement Cost  |       | $                             | 1,635      |                            | $          | 2,036 |   | $ | 545 |   | $ | 678 |   |

 

Inaccordance with Statement No. 158, *Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans—an amendment of FASBStatements No. 87, 88, 106, and 132(R) *which requires theCompany in fiscal 2009 to change the annual measurement date of the fundedstatus of the pension plans from May 31 to August 31, the Company hasrecorded a direct charge of approximately $225,000 to retained earningsrepresenting a measurement date adjustment of 3/15ths of the pension cost 

 

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forthe period of June 1, 2008 to August 31, 2009.  The remaining 12/15ths of this pension costwill be expensed and recognized during fiscal 2009.

 

TheCompany is not anticipating making contributions to the pension plans duringthis fiscal year.  The Company hascontributed and made benefit payments of approximately $83,000 related to theSupplemental Executive Retirement Plans during the nine months ended May 31, 2009.  The Company expects to contribute and makebenefit payments of approximately $116,000 this fiscal year related to theSupplemental Executive Retirement Plans.

 

TheCompany has contributed and made benefit payments of approximately $697,000 related to the post-retirement plans duringthe nine months ended May 31, 2009.  TheCompany expects to contribute and make benefit payments of approximately $1.0million related to the post-retirement plans during the current fiscal year.

 

**Note9:  Members’ Investments**

 
| ** **            | ** ** | ** **    | ** ** | **Shares**     | ** ** | **Shares Issued**     | ** ** |
|-----------------------|------------|---------------|------------|----------------|------------|-----------------------|------------|
| ** **            | ** ** | **Par Value** | ** ** | **Authorized** | ** ** | **& Outstanding** | ** ** |
|                  |       |          |       |           |       |                  |       |
| Preferred  Stock:     |       |          |       |           |       |                  |       |
| July 8,  2009    |       | $             | 76.77      |           | 600,000    |                  | 498,570    |   |
| May 31,  2009    |       | $             | 76.77      |           | 600,000    |                  | 498,570    |   |
| August 31,  2008 |       | $             | 76.77      |           | 600,000    |                  | 498,570    |   |
| May 31,  2008    |       | $             | 76.77      |           | 600,000    |                  | 498,570    |   |
|                  |       |          |       |           |       |                  |       |
| Common  Stock:        |       |          |       |           |       |                  |       |
| July 8,  2009    |       | $             | 10.00      |           | 4,000      |                  | 2,813      |   |
| May 31,  2009    |       | $             | 10.00      |           | 4,000      |                  | 2,795      |   |
| August 31,  2008 |       | $             | 10.00      |           | 4,000      |                  | 2,839      |   |
| May 31,  2008    |       | $             | 10.00      |           | 4,000      |                  | 2,838      |   |

 

**Note 10: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 $120.9 million and $131.6 million for the nine months ended May 31, 2009 and 2008, respectivelyand $38.2 million and $49.4 million for the three months ended May 31, 2009 and 2008,respectively.

 

**Note 11:Segment Reporting**

 

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

 

Summarizedfinancial information concerning the Company’s reportable segments for the ninemonths and three months ended May 31, 2009 and 2008, is shown below:

 

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| ** **                          | ** ** | **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                     |       | $                                               | 161        |   | $ | 2 |   | $ | 163 |   |
| Interest Expense                    |       | $                                               | 7,220      |   | $ | — |   | $ | 7,220 |   |
| Income from Equity Method Investees |       | $                                               | 28         |   | $ | — |   | $ | 28 |   |
| Other Income/(Expense), Net         |       | $                                               | 4,468      |   | $ | (140 | ) | $ | 4,328 |   |
| Net Proceeds                        |       | $                                               | 503,746    |   | $ | 4,627 |   | $ | 508,373 |   |
|                                |       |                                            |       |   |   |   |   |
| Capital Expenditures                |       | $                                               | 20,209     |   | $ | 1,591 |   | $ | 21,800 |   |

** **
| ** **                          | ** ** | **For the Nine Months Ended May 31, 2008** | ** ** |
|-------------------------------------|------------|-------------------------------------------------|------------|
| ** **                          | ** ** | **(Dollars In Thousands)**                      | ** ** |
| ** **                          | ** ** | **Sugar**                                       | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from External Customers |       | $                                               | 872,263    |   | $ | 18,408 |   | $ | 890,671 |   |
| Gross Proceeds                      |       | $                                               | 767,851    |   | $ | 11,333 |   | $ | 779,184 |   |
| Depreciation and Amortization       |       | $                                               | 43,706     |   | $ | 8,337 |   | $ | 52,043 |   |
| Interest Income                     |       | $                                               | 314        |   | $ | 35 |   | $ | 349 |   |
| Interest Expense                    |       | $                                               | 11,111     |   | $ | 158 |   | $ | 11,269 |   |
| Income from Equity Method Investees |       | $                                               | 30         |   | $ | — |   | $ | 30 |   |
| Other Income/(Expense), Net         |       | $                                               | 41         |   | $ | — |   | $ | 41 |   |
| Net Proceeds                        |       | $                                               | 473,618    |   | $ | 5,673 |   | $ | 479,291 |   |
|                                |       |                                            |       |   |   |   |   |
| Capital Expenditures                |       | $                                               | 27,230     |   | $ | 1,043 |   | $ | 28,273 |   |

