American Crystal Sugar (ASCS) 10-Q 2009 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended February 28, 2009

Commission file number:  33-83868

AMERICAN CRYSTAL SUGAR COMPANY

(Exact name of registrant as specified in its charter)

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

101 North Third Street

Moorhead, Minnesota 56560

(Address of principal executive offices)

Telephone Number (218) 236-4400

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.

YES    x NO    o

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

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

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

YES    o NO    x

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

	Outstanding at
Class of Common Stock	April 7, 2009
$10 Par Value	2,784

AMERICAN CRYSTAL SUGAR COMPANY

FORM 10-Q

INDEX

		PAGE NO.
PART I	FINANCIAL INFORMATION
ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS
	CONSOLIDATED BALANCE SHEETS	1
	CONSOLIDATED STATEMENTS OF OPERATIONS	3
	CONSOLIDATED STATEMENTS OF CASH FLOWS	4
	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS	5
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION	13
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	20
ITEM 4.	CONTROLS AND PROCEDURES	20
PART II	OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	20
ITEM 1A.	RISK FACTORS	21
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	21
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	21
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	21
ITEM 5.	OTHER INFORMATION	21
ITEM 6.	EXHIBITS	22
SIGNATURES		24

American Crystal Sugar Company

Consolidated Balance Sheets

(Unaudited)

(In Thousands)

Assets

	February 28			February 29			August 31
	2009			2008			2008*
Current Assets:
Cash and Cash Equivalents	$	129		$	3,873		$	128
Receivables:
Trade	51,523			60,850			66,149
Members	20			3			2,535
Other	5,707			3,641			2,767
Advances to Related Parties	10,483			8,967			20,391
Inventories	492,539			524,438			188,328
Prepaid Expenses	1,534			1,795			1,163
Total Current Assets	561,935			603,567			281,461
Property and Equipment:
Land and Land Improvements	63,373			58,246			60,110
Buildings	114,899			111,183			112,170
Equipment	877,658			852,107			877,113
Construction in Progress	6,655			32,337			5,322
Less Accumulated Depreciation	(727,404		)	(699,281		)	(703,134		)
Net Property and Equipment	335,181			354,592			351,581
Net Property and Equipment Held for Lease	115,333			124,995			120,001
Other Assets:
Investments in CoBank, ACB	9,946			11,627			9,946
Investments in Marketing Cooperatives	4,247			5,781			4,152
Pension Asset	35,456			37,457			35,101
Other Assets	10,491			12,252			11,057
Total Other Assets	60,140			67,117			60,256
Total Assets	$	1,072,589		$	1,150,271		$	813,299

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

* Derived from audited financial statements

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American Crystal Sugar Company

Consolidated Balance Sheets

(Unaudited)

(In Thousands)

Liabilities and Members’ Investments

	February 28			February 29			August 31
	2009			2008			2008*
Current Liabilities:
Short-Term Debt	$	189,721		$	240,404		$	15,297
Current Maturities of Long-Term Debt	20,192			20,977			20,991
Accounts Payable	23,534			18,306			35,836
Advances Due to Related Parties	1,180			2,121			3,343
Accrued Continuing Costs	57,659			63,248			—
Other Current Liabilities	26,628			24,217			27,286
Amounts Due Growers	206,823			194,114			120,933
Total Current Liabilities	525,737			563,387			223,686
Long-Term Debt, Net of Current Maturities	139,372			157,690			157,801
Accrued Employee Benefits	34,934			38,277			33,805
Other Liabilities	8,345			9,053			6,892
Total Liabilities	708,388			768,407			422,184
Commitments and Contingencies
Minority Interest in ProGold Limited Liability Company	56,963			65,662			59,839
Members’ Investments:
Preferred Stock	38,275			38,275			38,275
Common Stock	28			29			28
Additional Paid-In Capital	152,261			152,261			152,261
Unit Retains	149,502			151,386			174,506
Equity Retention	1,153			1,157			1,155
Accumulated Other Comprehensive Income (Loss)	(8,603		)	(8,519		)	(8,984		)
Retained Earnings (Accumulated Deficit)	(25,378		)	(18,387		)	(25,965		)
Total Members’ Investments	307,238			316,202			331,276
Total Liabilities and Members’ Investments	$	1,072,589		$	1,150,271		$	813,299

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

* Derived from audited financial statements

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American Crystal Sugar Company

Consolidated Statements of Operations

(Unaudited)

(In Thousands)

	For the Six Months Ended						For the Three Months Ended
	February 28 2009			February 29 2008			February 28 2009			February 29 2008
Net Revenue	$	596,644		$	557,053		$	273,556		$	252,719
Cost of Sales	75,633			22,608			14,621			13,782
Gross Proceeds	521,011			534,445			258,935			238,937
Selling, General and Administrative Expenses	124,026			119,748			55,620			56,716
Accrued Continuing Costs	57,659			63,248			15,293			21,154
Operating Proceeds	339,326			351,449			188,022			161,067
Other Income (Expense):
Interest Income	103			336			4			22
Interest Expense, Net	(5,330		)	(7,922		)	(2,913		)	(5,269		)
Other, Net	4,489			623			(318		)	110
Total Other (Expense)	(738		)	(6,963		)	(3,227		)	(5,137		)
Proceeds Before Minority Interest and Income Tax Expense	338,588			344,486			184,795			155,930
Minority Interest	(3,059		)	(3,927		)	(1,388		)	(1,427		)
Income Tax Expense	(568		)	(1,943		)	(374		)	(772		)
Net Proceeds Resulting from Member and Non-Member Business	$	334,961		$	338,616		$	183,033		$	153,731
Distributions of Net Proceeds:
Credited/(Charged) to Members’ Investments:
Non-Member Business Income	$	814		$	2,791		$	535		$	1,106
Unit Retains Declared to Members	—			—			—			—
Net Credit to Members’ Investments	814			2,791			535			1,106
Payments To/Due Members for Sugarbeets, Net of Unit Retains Declared	334,147			335,825			182,498			152,625
Total	$	334,961		$	338,616		$	183,033		$	153,731

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

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American Crystal Sugar Company

Consolidated Statements of Cash Flows

(Unaudited)

(In Thousands)