** **
| ** **                          | ** ** | **For the Three Months Ended May 31, 2009** | ** ** |
|-------------------------------------|------------|--------------------------------------------------|------------|
| ** **                          | ** ** | **(Dollars In Thousands)**                       | ** ** |
| ** **                          | ** ** | **Sugar**                                        | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from External Customers |       | $                                                | 297,854    |   | $ | 5,717 |   | $ | 303,571 |   |
| Gross Proceeds                      |       | $                                                | 249,558    |   | $ | 2,925 |   | $ | 252,483 |   |
| Depreciation and Amortization       |       | $                                                | 12,464     |   | $ | 2,792 |   | $ | 15,256 |   |
| Interest Income                     |       | $                                                | 59         |   | $ | 1 |   | $ | 60 |   |
| Interest Expense                    |       | $                                                | 1,890      |   | $ | — |   | $ | 1,890 |   |
| Income from Equity Method Investees |       | $                                                | 18         |   | $ | — |   | $ | 18 |   |
| Other Income/(Expense), Net         |       | $                                                | (151       | ) | $ | — |   | $ | (151 | ) |
| Net Proceeds                        |       | $                                                | 171,969    |   | $ | 1,443 |   | $ | 173,412 |   |
|                                |       |                                             |       |   |   |   |   |
| Capital Expenditures                |       | $                                                | 7,048      |   | $ | 534 |   | $ | 7,582 |   |

 

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| ** **                          | ** ** | **For the Three Months Ended May 31, 2008** | ** ** |
|-------------------------------------|------------|--------------------------------------------------|------------|
| ** **                          | ** ** | **(Dollars In Thousands)**                       | ** ** |
| ** **                          | ** ** | **Sugar**                                        | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Net Revenue from External Customers |       | $                                                | 327,856    |   | $ | 5,762 |   | $ | 333,618 |   |
| Gross Proceeds                      |       | $                                                | 241,757    |   | $ | 2,982 |   | $ | 244,739 |   |
| Depreciation and Amortization       |       | $                                                | 13,248     |   | $ | 2,780 |   | $ | 16,028 |   |
| Interest Income                     |       | $                                                | (2         | ) | $ | 15 |   | $ | 13 |   |
| Interest Expense                    |       | $                                                | 3,479      |   | $ | (132 | ) | $ | 3,347 |   |
| Income from Equity Method Investees |       | $                                                | 6          |   | $ | — |   | $ | 6 |   |
| Other Income/(Expense), Net         |       | $                                                | (558       | ) | $ | — |   | $ | (558 | ) |
| Net Proceeds                        |       | $                                                | 139,089    |   | $ | 1,586 |   | $ | 140,675 |   |
|                                |       |                                             |       |   |   |   |   |
| Capital Expenditures                |       | $                                                | 7,434      |   | $ | 286 |   | $ | 7,720 |   |

** **
| ** **                  | ** ** | **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 |   |

 
| ** **                  | ** ** | **As of May 31, 2008** | ** ** |
|-----------------------------|------------|-----------------------------|------------|
| ** **                  | ** ** | **(Dollars In Thousands)**  | ** ** |
| ** **                  | ** ** | **Sugar**                   | ** ** | **Leasing** | ** ** | **Consolidated** | ** ** |
| Property and Equipment, Net |       | $                           | 349,229    |   | $ | — |   | $ | 349,229 |   |
| Assets Held for Lease, Net  |       | $                           | —     |   | $ | 122,502 |   | $ | 122,502 |   |
| Segment Assets              |       | $                           | 890,012    |   | $ | 127,047 |   | $ | 1,017,059 |   |

 

**Note 12: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 non-material matters that may arise.

 

TheCompany’s sugar manufacturing process is energy intensive and generates carbondioxide and other “Greenhouse Gases” (GHGs). Several bills have been introduced in the United States Senate and Houseof Representatives that would regulate GHGs and carbon dioxide emissions toreduce the impact of global climate change. The Company believes it is likely that industries generating GHGs,including the Company, will be subject to either federal or state regulationunder climate change policies in the relatively near future.  These policies, if adopted, will increase theCompany’s energy and other operating costs. Depending on how these policies address imports, the domestic market mayhave a competitive disadvantage with imported products.  These policies could have a significantnegative impact on the Company’s beet payment to shareholders if we are notable to pass the increased costs on to the Company’s customers****.****

 

****On June 26, 2009, theUnited States House of Representatives passed H.R. 2454, the American CleanEnergy and Security Act.  This billcreates a system for regulating emissions of GHG’s and also creates a marketfor emission allowances or credits. It is uncertain whether the steps necessaryto move this bill or similar bills through the legislative process will becompleted this year.****

 

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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 thenext three years and implement specified changes in operating procedures tocontain hydrogen sulfide emissions at the Minnesota factories.  The required capital expenditures arecurrently estimated to be approximately $12 million.  The costs associated with operational changesare not currently known.

 

TheCompany works closely with all affected government agencies to resolveenvironmental issues that arise and believes they will be resolved without anyadverse effect on the Company.

 

TheCompany has identified capital expenditures for environmental related projectsover the next three years at the Company’s factory locations of approximately$27.0 million.

 

**Note 13:Legal Matters**

 

OnFebruary 11, 2009, the Ninth Circuit Court of Appeals (the Court) issuedits decision in the case of *Amalgamated Sugar Co, LLCv. Thomas Vilsack; Department of Agriculture*, a case that involvedAmalgamated Sugar’s challenge of a decision by the United States Department ofAgriculture (USDA) to transfer certain sugar marketing allocations to theCompany.  The Court reversed the lowercourt’s decision which confirmed the USDA’s transfer of the marketingallocations, and remanded the case back to the lower court for furtheraction.  On May 19, 2009, the USDAannounced, subject to further proceedings, that it was redistributing a portionof the Company’s sugar marketing allocations to other sugar beet processors inresponse to legal proceedings contesting the transfer of certain sugarmarketing allocations to the Company.  Toprotect the Company’s interests in the marketing allocations, the Company hasappealed the Court’s decision.  If theCourt’s decision is implemented as it currently stands, the Company wouldexperience a net reduction of marketing allocations of approximately 1 millionCWT.  The Company does not believe thatany future loss of these marketing allocations will have a material impact onthe Company’s planted acres going forward, assuming average crop yield, cropquality and continued domestic consumption trends.