	For the Six Months Ended
	February 28 2009			February 29 2008
Cash Provided By (Used In) Operating Activities:
Net Proceeds Resulting from Member and Non-Member Business	$	334,961		$	338,616
Payments To/Due Members for Sugarbeets, Net of Unit Retains Declared	(334,147		)	(335,825		)
Add (Deduct) Non-Cash Items:
Depreciation and Amortization	35,274			36,015
Income from Equity Method Investees	(10		)	(24		)
Loss on the Disposition of Property and Equipment	494			21
Deferred Gain Recognition	(54		)	(99		)
Minority Interest Gain	3,059			3,927
Changes in Assets and Liabilities:
Receivables	14,201			20,794
Inventories	(304,211		)	(307,875		)
Prepaid Expenses	(372		)	(559		)
Non Current Pension Asset	315			(57		)
Advances To/Due to Related Parties	7,745			(1,924		)
Accounts Payable	(12,302		)	(20,692		)
Accrued Continuing Costs	57,659			63,248
Other Liabilities	1,377			(8,835		)
Amounts Due Growers	85,891			50,854
Net Cash Used In Operating Activities	(110,120		)	(162,415		)
Cash Provided By (Used In) Investing Activities:
Purchases of Property and Equipment	(13,161		)	(19,796		)
Purchases of Property and Equipment Held for Lease	(1,057		)	(757		)
Proceeds from the Sale of Property and Equipment	6			29
Changes in Other Assets	78			2,207
Net Cash Used In Investing Activities	(14,134		)	(18,317		)
Cash Provided By (Used In) Financing Activities:
Net Proceeds from Short-Term Debt	174,424			215,424
Proceeds from Issuance of Long-Term Debt	34,350			19,183
Long-Term Debt Repayment	(53,578		)	(29,717		)
Distributions to Minority Interest	(5,935		)	—
Payment of Unit Retains and Equity Retention	(25,006		)	(20,507		)
Net Cash Provided By Financing Activities	124,255			184,383
Increase In Cash and Cash Equivalents	1			3,651
Cash and Cash Equivalents, Beginning of Year	128			222
Cash and Cash Equivalents, End of Period	$	129		$	3,873

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

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AMERICAN CRYSTAL SUGAR COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS AND THREE MONTHS ENDED

February 28, 2009 and February 29, 2008

(Unaudited)

Note 1:  Basis of Presentation

The unaudited consolidated financial statements of American Crystal Sugar Company (the Company) contained herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.  Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America.  However, in the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included.  These financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended August 31, 2008.

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

The operating results for the six months ended February 28, 2009, are not necessarily indicative of the results that may be expected for the year ended August 31, 2009.  The amount paid to shareholders for sugarbeets (member beet payment) depends on the future selling prices of sugar and agri-products as well as processing and other costs incurred during the remainder of the fiscal year associated with the 2008 Red River Valley sugarbeet crop (RRV crop).  The amount paid to non-member growers for sugarbeets (non-member beet payment) depends on the future selling prices of sugar and the related selling expenses associated with the 2008 Sidney Sugars sugarbeet crop (Sidney crop).  For the purposes of this report, the amount of the beet payments, future revenues and costs have been estimated.  Therefore, adjustments with respect to these estimates may be necessary in the future, as additional information becomes available.

Note 2: Recently Issued Accounting Pronouncements

The Financial Accounting Standards Board (FASB) has issued Statement No. 157, Fair Value Measurements (SFAS 157).  This statement defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements.  This statement became effective for the Company in the first quarter of fiscal 2009.  Relative to SFAS 157, the FASB issued FASB Staff Positions (FSP) 157-1, 157-2 and 157-3. FSP 157-1 amends SFAS 157 to exclude SFAS No. 13, Accounting for Leases, and its related interpretive accounting pronouncements that address leasing transactions, while FSP 157-2 delays the effective date of the application of SFAS 157 for the Company to the first quarter of fiscal 2010 for all non-financial assets and non-financial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis.  FSP 157-3 became effective October 10, 2008 for determining the fair value of a financial asset when the market for that asset is not active.  The Company does not expect that the adoption of this statement will have a material effect on the Company’s financial statements.

The FASB has issued Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R).  This statement requires the Company to recognize the over-funded or under-funded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income.  This requirement became effective and was adopted by the Company as of August 31, 2007.  This statement

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also requires the Company in this fiscal year to change the annual measurement date of the funded status of the plans from May 31 to August 31, the date of its year-end statement of financial position.

The FASB has issued Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51.  This statement requires all entities to report noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial statements.  Its intention is to eliminate the diversity in practice regarding the accounting for transactions between an entity and noncontrolling interests.  This statement becomes effective for the Company in the first quarter of fiscal 2010.  At that time, the Company will be required to report the minority interest in ProGold as a component of equity.

The FASB has issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133.  This statement enhances the disclosure requirements for derivatives and hedging activities.  This statement became effective for the Company in the second quarter of fiscal 2009.

The FASB has issued statement No. 141R, Business Combinations.  This statement replaces FASB Statement No. 141, Business Combinations.  This Statement retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination.  This Statement defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control.  The FASB also released FSP No. FAS 141(R)-1, Accounting for Assets Acquired and Liabilities 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. FAS 141(R)-1 deals with the initial recognition and measurement of an asset acquired or a liability assumed in a business combination that arises from a contingency provided the asset or liability’s fair value on the date of acquisition can be determined. When the fair value can’t be determined, the FSP requires 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 adoption of these statements will have a material effect on the Company’s financial statements.

The FASB has issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets.  This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets.  The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under Statement 142 and the period of expected cash flows used to measure the fair value of the asset under FASB Statement No. 141 (revised 2007), Business Combinations, and other U.S. generally accepted accounting principles (GAAP).  This FSP becomes effective for the Company in Fiscal 2010.  The Company does not expect that the adoption of this FSP will have a material effect on the Company’s financial statements.

The FASB has issued FSP FAS 140-4 and FIN 46(R)-8 Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities.  This FSP amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, to require public entities to provide additional disclosures about transfers of financial assets.  It also amends FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, to require public enterprises, including sponsors that have a variable interest in a variable interest entity, to provide additional disclosures about their involvement with variable interest entities.  This FSP became effective for the Company in the second quarter of Fiscal 2009.