 

**Item 2.   Management’s Discussion and Analysis ofFinancial Condition and Results of Operations for the Nine Months and ThreeMonths Ended May 31, 2009 and 2008**

** **

This reportcontains forward-looking statements that involve risks and uncertainties.  Such forward-looking statements include,among others, those statements including the words “expect”, “anticipate”, “believe”,“may” and similar expressions.  TheCompany’s actual results could differ materially from those indicated.  Risk factors that could cause or contributeto such differences include, without limitation, market factors, weather andgeneral economic conditions, farm and trade policy, and available quantity andquality of sugarbeets.  For a morecomplete discussion of “Risk Factors”, please refer to the Company’s 2008 Form 10-K.

 

**OVERVIEW**

 

The harvest of the Red River Valley and Sidney sugarbeet crops grownduring 2008 and to be processed during fiscal 2009 produced a total of10.7 million tons of sugarbeets, or approximately 25.4 tons of sugarbeetsper acre from approximately 422,000 acres. This represents a decrease in total tons harvested of approximately 14.1percent compared to the 2007 crop.  Thesugar content of the 2008 crop is 17.6 percent as compared to the 18.1 percentsugar content of the 2007 crop.  TheCompany expects to produce a total of approximately 30.7 millionhundredweight of sugar from the 2008 crop, a decrease of approximately 16.1percent compared to the 2007 crop.

 

Net Proceeds from Member and Non-Member Business for fiscal 2009 areexpected to be approximately 6.3 percent lower than in fiscal 2008.  This decrease is primarily due to fewer tonsharvested and a decline in the sugar content of the sugarbeets resulting in thedecreased production of sugar and agri-products. This decrease is partiallyoffset by anticipated higher net selling prices for sugar and agri-products.

 

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**RESULTSOF OPERATIONS**

 

**Comparisonof the Nine Months Ended May 31, 2009 and 2008**

 

Revenuefor the nine months ended May 31, 2009, was $900.2 million, an increase of $9.5million from the nine months ended May 31, 2008.  The table below reflects the percentagechanges in product revenues, prices and volumes for the nine months ended May 31, 2009, as compared to thenine months ended May 31, 2008.

 
| **Product** | ** ** | **Revenue** | ** ** | **Selling Price** | ** ** | **Volume** | ** ** |
|-------------|------------|-------------|------------|-------------------|------------|------------|------------|
| Sugar       |       | -0.4        | %          | 8.3               | %          | -8.1       | %          |
| Pulp        |       | 15.8        | %          | 46.5              | %          | -21.0      | %          |
| Molasses    |       | -50.2       | %          | 20.6              | %          | -58.7      | %          |
| CSB         |       | 22.9        | %          | 20.7              | %          | 1.8        | %          |
| Betaine     |       | 6.0         | %          | 27.9              | %          | -17.1      | %          |

 

Theincreases in selling prices for our products reflect strong markets due tosupply and demand factors. The decrease in the volume of sugar sold reflectsthe impact of less product availability due to a 14.9% decline in sugarproduced this year as compared to last year. The decreases in the volumes ofpulp and molasses sold were due in part to lower product availability resultingfrom an 11.1% decrease in pulp produced and a 61.7 % decrease in molassesproduced in the first nine months of this year as compared to same time periodlast year. Lower beginning inventory levels for both pulp and molasses thisyear as compared to prior year also contributed to the reduction in theavailability of these products for sale.

 

Rentalrevenue on the ProGold operating lease was $17.7 million and $18.4 million forthe nine months ended May 31, 2009 and 2008,respectively.

 

Costof sales for the nine months ended May 31, 2009, exclusive of paymentsto members for sugarbeets, increased $15.2 million as compared to the ninemonths ended May 31, 2008.  This increase was primarily related to thefollowing:

 

·                  At the end of each reportingperiod, product inventories 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, 2009 was $194.8 million ascompared to an increase of $205.0 million for the previous year’s nine monthperiod ended May 31, 2008 resultingin a $10.2 million unfavorable change in the cost of sales between the twoyears as shown in the table below:

 

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

 
| ** **                                                   | ** ** | **For the Nine Months Ended May 31** |
|--------------------------------------------------------------|------------|-------------------------------------------|
| **(In Millions)**                                            | ** ** | **2009**                                  | ** ** | **2008** | ** ** | **Change** | ** ** |
| Beginning Product Inventories at Net Realizable  Value       |       | $                                         | (150.6 | ) | $ | (156.4 | ) | $ | 5.8 | (1) |
| Ending Product Inventories at Net Realizable Value           |       | 345.4                                     |   | 361.4 |   | (16.0 | )(2) |
| Increase in the Net Realizable Value of Product  Inventories |       | $                                         | 194.8 |   | $ | 205.0 |   | $ | (10.2 | ) |

 

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(1) The change is primarilydue to lower quantities of products as of August 31, 2008 as compared to August 31,2007.

(2) The change isprimarily due to a 21.1 percent decrease in the hundredweight of sugarinventory as of May 31, 2009 as compared to May 31, 2008 partially offsetby an 17.0 percent increase in the per hundredweight net realizable value ofsugar inventory along with higher quantities and per ton net realizable valueof pulp inventory as of May 31, 2009 as compared to May 31, 2008.

 

·                  Due to lower thananticipated sugar production and inventory levels during the first quarter ofthis year, the Company’s sugar marketing agent, United Sugars Corporation,purchased and sold

 

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additional sugarto meet our customers’ needs.  As aresult, the costs associated with purchased sugar increased $15.7 million forthe nine months ended May 31, 2009, as compared to the nine months ended May 31,2008.