The FASB has issued FSP FAS 132(R)-1 Employers’ Disclosures about Postretirement Benefit Plan Assets.  This FSP amends FASB Statement No. 132 (revised 2003), Employers’ Disclosures about Pensions and Other Postretirement Benefits, to provide guidance on an employer’s disclosure about plan assets of a defined benefit pension plan or other postretirement plan.  This FSP becomes effective for the

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

Note 3:  Inventories

The major components of inventories are as follows (In Thousands):

	February 28		February 29		August 31
	2009		2008		2008
Refined Sugar, Pulp, Molasses, Other Agri-Products and Sugarbeet Seed	$	304,794	$	355,985	$	151,741
Unprocessed Sugarbeets	152,255		141,394		—
Maintenance Parts and Supplies	35,490		27,059		36,587
Total Inventories	$	492,539	$	524,438	$	188,328

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

Note 4: Short-Term Debt

The Company has a seasonal line of credit with a consortium of lenders led by CoBank, ACB through August 1, 2010, of $345.0 million and a line of credit with Wells Fargo Bank for $1 million.  The Company’s commercial paper program provides short-term borrowings of up to $325 million.  Any borrowings under the commercial paper program along with outstanding short-term letters of credit will act to reduce the available credit under the CoBank, ACB seasonal line of credit by a commensurate amount.  The Company also utilizes the Commodity Credit Corporation (CCC) to meet its short-term borrowing needs.

As of February 28, 2009, the Company had outstanding commercial paper of $58.3 million at an average interest rate of 1.45% and maturity dates between March 5, 2009 and March 17, 2009.  In addition, the Company had outstanding non-recourse loans with the CCC of $96.4 million, against which 4.2 million hundredweight of sugar was pledged as collateral.  The CCC loans carried an interest rate of 1.63% and maturity dates of August 31, 2009 and September 30, 2009.  The Company also had outstanding short-term debt with CoBank, ACB as of February 28, 2009 of $35.0 million at an interest rate of 1.25% and a maturity date of March 19, 2009.  The Company had $2.2 million of short-term letters of credit outstanding as of February 28, 2009.  The unused seasonal line of credit as of February 28, 2009 was $250.5 million.

As of February 29, 2008, the Company had outstanding commercial paper of $206.1 million at an average interest rate of 5.14% and maturity dates between March 3, 2008 and April 30, 2008.  In addition, the Company had an outstanding non-recourse loan with the CCC of $34.3 million, against which 1.5 million hundredweight of sugar was pledged as collateral.  The CCC loan carried an interest rate of 4.25% and a maturity date of September 30, 2008.  The Company had no outstanding short-term debt with CoBank, ACB as of February 29, 2008.  The Company had $2.1 million of short-term letters of credit outstanding as of February 29, 2008.  The unused seasonal line of credit as of February 29, 2008 was $182.8 million.

Note 5:  Long-Term Debt

As of February 28, 2009, the Company had long-term debt availability with CoBank, ACB of $174.7 million, of which $36.3 million in loans and $70.2 million in long-term letters of credit were outstanding.  The unused long-term line of credit as of February 28, 2009, was $68.2 million.  In addition, the Company had long-term debt outstanding, as of February 28, 2009, of $50.0 million from a private placement of Senior Notes that occurred in September of 1998; $2.9 million from a private placement of Senior Notes that occurred in January of 2003; and $70.4 million from seven separate issuances of Pollution Control and Industrial Development Revenue Bonds.

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As of February 29, 2008, the Company had $55.3 million in loans outstanding with CoBank, ACB and $69.5 million in long-term letters of credit outstanding.  In addition, the Company had long-term debt outstanding, as of February 29, 2008, of $50 million from a private placement of Senior Notes that occurred in September of 1998; $5.5 million from a private placement of Senior Notes that occurred in January of 2003; $67.1 million from ten separate issuances of Pollution Control and Industrial Development Revenue Bonds; and a term loan with Bank of North Dakota of $ .8 million.

Note 6:  Interest Paid and Interest Capitalized

Interest paid, net of amounts capitalized, was $5.2 million and $7.4 million for the six months ended February 28, 2009 and February 29, 2008, respectively and $4.1 million and $6.3 million for the three months ended February 28, 2009 and February 29, 2008, respectively.  Interest capitalized was $ .4 million and $ .7 million for the six months ended February 28, 2009 and February 29, 2008, respectively and $ .2 million and $ .3 million for the three months ended February 28, 2009 and February 29, 2008, respectively.

Note 7:  Accrued Continuing Costs

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

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

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Note 8:  Net Periodic Pension and Post-Retirement Costs

The following schedules provide the components of the Net Periodic Pension and Post-Retirement Costs for the six months and three months ended February 28, 2009 and February 29, 2008:

Components of Net Periodic Pension Cost

(In Thousands)

	For the Six Months Ended						For the Three Months Ended
	February 28 2009			February 29 2008			February 28 2009			February 29 2008
Service Cost	$	2,099		$	1,882		$	1,049		$	941
Interest Cost	5,337			4,076			2,668			2,038
Expected Return on Plan Assets	(7,729		)	(6,483		)	(3,864		)	(3,241		)
Amortization of Prior Service Costs	822			659			411			—
Amortization of Net Actuarial Loss	35			30			18			329
FAS 158 Measurement Date Adjustment	(113		)	—			(56		)	15
Net Periodic Pension Cost	$	451		$	164		$	226		$	82

Components of Net Periodic Post-Retirement Cost

(In Thousands)

	For the Six Months Ended						For the Three Months Ended
	February 28 2009			February 29 2008			February 28 2009			February 29 2008
Service Cost	$	484		$	538		$	242		$	269
Interest Cost	944			932			472			466
Amortization of Net Actuarial Gain	(338		)	(112		)	(169		)	(56		)
Net Periodic Post-Retirement Cost	$	1,090		$	1,358		$	545		$	679

In accordance with Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R) which requires the Company in fiscal 2009 to change the annual measurement date of the funded status of the pension plans from May 31 to August 31, the Company has recorded a direct charge of approximately $225,000 to retained earnings representing a measurement date adjustment of 3/15ths of the pension cost for the period of June 1, 2008 to August 31, 2009.  The remaining 12/15ths of this pension cost will be expensed and recognized during fiscal 2009.

The Company is anticipating making contributions to the pension plans of approximately $5 million to $10 million during this fiscal year.  As of February 28, 2009, no contributions to the pension plans have been made for this fiscal year.  The Company has contributed and made benefit payments of approximately $66,000 related to the Supplemental Executive Retirement Plans during the six months ended February 28, 2009.  The Company expects to contribute and make benefit payments of approximately $124,000 this fiscal year related to the Supplemental Executive Retirement Plans.

The Company has contributed and made benefit payments of approximately $454,000 related to the post-retirement plans during the six months ended February 28, 2009.  The Company expects to contribute and make benefit payments of approximately $1.0 million related to the post-retirement plans during the current fiscal year.

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Note 9:  Members’ Investments

	Par Value		Shares Authorized	Shares Issued & Outstanding
Preferred Stock:
April 7, 2009	$	76.77	600,000	498,570
February 28, 2009	$	76.77	600,000	498,570
August 31, 2008	$	76.77	600,000	498,570
February 29, 2008	$	76.77	600,000	498,570
Common Stock:
April 7, 2009	$	10.00	4,000	2,784
February 28, 2009	$	10.00	4,000	2,803
August 31, 2008	$	10.00	4,000	2,839
February 29, 2008	$	10.00	4,000	2,878

Note 10: Shipping and Handling Costs

The costs incurred for the shipping and handling of products sold are classified in the financial statements as a selling expense on the Statements of Operations.  Shipping and handling costs were $82.7 million and $82.2 million for the six months ended February 28, 2009 and February 29, 2008, respectively and $35.2 million and $38.9 million for the three months ended February 28, 2009 and February 29, 2008, respectively.

Note 11: Segment Reporting

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

Summarized financial information concerning the Company’s reportable segments for the six months and three months ended February 28, 2009 and February 29, 2008, is shown below:

	For the Six Months Ended February 28, 2009
	(Dollars In Thousands)
	Sugar		Leasing			Consolidated
Net Revenue from External Customers	$	584,637	$	12,007		$	596,644
Gross Proceeds	$	514,589	$	6,422		$	521,011
Depreciation and Amortization	$	29,689	$	5,585		$	35,274
Interest Income	$	102	$	1		$	103
Interest Expense	$	5,330	$	—		$	5,330
Income from Equity Method Investees	$	10	$	—		$	10
Other Income/(Expense), Net	$	4,619	$	(140	)	$	4,479
Net Proceeds	$	331,777	$	3,184		$	334,961
Capital Expenditures	$	13,161	$	1,057		$	14,218

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	For the Six Months Ended February 29, 2008
	(Dollars In Thousands)
	Sugar		Leasing		Consolidated
Net Revenue from External Customers	$	544,407	$	12,646	$	557,053
Gross Proceeds	$	526,094	$	8,351	$	534,445
Depreciation and Amortization	$	30,458	$	5,557	$	36,015
Interest Income	$	316	$	20	$	336
Interest Expense	$	7,632	$	290	$	7,922
Income from Equity Method Investees	$	24	$	—	$	24
Other Income/(Expense), Net	$	599	$	—	$	599
Net Proceeds	$	334,529	$	4,087	$	338,616
Capital Expenditures	$	19,796	$	757	$	20,553

	For the Three Months Ended February 28, 2009
	(Dollars In Thousands)
	Sugar			Leasing			Consolidated
Net Revenue from External Customers	$	267,774		$	5,782		$	273,556
Gross Proceeds	$	255,944		$	2,991		$	258,935
Depreciation and Amortization	$	14,731		$	2,791		$	17,522
Interest Income	$	4		$	—		$	4
Interest Expense	$	2,913		$	—		$	2,913
Income from Equity Method Investees	$	5		$	—		$	5
Other Income/(Expense), Net	$	(183	)	$	(140	)	$	(323	)
Net Proceeds	$	181,588		$	1,445		$	183,033
Capital Expenditures	$	8,292		$	307		$	8,599

	For the Three Months Ended February 29, 2008
	(Dollars In Thousands)
	Sugar		Leasing		Consolidated
Net Revenue from External Customers	$	246,902	$	5,817	$	252,719
Gross Proceeds	$	235,898	$	3,039	$	238,937
Depreciation and Amortization	$	15,279	$	2,778	$	18,057
Interest Income	$	8	$	14	$	22
Interest Expense	$	5,153	$	116	$	5,269
Income from Equity Method Investees	$	10	$	—	$	10
Other Income/(Expense), Net	$	100	$	—	$	100
Net Proceeds	$	152,246	$	1,485	$	153,731
Capital Expenditures	$	10,686	$	107	$	10,793

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	As of February 28, 2009
	(Dollars In Thousands)
	Sugar		Leasing		Consolidated
Property and Equipment, Net	$	335,181	$	—	$	335,181
Assets Held for Lease, Net	$	—	$	115,333	$	115,333
Segment Assets	$	952,803	$	119,786	$	1,072,589

	As of February 29, 2008
	(Dollars In Thousands)
	Sugar		Leasing		Consolidated
Property and Equipment, Net	$	354,592	$	—	$	354,592
Assets Held for Lease, Net	$	—	$	124,995	$	124,995
Segment Assets	$	1,015,666	$	134,605	$	1,150,271

Note 12: Environmental Matters

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

The Company’s sugar manufacturing process is energy intensive and generates carbon dioxide and other “Greenhouse Gases” (GHGs).  Several bills have been introduced in the United States Senate and House of Representatives that would regulate GHGs and carbon dioxide emissions to reduce 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 regulation under climate change policies in the relatively near future.  These policies, if adopted, will increase the Company’s energy and other operating costs.  Depending on how these policies address imports, the domestic market may have a competitive disadvantage with imported products.  These policies could have a significant negative impact on the Company’s beet payment to shareholders if we are not able to pass the increased costs on to the Company’s customers.

On November 25, 2008, the Company entered into a stipulation agreement with the Minnesota Pollution Control Agency (MPCA) related to hydrogen sulfide emissions from its Crookston, East Grand Forks and Moorhead, Minnesota factories.  As part of the stipulation agreement, the Company has agreed to make certain capital expenditures over the next three years and implement specified changes in operating procedures to contain hydrogen sulfide emissions at the Minnesota factories.  The required capital expenditures are currently estimated to be approximately $12 million.  The costs associated with operational changes are not currently known.

The Company works closely with all affected government agencies to resolve environmental issues that arise and believes they will be resolved without any adverse effect on the Company.

The Company has identified capital expenditures for environmental related projects over the next three years at the Company’s factory locations of approximately $26.0 million.