·                  Factory operating costs increased $4.0 million for thenine months ended May 31, 2009, as compared to the nine months ended May 31,2008, primarily due to higher costs associated with coke, limerock andchemicals along with increased maintenance costs.

·                  The cost recognized associated with the non-membersugarbeets decreased $17.6 million for the nine months ended May 31, 2009,when compared to the nine months ended May 31, 2008.  This decrease was primarily due to fewer tonsof non-member sugarbeets harvested this year.

·                  The cost of beet seed sold increased $4.2 million forthe nine months ended May 31, 2009, when compared to the nine months endedMay 31, 2008. This increase was due to higher seed processing costs alongwith a 75.6% increase in the volume of beet seed sold.

 

Selling, general andadministrative expenses decreased $9.8 million for the nine months ended May 31,2009, as compared to the nine months ended May 31, 2008.  Selling expenses decreased $9.6 millionprimarily due to the decreased freight and warehousing costs for sugar andlower freight costs for pulp and molasses resulting from lower salesvolumes.  General and administrativeexpenses decreased $.2 million due to general cost decreases.

 

Interest expensedecreased $4.0 million for the nine months ended May 31, 2009, as comparedto the nine months ended May 31, 2008. This was primarily due to decreased short term and long term averageborrowing levels and lower short term and long term average interest rates.

 

Other income, netincreased $4.3 million for the nine months ended May 31, 2009, as comparedto the nine months ended May 31, 2008. This was due primarily to the receipt of $4.8 million in November 2008related to a legal settlement.

 

Non-member businessactivities resulted in a gain of $1.3 million for the nine months ended May 31,2009 as compared to a gain of $2.5 million for the nine months ended May 31,2008.  The decrease was primarily relatedto the reduced earnings of Sidney Sugars and reduced income from the activitiesof ProGold.

 

**Comparison of the Three MonthsEnded May 31, 2009 and 2008**

 

Revenue for the threemonths ended May 31, 2009, was $303.6 million, a decrease of $30.0 millionfrom the three months ended May 31, 2008. The table below reflects the percentage changes in product revenues,prices and volumes for the three months ended May 31, 2009, as compared tothe three months ended May 31, 2008.

 
| **Product** | ** ** | **Revenue** | ** ** | **Selling Price** | ** ** | **Volume** | ** ** |
|-------------|------------|-------------|------------|-------------------|------------|------------|------------|
| Sugar       |       | -13.2       | %          | 11.1              | %          | -21.9      | %          |
| Pulp        |       | 21.9        | %          | 45.7              | %          | -16.3      | %          |
| Molasses    |       | -43.8       | %          | 30.1              | %          | -56.8      | %          |
| CSB         |       | 32.8        | %          | 16.6              | %          | 13.8       | %          |
| Betaine     |       | 2.5         | %          | 38.8              | %          | -26.2      | %          |

 

The increases in sellingprices for our products reflect strong markets due to supply and demandfactors. The decrease in the volume of sugar sold reflects the impact of lessproduct availability due to an 8.6% decline in sugar produced during the thirdquarter of this year as compared to the same period last year and a 14.9%decline in sugar produced during the first three quarters of this year ascompared to the same period last year. The decreases in the volumes of pulp and molasses sold were due in partto lower product availability resulting from a 2.0% decrease in pulp producedand an 80.3 % decrease in molasses produced in the three months ended May 31,2009 as compared to the three months ended May 31, 2008. Lower productionof both pulp and molasses in the first two quarters of 2009 as compared to thefirst two quarters of 2008 also contributed to the reduction in the availabilityof these products for sale in the third quarter of 2009.

 

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Rental revenue on theProGold operating lease was $5.7 million and $5.8 million in the three monthsended May 31, 2009 and 2008, respectively.

 

Cost of sales for thethree months ended May 31, 2009, exclusive of payments to members forsugarbeets, decreased $ 37.8 million as compared to the three months ended May 31,2008.  This decrease was primarilyrelated 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 net realizablevalue of product inventories for the three months ended May 31, 2009 was$45.2 million as compared to an increase of $8.3 million for the previous year’sthree month period ended May 31, 2008 resulting in a $36.9 millionfavorable change in the cost of sales between the two years as shown in thetable below:

 

**Change in the Net RealizableValue of Product Inventories**

 
| ** **                                                   | ** ** | **For the Three Months Ended May 31** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------------|------------|
| **(In Millions)**                                            | ** ** | **2009**                                   | ** ** | **2008** | ** ** | **Change** | ** ** |
| Beginning  Product Inventories at Net Realizable Value       |       | $                                          | (300.2     | ) | $ | (353.1 | ) | $ | 52.9 | (1) |
|                                                         |       |                                       |       |   |   |   |   |
| Ending  Product Inventories at Net Realizable Value          |       | 345.4                                      |       | 361.4 |   | (16.0 | )(2) |
|                                                         |       |                                       |       |   |   |   |   |
| Increase  in the Net Realizable Value of Product Inventories |       | $                                          | 45.2       |   | $ | 8.3 |   | $ | 36.9 |   |

 

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(1) The change isprimarily due to a 29.9 percent decrease in the hundredweight of sugarinventory as of February 28, 2009 as compared to February 29, 2008partially offset by a 15.9 percent increase in the per hundredweight netrealizable value of sugar inventory along with higher quantities and per tonnet realizable value of pulp inventory as of February 28, 2009 as comparedto February 29, 2008.