Note 13: Legal Matters

On February 11, 2009, the Ninth Circuit Court of Appeals (the Court) issued its decision in the case of Amalgamated Sugar Co, LLC v. Thomas Vilsack; Department of Agriculture, a case that involved Amalgamated Sugar’s challenge 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 decision which confirmed the USDA’s transfer of the marketing allocations, and remanded the case back to the lower court for further action.  The Company has appealed the Court’s decision to protect the

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Company’s interests in the marketing allocations.  If the Court’s decision is implemented as it currently stands, the Company would experience a net reduction of marketing allocations of approximately 1 million CWT.  The Company does not believe that any future loss of these marketing allocations will have a material impact on the Company’s planted acres going forward, assuming average crop yield, crop quality and continued domestic consumption trends.

Item 2.   Management’s Discussion and Analysis of Results of Operations and Financial Condition for the Six Months and Three Months Ended February 28, 2009 and February 29, 2008

This report contains 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.  The Company’s actual results could differ materially from those indicated.  Risk factors that could cause or contribute to such differences include, without limitation, market factors, weather and general economic conditions, farm and trade policy, and available quantity and quality of sugarbeets.  For a more complete 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 grown during 2008 and to be processed during fiscal 2009 produced a total of 10.7 million tons of sugarbeets, or approximately 25.4 tons of sugarbeets per acre from approximately 422,000 acres.  This represents a decrease in total tons harvested of approximately 14.1 percent compared to the 2007 crop.  The sugar content of the 2008 crop is 17.6 percent as compared to the 18.1 percent sugar content of the 2007 crop.  The Company expects to produce a total of approximately 30.2 million hundredweight of sugar from the 2008 crop, a decrease of approximately 17.4 percent compared to the 2007 crop.

Net Proceeds from Member and Non-Member Business for fiscal 2009 are expected to be approximately 10 percent lower than in fiscal 2008.  This decrease is primarily due to fewer tons harvested and a decline in the sugar content of the sugarbeets resulting in the decreased production of sugar and agri-products. This decrease is partially offset by anticipated higher net selling prices for sugar and agri-products.

Comparison of the Six Months Ended February 28, 2009 and February 29, 2008

Revenue for the six months ended February 28, 2009, was $596.6 million, an increase of $39.6 million from the six months ended February 29, 2008.  The table below reflects the percentage changes in product revenues, prices and volumes for the six months ended February 28, 2009, as compared to the six months ended February 29, 2008.

Product	Revenue		Selling Price		Volume
Sugar	7.4	%	6.7	%	0.7	%
Pulp	12.5	%	46.6	%	-23.2	%
Molasses	-53.5	%	15.2	%	-59.7	%
CSB	18.9	%	22.7	%	-3.1	%
Betaine	7.9	%	23.8	%	-12.8	%

The increases in selling prices for our products reflect strong markets due to supply and demand factors. The decreases in the volumes of pulp and molasses sold were due in part to lower product availability resulting from a 15.0% decrease in pulp produced and a 44.9 % decrease in molasses produced in the first six months of this fiscal year as compared to same time period last fiscal year. Lower beginning inventory levels for both pulp and molasses this year as compared to prior year also contributed to the reduction in the availability of these products for sale.

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Rental revenue on the ProGold operating lease was $12.0 million and $12.6 million for the six months ended February 28, 2009 and February 29, 2008, respectively.

Cost of sales for the six months ended February 28, 2009, exclusive of payments to members for sugarbeets, increased $53.0 million as compared to the six months ended February 29, 2008.  This increase was primarily related to the following:

·At the end of each reporting period, product inventories are recorded at their net realizable value.  The change in the net realizable value of the product inventories from the beginning of the reporting period is recorded on the balance sheet as either an increase or decrease to inventories with a corresponding dollar for dollar adjustment to cost of sales on the statement of operations.  The increase in the net realizable value of product inventories for the six months ended February 28, 2009 was $149.6 million as compared to an increase of $196.7 million for the previous year’s six month period ended February 29, 2008 resulting in a $47.1 million unfavorable change in the cost of sales between the two years as shown in the table below:

Change in the Net Realizable Value of Product Inventories

	For the Six Months Ended
(In Millions)	February 28 2009			February 29 2008			Change
Beginning Product Inventories at Net Realizable Value	$	(150.6	)	$	(156.4	)	$	5.8	(1)
Ending Product Inventories at Net Realizable Value	300.2			353.1			(52.9		)(2)
Increase in the Net Realizable Value of Product Inventories	$	149.6		$	196.7		$	(47.1	)

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

(2) The change is primarily due to a 29.9 percent decrease in the hundredweight of sugar inventory as of February 28, 2009 as compared to February 29, 2008 partially offset by a 15.9 percent increase in the per hundredweight net realizable value of sugar inventory along with higher quantities and per ton net realizable value of pulp inventory as of February 28, 2009 as compared to February 29, 2008.

·Due to lower than anticipated sugar production and inventory levels during the first quarter of this year, the Company’s sugar marketing agent, United Sugars Corporation, purchased and sold additional sugar to meet our customers’ needs.  As a result, the costs associated with purchased sugar increased $16.0 million for the six months ended February 28, 2009, as compared to the six months ended February 29, 2008.

·Factory operating costs increased $6.6 million for the six months ended February 28, 2009, as compared to the six months ended February 29, 2008, primarily due to higher costs associated with coke, limerock and chemicals.

·The cost recognized associated with the non-member sugarbeets decreased $18.0 million for the six months ended February 28, 2009, when compared to the six months ended February 29, 2008.  This decrease was primarily due to fewer tons of sugarbeets harvested this year.

Selling, general and administrative expenses increased $4.3 million for the six months ended February 28, 2009, as compared to the six months ended February 29, 2008.  Selling expenses increased $5.4 million primarily due to the increased freight and packaging costs for sugar partially offset by lower freight costs for pulp and molasses resulting from lower sales volumes.  General and administrative expenses decreased $1.1 million due to general cost decreases.

Interest expense decreased $2.6 million for the six months ended February 28, 2009, as compared to the six months ended February 29, 2008.  This was due to decreased short term and long term average borrowing levels and lower short term and long term average interest rates.

Total Other Income increased $3.9 million for the six months ended February 28, 2009, as compared to the six months ended February 29, 2008.  This was due primarily to the receipt of $4.8 million in November 2008 related to a legal settlement.

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Non-member business activities resulted in a gain of $ .8 million for the six months ended February 28, 2009 as compared to a gain of $2.8 million for the six months ended February 29, 2008.  The decrease was primarily related to the reduced earnings of Sidney Sugars and reduced income from the activities of ProGold.