(2) The change isprimarily due to a 21.1 percent decrease in the hundredweight of sugarinventory as of May 31, 2009 as compared to May 31, 2008 partiallyoffset by an 17.0 percent increase in the per hundredweight net realizablevalue of sugar inventory along with higher quantities and per ton netrealizable value of pulp inventory as of May 31, 2009 as compared to May 31,2008.

 

·                  Factory operating costs decreased $2.6 million for thethree months ended May 31, 2009, as compared to the three months ended May 31,2008, primarily due to lower costs associated with natural gas and purchasedpower partially offset by higher costs for coke and chemicals.

·                  The cost of beet seed sold increased $4.2 million forthe three months ended May 31, 2009, when compared to the three monthsended May 31, 2008. This increase was due to higher seed processing costsalong with a 75.6% increase in the volume of beet seed sold.

 

Selling, general andadministrative expenses decreased $14.1 million for the three months ended May 31,2009, as compared to the three months ended May 31, 2008.  Selling expenses decreased $15.0 millionprimarily due to the decreased freight and warehousing costs for sugar andlower freight costs for pulp and molasses resulting from lower salesvolumes.  General and administrativeexpenses increased $ .9 million due to general cost increases.

 

Interest expensedecreased $1.5 million for the three months ended May 31, 2009, ascompared to the three months ended May 31, 2008.  This was primarily due to decreased shortterm and long term average borrowing levels and lower short term and long termaverage interest rates.

 

Non-member businessactivities resulted in a gain of $ .5 million for the three months ended May 31,2009 as compared to a loss of $ .3 million for the three months ended May 31,2008.  The increase was primarily relatedto the activities of Sidney Sugars.

 

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**LIQUIDITYAND CAPITAL RESOURCES**

 

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

 

Because sugar is soldthroughout the year (while sugarbeets are processed primarily in the fall,winter and spring) and because substantial amounts of equipment are requiredfor its operations, the Company has utilized substantial outside financing onboth a seasonal and long-term basis to fund its operations.  The majority of such financing has beenprovided by a consortium of lenders led by CoBank, ACB.

 

During the currentnational economic downturn and financial market instability, the Company, dueto its strong financial position and relationships with its lenders, hascontinued to secure the necessary financing for its working capital requirementsand capital expenditures.

 

The Company has aseasonal line of credit through August 1, 2010, with a consortium oflenders led by CoBank, ACB of $345.0 million, against which there was a$30.0 million outstanding balance as of May 31, 2009 and a line of creditwith Wells Fargo Bank for $1.0 million, against which there was nooutstanding balance as of May 31, 2009. The Company’s commercial paper program provides short-term borrowings ofup to $325 million of which approximately $163.8 million was outstanding as of May 31,2009.  The Company had $2.7 million ofshort-term letters of credit outstanding as of May 31, 2009.  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, 2009, was $149.5 million

 

The Company also haslong-term debt availability with CoBank, ACB of****$174.6 million,of which $36.3 million in loans and $70.1 million in long-term letters ofcredit were outstanding as of May 31, 2009.  The unused long-term line of credit as of May 31,2009, was $68.2 million.  In addition,the Company had long-term debt outstanding, as of May 31, 2009, of$50 million from a private placement of Senior Notes that occurred in September of1998; $2.1 million from a private placement of Senior Notes that occurred in January of2003; and $70.1 million from seven separate issuances of Pollution Controland Industrial Development Revenue Bonds.

 

The Company hadoutstanding purchase commitments totaling $19.6 million as of May 31,2009, for equipment and construction contracts related to various capital andmaintenance projects.

 

The liquidity changes thathave occurred in the Company’s financial statements from August 31, 2008,to May 31, 2009, were primarily due to normal business seasonality.  The first nine months of the Company’s fiscalyear includes: the completion of the sugarbeet harvest; the processingcampaign; the final payments to growers for sugarbeets delivered from theprevious year’s crop; and the initial payments to growers for sugarbeetsdelivered from the current year’s crop.

 

The net cash used byoperations was $102.8 million for the nine months ended May 31, 2009, ascompared to $119.0 million for the nine months ended May 31, 2008.  This decrease in the use of cash of $16.2million was primarily the result of the following:

 

·                  The decrease in cash used related to the Amount DueGrowers of $39.8 million was due to a larger previous year’s final crop paymentin 2008 as compared to that in 2009 along with a higher estimated per tonmember grower payment this year as compared to last year at this time. Thesewere partially offset by a reduction in the current year’s total estimatedgrower payment due to a reduction in tons harvested.

·                  The decrease in cash used associated with Advances toRelated Parties of $10.2 million was due primarily to the timing of the cashrequirements of our marketing agents.

 

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·                  The decrease in cash used related to Accounts Payableof $5.2 million and Other Liabilities of $10.8 million was due to a higherbeginning of the year balance last year resulting from an early campaignstart-up in August 2007.

·                  The above changes were partially offset by less cashprovided related to: Accounts Receivable of $16.1 million due to increasedcollections last year on a larger beginning of the year receivable balanceresulting from increased sales; a $16.0 million larger increase in Inventoriesthis year due to higher per unit net realizable values for sugar and pulp alongwith no beginning inventory of unprocessed sugarbeets this year; and the changein Accrued Continuing Costs of $15.1 million resulting from the difference inthe timing of revenues and expenses between the two years.

 

The net cash used ininvesting activities was $21.9 million for the nine months ended May 31,2009, as compared to $24.3 million for the nine months ended May 31,2008.  The decrease of $2.4 million wasdue to decreased purchases of property and equipment of $6.5 million partiallyoffset by a change in other assets of $2.3 million and an equity distributionfrom CoBank LLC in 2008 of $1.8 million.