Comparison of the Three Months Ended February 28, 2009 and February 29, 2008

Revenue for the three months ended February 28, 2009, was $273.6 million, an increase of $20.8 million from the three months ended February 29, 2008.  The table below reflects the percentage changes in product revenues, prices and volumes for the three months ended February 28, 2009, as compared to the three months ended February 29, 2008.

Product	Revenue		Selling Price		Volume
Sugar	3.7	%	5.7	%	-1.9	%
Pulp	36.3	%	48.7	%	-8.4	%
Molasses	-66.1	%	32.1	%	-74.4	%
CSB	10.4	%	18.5	%	-6.8	%
Betaine	11.0	%	31.4	%	-15.5	%

The increases in selling prices for our products reflect strong markets due to supply and demand factors. The decreases in the volumes of pulp and molasses sold were due in part to lower product availability resulting from a 6.4% decrease in pulp produced and a 76.9 % decrease in molasses produced in the three months ended February 28, 2009 as compared to the three months ended February 29, 2008. Lower production of both pulp and molasses in the first quarter of 2009 as compared to the first quarter of 2008 also contributed to the reduction in the availability of these products for sale in the second quarter of 2009.

Rental revenue on the ProGold operating lease was $5.8 million in each of the three months ended February 28, 2009 and February 29, 2008.

Cost of sales for the three months ended February 28, 2009, exclusive of payments to members for sugarbeets, increased $ .8 million as compared to the three months ended February 29, 2008.  This increase was primarily related to the following:

·At the end of each reporting period, product inventories are recorded at their net realizable value.  The change in the net realizable value of the product inventories from the beginning of the reporting period is recorded on the balance sheet as either an increase or decrease to inventories with a corresponding dollar for dollar adjustment to cost of sales on the statement of operations.  The increase in the net realizable value of product inventories for the three months ended February 28, 2009 was $91.6 million as compared to an increase of $107.8 million for the previous year’s three month period ended February 29, 2008 resulting in a $16.2 million unfavorable change in the cost of sales between the two years as shown in the table below:

Change in the Net Realizable Value of Product Inventories

	For the Three Months Ended
(In Millions)	February 28 2009			February 29 2008			Change
Beginning Product Inventories at Net Realizable Value	$	(208.6	)	$	(245.3	)	$	36.7	(1)
Ending Product Inventories at Net Realizable Value	300.2			353.1			(52.9		)(2)
Increase in the Net Realizable Value of Product Inventories	$	91.6		$	107.8		$	(16.2	)

(1) The change is primarily due to a 27.8 percent decrease in the hundredweight of sugar inventory as of November 30, 2008 as compared to November 30, 2007 partially offset by an 11.5 percent increase in the per hundredweight net realizable value of sugar inventory along with higher quantities and per ton net realizable value of pulp inventory as of November 30, 2008 as compared to November 30, 2007.

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(2) The change is primarily due to a 29.9 percent decrease in the hundredweight of sugar inventory as of February 28, 2009 as compared to February 29, 2008 partially offset by a 15.9 percent increase in the per hundredweight net realizable value of sugar inventory along with higher quantities and per ton net realizable value of pulp inventory as of February 28, 2009 as compared to February 29, 2008.

·Factory operating costs increased $2.8 million for the three months ended February 28, 2009, as compared to the three months ended February 29, 2008, primarily due to higher costs associated with coke and chemicals.

·The cost recognized associated with the non-member sugarbeets decreased $17.7 million for the three months ended February 28, 2009, when compared to the three months ended February 29, 2008.  This decrease was due to the completion of the processing campaign at the Sidney, Montana factory in the first quarter of 2009 compared to last year’s processing campaign completion in the second quarter.

Selling, general and administrative expenses decreased $1.1 million for the three months ended February 28, 2009, as compared to the three months ended February 29, 2008.  Selling expenses decreased $ .9 million primarily due to the decreased freight and warehousing costs for sugar and lower freight costs for pulp and molasses resulting from lower sales volumes.  General and administrative expenses decreased $ .2 million due to general cost decreases.

Interest expense decreased $2.4 million for the three months ended February 28, 2009, as compared to the three months ended February 29, 2008.  This was due to decreased short term and long term average borrowing levels and lower short term and long term average interest rates.

Non-member business activities resulted in a gain of $ .5 million for the three months ended February 28, 2009 as compared to a gain of $1.1 million for the three months ended February 29, 2008.  The decrease was primarily related to the reduced earnings of Sidney Sugars.

Food, Conservation and Energy Act of 2008

The Food, Conservation and Energy Act of 2008 (the Farm Bill) enacted in May, 2008, contains several provisions related to the domestic sugar industry, aimed at achieving balance and stability in the U.S. sugar market while minimizing the cost to the Federal government.  The Farm Bill applies to the 2008 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 for sugarbeet and sugar cane producers,

·restricts imports of foreign sugar and

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

Under the Farm Bill, sugar processors can borrow funds on a non-recourse basis from the Commodity Credit Corporation (CCC), with repayment of such funds secured by sugar.  If the price of sugar drops below the forfeiture price, the processors can forfeit the sugar securing the loans to the CCC in lieu of repayment.  Processors may also obtain CCC loans for “in-process” sugar or syrups at 80 percent of the loan rate.

The Farm Bill incorporates gradual loan rate increases for raw and refined sugar.  For raw sugar, the loan rate will increase three-quarters of a cent per pound, raw value, phased-in in quarter-cent increments over crop years 2009-2011.  Raw cane loan rates will remain at 18.00 cents/lb in 2008 then rise gradually to 18.75 cents by 2011, and they will remain at 18.75 cents/lb for the 2012 crop year.  Refined beet sugar loan rates are set at 22.90 cents/lb for the 2008 crop and thereafter are set at a rate equal to 128.5 percent of the loan rate per pound for raw cane sugar for each of the 2009 through 2012 crop years.

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The United States Department of Agriculture (USDA) has historically maintained raw and refined sugar prices above the forfeiture price without cost to the U.S. Treasury by regulating the supply of sugar in the U.S. market through management of a tariff 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 been unlimited 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 market balancing mechanism if there is an oversupply in the domestic sugar market.  If the Secretary of Agriculture determines there is an oversupply of sugar, the new market balancing mechanism requires the Secretary to divert the excess sugar from sugar producers to ethanol producers while minimizing the cost to the U.S Treasury.  Although the market balancing mechanism will provide sustainability to the sugar industry in the short term, there is no assurance that the sugar-to-ethanol program will be in place after the Farm Bill expires.

The marketing allotments and allocations set forth under the Farm Bill affect the sugar produced from the 2008 crop through the 2012 crop.  On an annual basis, the marketing allotments and the corresponding allocation to the Company will dictate the amount of sugar the Company can sell into the domestic market.  The Company’s marketing allocation for the 2008 crop is currently set at approximately 35 million hundredweight.  The Company’s allocation may reduce or increase the amount of sugar the Company can market for a given year, thus affecting the number of acres of sugarbeets required for processing to produce that amount of sugar.

North American Free Trade Agreement

The North American Free Trade Agreement (NAFTA) governs sweetener trade between the United States and Mexico.  Under the NAFTA, tariffs on over-quota imports of sugar from and exports of sugar to Mexico expired on January 1, 2008.  Imports of Mexican sugar could cause material harm to the United States sugar market.  The Company has no way to predict the extent to which Mexico will take advantage of its export opportunities.

Regional and Bilateral Free Trade Agreements

Under the current administration, the United States government may continue to pursue international trade agreements.  The Company monitors the U.S. government’s international trade policy because it may lead to additional commitments to import sugar into the U.S. market.  Some of the countries who have either participated in trade agreements or are contemplated for new negotiations are major producers of sugar.  The primary agreements affecting sugar that are completed or are being negotiated, to the Company’s knowledge, include the Colombian Free Trade Agreement, Panama Free Trade Agreement, the Trans-Pacific Free Trade Agreement, the Free Trade Area of the Americas, the Association of Southeast Asian Nations, South Africa, Thailand, and others.  The Company believes these agreements, if they reach fruition, could negatively impact the Company’s profitability.  If increases in guaranteed access or reductions in sugar tariffs are included in these agreements, excess sugar from these regions could enter the U.S. market and put pressure on domestic sugar prices.

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

The Doha Round negotiations of the WTO may be pursued by the U.S. Administration and some of its international counterparts.  It is unclear at this time whether negotiations will be completed.  If the negotiations are completed, the outcome of any negotiated arrangement could have significant adverse consequences for the Company.

The U.S. sugar industry and the Company, as an influential member of such industry, recognize the potential negative impact that could result if these agreements are entered into by the United States

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and are taking steps to attempt to positively influence the outcome.  The Company and the sugar industry intend to continue to focus significant attention on trade issues in the future.

The impact of the various trade agreements on the Company cannot be assessed at this time due to the uncertainty concerning the terms of the agreements and whether they will ultimately be implemented.  It is possible, however, that the passage of various trade agreements could have a material adverse effect on the Company through a reduction in sugar selling prices, and a corresponding reduction in the beet payment to the shareholders.

Environmental

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

The Company’s sugar manufacturing process is energy intensive and generates carbon dioxide and other “Greenhouse Gases” (GHGs).  Several bills have been introduced in the United States Senate and House of Representatives that would regulate GHGs and carbon dioxide emissions to reduce 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 regulation under climate change policies in the relatively near future.  These policies, if adopted, will increase the Company’s energy and other operating costs.  Depending on how these policies address imports, the domestic market may have a competitive disadvantage with imported products.  These policies could have a significant negative impact on the Company’s beet payment to shareholders if we are not able to pass the increased costs on to the Company’s customers.

On November 25, 2008, the Company entered into a stipulation agreement with the Minnesota Pollution Control Agency (MPCA) related to hydrogen sulfide emissions from its Crookston, East Grand Forks and Moorhead, Minnesota factories.  As part of the stipulation agreement, the Company has agreed to make certain capital expenditures over the next three years and implement specified changes in operating procedures to contain hydrogen sulfide emissions at the Minnesota factories.  The required capital expenditures are currently estimated to be approximately $12 million.  The costs associated with operational changes are not currently known.

The Company works closely with all affected government agencies to resolve environmental issues that arise and believes they will be resolved without any adverse effect on the Company.

The Company has identified capital expenditures for environmental related projects over the next three years at the Company’s factory locations of approximately $26.0 million.

Liquidity and Capital Resources

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

Because sugar is sold throughout the year (while sugarbeets are processed primarily in the fall, winter and spring) and because substantial amounts of equipment are required for its operations, the Company has utilized substantial outside financing on both a seasonal and long-term basis to fund its

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operations.  The majority of such financing has been provided by a consortium of lenders led by CoBank, ACB.

The Company has a seasonal line of credit through August 1, 2010, with a consortium of lenders led by CoBank, ACB of $345.0 million, against which there was a $35.0 million outstanding balance as of February 28, 2009 and a line of credit with Wells Fargo Bank for $1 million, against which there was no outstanding balance as of February 28, 2009.  The Company’s commercial paper program provides short-term borrowings of up to $325 million of which approximately $58.3 million was outstanding as of February 28, 2009.  The Company had $2.2 million of short-term letters of credit outstanding as of February 28, 2009.  Any borrowings under the commercial paper program along with outstanding short-term letters of credit will act to reduce the available credit under the CoBank, ACB seasonal line of credit by a commensurate amount.  The unused short-term line of credit as of February 28, 2009, was $250.5 million.  In addition, the Company had outstanding non-recourse loans with the CCC, as of February 28, 2009, of approximately $96.4 million, against which 4.2 million hundredweight of sugar was pledged as collateral.

The Company also has long-term debt availability with CoBank, ACB of $174.7 million, of which $36.3 million in loans and $70.2 million in long-term letters of credit were outstanding as of February 28, 2009.  The unused long-term line of credit as of February 28, 2009, was $68.2 million.  In addition, the Company had long-term debt outstanding, as of February 28, 2009, of $50 million from a private placement of Senior Notes that occurred in September of 1998; $2.9 million from a private placement of Senior Notes that occurred in January of 2003; and $70.4 million from seven separate issuances of Pollution Control and Industrial Development Revenue Bonds.

The Company had outstanding purchase commitments totaling $7.0 million as of February 28, 2009, for equipment and construction contracts related to various capital and maintenance projects.

The liquidity changes that have occurred in the Company’s financial statements from August 31, 2008, to February 28, 2009, were primarily due to normal business seasonality.  The first six months of the Company’s fiscal year includes: the completion of the sugarbeet harvest; the startup of the processing campaign; the final payments to growers for sugarbeets delivered from the previous year’s crop; and the initial payments to growers for sugarbeets delivered from the current year’s crop.