 

The net cash provided byfinancing activities was $124.8 million for the nine months ended May 31,2009, as compared to $147.6 million for the nine months ended May 31,2008.  This decrease of $22.8 million wasprimarily due to decreased net proceeds from short-term debt of $6.7 million,increased payments on long term debt of $58.4 million, increased distributionsto Minority Interest of $2.7 million and increased payments of unit retains of$4.5 million partially offset by increased proceeds from long-term debt of$49.5 million.

 

The Company anticipatesthat the funds necessary for working capital requirements and future capitalexpenditures will be derived from operations and unit retains along withshort-term and long-term borrowings.

 

Based on current marketconditions, the Company is anticipating that the funded status of the pensionplans as of August 31, 2009, will be lower than that which wasdetermined at the previous measurement date. As a result, the Company isexpecting a reduction in its Pension Asset and a corresponding reductionin Accumulated Other Comprehensive Income as of August 31, 2009.

 

**OTHER**

 

**Food, Conservation and Energy Actof 2008**

 

The Food, Conservationand Energy Act of 2008 (the Farm Bill) enacted in May, 2008, contains severalprovisions related to the domestic sugar industry aimed at achieving balanceand stability in the U.S. sugar market while minimizing the cost to the Federalgovernment.  The Farm Bill applies to the2008 through 2012 crop years.  Generally,the Farm Bill:

 

·                  maintains a non-recourse loan program,

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

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

·                  restricts imports of foreign sugar and

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

 

Under the Farm Bill, sugarprocessors can borrow funds on a non-recourse basis from the Commodity CreditCorporation (CCC), with repayment of such funds secured by sugar.  If the price of sugar drops below theforfeiture price, the processors can forfeit the sugar securing the loans tothe CCC in lieu of repayment.  Processorsmay also obtain CCC loans for “in-process” sugar or syrups at 80 percent of theloan rate.

 

The Farm Billincorporates gradual loan rate increases for raw and refined sugar.  For raw sugar, the loan rate will increasethree-quarters of a cent per pound, raw value, phased-in in quarter-centincrements over crop years 2009-2011. Raw cane loan rates will remain at 18.00 cents/lb in 2008 then 

 

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rise gradually to 18.75cents by 2011, and they will remain at 18.75 cents/lb for the 2012 cropyear.  Refined beet sugar loan rates areset at 22.90 cents/lb for the 2008 crop and thereafter are set at a rate equalto 128.5 percent of the loan rate per pound for raw cane sugar for each of the2009 through 2012 crop years.

 

The United StatesDepartment of Agriculture (USDA) has historically maintained raw and refinedsugar prices above the forfeiture price without cost to the U.S. Treasury byregulating the supply of sugar in the U.S. market through management of atariff rate quota system.  Currently,forty exporting countries retain guaranteed preferential access to the U.S.market under World Trade Organization (WTO) and Free Trade Agreement (FTA)rules.  Mexico’s access has beenunlimited since January 1, 2008. This Farm Bill sets a minimum overall allotment quantity for U.S.producers at no less than 85% of domestic consumption and provides a marketbalancing mechanism if there is an oversupply in the domestic sugarmarket.  If the Secretary of Agriculturedetermines there is an oversupply of sugar, the new market balancing mechanismrequires the Secretary to divert the excess sugar from sugar producers toethanol producers while minimizing the cost to the U.S Treasury.  Although the market balancing mechanism willprovide sustainability to the sugar industry in the short term, there is noassurance that the sugar-to-ethanol program will be in place after the FarmBill expires.

 

The marketing allotmentsand allocations set forth under the Farm Bill affect the sugar produced fromthe 2008 crop through the 2012 crop.  Onan annual basis, the marketing allotments and the corresponding allocation tothe Company will dictate the amount of sugar the Company can sell into thedomestic market.  The Company’s marketingallocation for the 2008 crop is currently set at approximately 35 millionhundredweight.  The Company’s allocationmay reduce or increase the amount of sugar the Company can market for a givenyear, thus affecting the number of acres of sugarbeets required for processingto produce that amount of sugar.

 

**North American Free TradeAgreement**

 

The North American FreeTrade Agreement (NAFTA) governs sweetener trade between the United States andMexico.  Under the NAFTA, tariffs on over-quota imports of sugar from andexports of sugar to Mexico expired on January 1, 2008.  Importsof Mexican sugar could cause material harm to the United States sugarmarket.  The Company has no way to predict the extent to which Mexico willtake advantage of its export opportunities**.**

 

**Regional and Bilateral Free TradeAgreements**

 

The United Statesgovernment may continue to pursue international trade agreements.  The Company monitors the U.S. government’sinternational trade policy because it may lead to additional commitments toimport sugar into the U.S. market.  Someof the countries who have either participated in trade agreements or arecontemplated for new negotiations are major producers of sugar.  The primary agreements affecting sugar thatare completed or are being negotiated, to the Company’s knowledge, include theColombian Free Trade Agreement, Panama Free Trade Agreement, the Trans-PacificFree Trade Agreement, the Association of Southeast Asian Nations, South Africa,Thailand, and others.  The Companybelieves these agreements, if they reach fruition, could negatively impact theCompany’s profitability.  If increases inguaranteed access or reductions in sugar tariffs are included in theseagreements, excess sugar from these regions could enter the U.S. market and putpressure on domestic sugar prices.

 

The Peru Free TradeAgreement has been ratified by the U.S. Congress and it became effective on February 1,2009.  Sugar trade with Peru is subjectto a net surplus requirement.  Peru,typically a net importer, is unlikely to meet that requirement most years.  Negotiations have been completed on theU.S.-Colombian Free Trade Agreement and the U.S.-Panama Free Trade Agreementbut they have not been ratified by the U.S. Congress.  The Company does not know when these tradeagreements will be brought before Congress for a vote.

 

The Doha Roundnegotiations of the WTO may be pursued by the U.S. Administration and some ofits international counterparts.  It isunclear at this time whether negotiations will be completed.  If the 

 

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negotiations arecompleted, the outcome of any negotiated arrangement could have significantadverse consequences for the Company.

 

The U.S. sugar industryand the Company, as an influential member of such industry, recognize the potentialnegative impact that could result if these agreements are entered into by theUnited States and are taking steps to attempt to positively influence theoutcome.  The Company and the sugarindustry intend to continue to focus significant attention on trade issues inthe future.

 

The impact of the varioustrade agreements on the Company cannot be assessed at this time due to theuncertainty concerning the terms of the agreements and whether they willultimately be implemented.  It ispossible, however, that the passage of various trade agreements could have amaterial adverse effect on the Company through a reduction in sugar sellingprices, and a corresponding reduction in the beet payment to the shareholders.

 

**Environmental**

 

The Company is subject toextensive federal and state environmental laws and regulations with respect towater and air quality, solid waste disposal and odor and noise control.  The Company conducts an ongoing complianceprogram designed to meet these environmental laws and regulations.  The Company believes that it is insubstantial compliance with applicable environmental laws and regulations.  From time to time, however, the Company maybe involved in investigations or determinations regarding non-material mattersthat may arise.

 

The Company’s sugarmanufacturing process is energy intensive and generates carbon dioxide andother “Greenhouse Gases” (GHGs).  Severalbills have been introduced in the United States Senate and House ofRepresentatives that would regulate GHGs and carbon dioxide emissions to reducethe impact of global climate change.  TheCompany believes it is likely that industries generating GHGs, including theCompany, will be subject to either federal or state regulation under climatechange policies in the relatively near future. These policies, if adopted, will increase the Company’s energy and otheroperating costs.  Depending on how thesepolicies address imports, the domestic market may have a competitivedisadvantage with imported products. These policies could have a significant negative impact on the Company’sbeet payment to shareholders if we are not able to pass the increased costs onto the Company’s customers****.****

 

****On June 26, 2009, the United States House ofRepresentatives passed H.R. 2454, the American Clean Energy and SecurityAct.  This bill creates a system forregulating emissions of GHG’s and also creates a market for emission allowancesor credits. It is uncertain whether the steps necessary to move this bill orsimilar bills through the legislative process will be completed this year.****

 

On November 25,2008, the Company entered into a stipulation agreement with the MinnesotaPollution Control Agency (MPCA) related to hydrogen sulfide emissions from itsCrookston, East Grand Forks and Moorhead, Minnesota factories.  As part of the stipulation agreement, theCompany has agreed to make certain capital expenditures over the next threeyears and implement specified changes in operating procedures to contain hydrogensulfide emissions at the Minnesota factories. The required capital expenditures are currently estimated to beapproximately $12 million.  The costsassociated with operational changes are not currently known.

 

The Company works closelywith all affected government agencies to resolve environmental issues thatarise and believes they will be resolved without any adverse effect on theCompany.

 

The Company hasidentified capital expenditures for environmental related projects over thenext three years at the Company’s factory locations of approximately $27.0million.

 

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**Item3.  Quantitative and QualitativeDisclosures about Market Risk**

 

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

 

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

 

**Item4T.   Controls and Procedures**

 

The Company’s chiefexecutive officer and chief financial officer have reviewed and evaluated theeffectiveness of the Company’s disclosure controls and procedures (as definedin Rules 240.13a-15(e) and 15d-15(e) promulgated under theSecurities Exchange Act of 1934) as of May 31, 2009.  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 regarding requireddisclosure.  There were no changes in theCompany’s internal controls over financial reporting that occurred during theCompany’s most recent fiscal quarter that may have materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

## **PART II.OTHER INFORMATION**

 

#### **Item1.  Legal Proceedings**

 

From time to time and inthe ordinary course of its business, the Company is named as a defendant inlegal proceedings related to various issues, including worker’s compensationclaims, tort claims and contractual disputes. The Company is currently involved in certain legal proceedings, whichhave arisen in the ordinary course of the Company’s business.  The Company is also aware of certain otherpotential 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.

 

On February 11,2009, the Ninth Circuit Court of Appeals (the Court) issued its decision in thecase of *Amalgamated Sugar Co, LLC v. Thomas Vilsack;Department of Agriculture*, a case that involved Amalgamated Sugar’schallenge of a decision by the United States Department of Agriculture (USDA)to transfer certain sugar marketing allocations to the Company.  The Court reversed the lower court’s decisionwhich confirmed the USDA’s transfer of the marketing allocations, and remandedthe case back to the lower court for further action.  On May 19, 2009, the USDA announced,subject to further proceedings, that it was redistributing a portion of theCompany’s sugar marketing allocations to other sugar beet processors inresponse to legal proceedings contesting the transfer of certain sugarmarketing allocations to the Company.  Toprotect the Company’s interests in the marketing allocations, the Company hasappealed the Court’s decision.  If theCourt’s decision is implemented as it currently stands, 

 

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the Company wouldexperience a net reduction of marketing allocations of approximately 1 millionCWT.  The Company does not believe thatany future loss of these marketing allocations will have a material impact onthe Company’s planted acres going forward, assuming average crop yield, cropquality and continued domestic consumption trends.

 

**Item1A.  Risk Factors.**

 

For a detailed discussionof certain risk factors that could affect the Company’s operations, financialcondition or results for future periods, see Item 1A, Risk factors, in theCompany’s 2008 Annual Report on Form 10-K.

 

**Federal, state and localenvironmental laws and regulations may impact our operations.**

 

### **We aresubject to extensive federal and state environmental laws and regulations withrespect to water and air quality and solid waste disposal.  We conduct on-going programs designed to meetthese environmental laws and regulations. Changes in environmental laws or regulations or complying with existingenvironmental laws and regulations or enforcement action brought under suchenvironmental laws and regulations might increase the cost of operating ourfacilities or result in significant capital investment.  Any such changes or compliance costs couldhave adverse financial consequences to our profitability.**

 

Our sugar manufacturingprocess is energy intensive and generates carbon dioxide and other “GreenhouseGases” (GHGs).  Several bills have beenintroduced in the United States Senate and House of Representatives that wouldregulate GHGs and carbon dioxide emissions to reduce the impact of globalclimate change.  We believe it is likelythat industries generating GHGs, including us, will be subject to eitherfederal or state regulation under climate change policies in the relativelynear future.  These policies, if adopted,will increase our energy and other operating costs.  Depending on how these policies address imports,the domestic market may have a competitive disadvantage with importedproducts.  These policies could have asignificant negative impact on our beet payment to shareholders if we are notable to pass the increased costs on to our customers****.****

 

****On June 26, 2009, the United States House ofRepresentatives passed H.R. 2454, the American Clean Energy and SecurityAct.  This bill creates a system forregulating emissions of GHG’s and also creates a market for emission allowancesor credits. It is uncertain whether the steps necessary to move this bill orsimilar bills through the legislative process will be completed this year.****

 

**Item2.  Unregistered Sales of EquitySecurities and Use of Proceeds.**

 

None

 

**Item3.  Defaults Upon Senior Securities**

 

None

 

**Item 4.  Submission of Matters to a Vote of SecurityHolders**

 

None.

 

**Item5.  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          |       | Form of Member  Control Agreement between Registrant and ProGold Limited Liability Company                                |   | Incorporated by  reference to Exhibit 10(v) from the Company’s Registration  Statement on Form S-1 (File No. 33-83868), declared effective  November 23, 1994. |
|          |       |                                                                                                                           |   |   |
| 10.3          |       | 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 |
|          |       |                                                                                                                           |   |   |
| 10.4          |       | 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 |
|          |       |                                                                                                                           |   |   |
| 10.5          |       | 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 |
|          |       |                                                                                                                           |   |   |
| ++10.6        |       | 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 |
|          |       |                                                                                                                           |   |   |
| 10.7          |       | Uniform Member  Marketing Agreement between the Registrant and Midwest Agri-Commodities  Company dated September 1, 2001. |   | Incorporated by  reference to Exhibit 10.28 from the Company’s Form 10-Q for the  quarter ended November 30, 2001 |

 

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| 10.8    |   | 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             |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| ++10.9  |   | 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 |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.10   |   | Term and Seasonal Loan  Agreements between the Registrant and CoBank, ACB dated July 31, 2006                                                  |   | Incorporated by  reference to Exhibit 10.24 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2006 |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.11   |   | Second Amendment to Amended and Restated Loan Agreement between the  Registrant and CoBank, ACB dated November 3, 2006.                        |   | Incorporated by  reference to Exhibit 10.25 from the Company’s Form 10-Q for the  quarter ended November 30, 2006.            |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| ++10.12 |   | 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.            |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.13   |   | Third Amendment to Amended and Restated Loan Agreement between the  Registrant and CoBank, ACB dated April 2, 2007.                            |   | Incorporated by  reference to Exhibit 10.22 from the Company’s Form 10-Q for the  quarter ended May 31, 2007                  |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.14   |   | Fourth Amendment to Amended and Restated Loan Agreement between the  Registrant and CoBank, ACB dated July 25, 2007.                           |   | Incorporated by  reference to Exhibit 10.23 from the Company’s Annual Report on  Form 10-K for the year ended August 31, 2007 |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.15   |   | 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 |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.16   |   | Commitment and Acceptance Agreement between the  Registrant and CoBank, ACB dated November 6, 2007                                             |   | Incorporated by reference to Exhibit 10.24 from  the Company’s Form 10-Q for the quarter ended November 30, 2007              |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.17   |   | 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 |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.18   |   | Fifth Amendment to Amended  and Restated Loan Agreement between the Registrant and CoBank, ACB dated  July 23, 2008.                           |   | Incorporated by reference to Exhibit 10.23 from  the Company’s Annual Report on Form 10-K for the year ended  August 31, 2008 |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| 10.19   |   | 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              |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| ++10.20 |   | 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              |
|    |   |                                                                                                                                                |   |                                                                                                                                              |
| ++10.21 |   | 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             |

 

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| ++10.22 |   | 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            |
|---------|--------|------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                               |   |                                                                                                                                             |
| ++10.23 |   | 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            |
|    |   |                                                                               |   |                                                                                                                                             |
| ++10.24 |   | 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            |
|    |   |                                                                               |   |                                                                                                                                             |
| 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, 2008 |
|    |   |                                                                               |   |                                                                                                                                             |
| 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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+              Confidentialtreatment under Rule 24b-2 of the Securities and Exchange Act of 1934, asamended, has been granted with respect to designated portions of this document.

 

++           Amanagement contract or compensatory plan required to be filed with this report.

 

SIGNATURES

 

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

 

 
|                         | **AMERICAN CRYSTAL SUGAR COMPANY**                                                                                                                                                       |
|------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                   | **                            (Registrant)** |
|                         |                                                                                                                                                                                     |
|                         |                                                                                                                                                                                     |
| **Date: July 15, 2009** | **/s/ Teresa Warne**                                                                                                                                                                     |
|                         | **Teresa Warne**                                                                                                                                                                         |
|                         | **Corporate Controller,**                                                                                                                                                                |
|                         | **Chief Accounting Officer**                                                                                                                                                             |
|                         | **Duly Authorized Officer**                                                                                                                                                              |

 

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