The net cash used by operations was $110.1 million for the six months ended February 28, 2009, as compared to $162.4 million for the six months ended February 29, 2008.  This decrease in the use of cash of $52.3 million was primarily the result of the following:

·Changes in the Amount Due Growers of $35.0 million were due to a higher final total grower payment last year and a higher estimated per ton member grower payment this year as compared to last year at this time. These were partially offset by a reduction in the current year’s total estimated grower payment due to a reduction in tons harvested.

·Changes in Advances to Related Parties of $9.7 million were due primarily to the timing of the cash requirements of our marketing agents.

·Changes in Accounts Payable of $8.4 million and changes in Other Liabilities of $10.2 million were due to a higher beginning of the year balance last year resulting from an early campaign start-up in August.

·Changes in Inventories of $3.7 million were primarily due to a smaller increase in finished products of $24.9 million partially offset by an increased value of unprocessed sugarbeets of $20.1 million along with an increase of $1.1 million of supplies and parts inventory.

·The above changes were partially offset by the change in Accounts Receivable of $6.6 million due to increased collections last year on a larger beginning of the year receivable balance resulting from increased sales and the change in Accrued Continuing Costs of $5.6 million resulting from the difference in the timing of revenues and expenses between the two years.

The net cash used in investing activities was $14.1 million for the six months ended February 28, 2009, as compared to $18.3 million for the six months ended February 29, 2008.  The decrease of 4.2 million was due to decreased purchases of property and equipment of $6.4 million partially offset by a change in other assets of $2.2 million.

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The net cash provided by financing activities was $124.3 million for the six months ended February 28, 2009, as compared to $184.4 million for the six months ended February 29, 2008.  This decrease of $60.1 million was primarily due to decreased proceeds from short-term debt of $41.0 million, increased payments on long term debt of $23.9 million, distributions to Minority Interest of $5.9 million and increased payments of unit retains of $4.5 million partially offset by increased proceeds from long-term debt of $15.2 million.

The Company anticipates that the funds necessary for working capital requirements and future capital expenditures will be derived from operations and unit retains along with short-term and long-term borrowings.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

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

The Company does not believe that there is any material market risk exposure with respect to interest rates, exchange rates, commodity prices, equity prices and other market changes that would require disclosure under this item.

Item 4.   Controls and Procedures

The Company’s chief executive officer and chief financial officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 240.13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934) as of February 28, 2009.  Based on that review and evaluation, which included inquiries made to certain other employees of the Company, the chief executive officer and chief financial officer have concluded that the Company’s current disclosure controls and procedures, as designed and implemented, are effective in ensuring that information relating to the Company required to be disclosed in the reports the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such information is accumulated and communicated to the Company’s management, including the chief executive officer and the chief financial officer, as appropriate to allow timely decisions regarding required disclosure.  There were no changes in the Company’s internal controls over financial reporting that occurred during the Company’s most recent fiscal quarter that may have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

From time to time and in the ordinary course of its business, the Company is named as a defendant in legal proceedings related to various issues, including worker’s compensation claims, tort claims and contractual disputes.  The Company is currently involved in certain legal proceedings, which have arisen in the ordinary course of the Company’s business.  The Company is also aware of certain other potential claims, which could result in the commencement of legal proceedings.  The Company carries insurance, which provides protection against certain types of claims.  With respect to current litigation and potential claims of which the Company is aware, the Company’s management believes that (i) the Company has insurance protection to cover all or a portion of any judgments which may be rendered against the Company with respect to certain claims or actions and (ii) any judgments which may be entered against the Company and which may exceed such insurance coverage or which may arise in

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actions involving potential liabilities not covered by insurance policies are not likely to have a material adverse effect upon the Company, or its assets or operations.

On February 11, 2009, the Ninth Circuit Court of Appeals (the Court) issued its decision in the case of Amalgamated Sugar Co, LLC v. Thomas Vilsack; Department of Agriculture, a case that involved Amalgamated Sugar’s challenge 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 decision which confirmed the USDA’s transfer of the marketing allocations, and remanded the case back to the lower court for further action.  The Company has appealed the Court’s decision to protect the Company’s interests in the marketing allocations.  If the Court’s decision is implemented as it currently stands, the Company would experience a net reduction of marketing allocations of approximately 1 million CWT.  The Company does not believe that any future loss of these marketing allocations will have a material impact on the Company’s planted acres going forward, assuming average crop yield, crop quality and continued domestic consumption trends.

Item 1A.  Risk Factors.

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

Federal, state and local environmental laws and regulations may impact our operations.

We are subject to extensive federal and state environmental laws and regulations with respect to water and air quality and solid waste disposal.  We conduct on-going programs designed to meet these environmental laws and regulations.  Changes in environmental laws or regulations or complying with existing environmental laws and regulations or enforcement action brought under such environmental laws and regulations might increase the cost of operating our facilities or result in significant capital investment.  Any such changes or compliance costs could have adverse financial consequences to our profitability.

Our sugar manufacturing process is energy intensive and generates carbon dioxide and other “Greenhouse Gases” (GHGs).  Several bills have been introduced in the United States Senate and House of Representatives that would regulate GHGs and carbon dioxide emissions to reduce the impact of global climate change.  We believe it is likely that industries generating GHGs, including us, will be subject to either federal or state regulation under climate change policies in the relatively near 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 imported products.  These policies could have a significant negative impact on our beet payment to shareholders if we are not able to pass the increased costs on to our customers.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3.  Defaults Upon Senior Securities

None

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

None.

Item 5.  Other Information.

None.

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Item 6. Exhibits

Item No.		Method of Filing
3.1	Restated Articles of Incorporation of American Crystal Sugar Company	Incorporated by reference to Exhibit 3(i) from the Company’s Registration Statement on Form S-1 (File No. 33-83868), declared effective November 23, 1994.
3.2	Restated By-laws of American Crystal Sugar Company	Incorporated by reference to Exhibit 3(ii) from the Company’s Registration Statement on Form S-1 (File No. 333-11693), declared effective November 13, 1996.
4.1	Restated Articles of Incorporation of American Crystal Sugar Company	See Exhibit 3.1
4.2	Restated By-laws of American Crystal Sugar Company	See Exhibit 3.2
10.1	Form of Operating Agreement between Registrant and ProGold Limited Liability Company	Incorporated by reference to Exhibit 10(u) from the Company’s Registration Statement on Form S-1 (File No. 33-83868), declared effective November 23, 1994.
10.2	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.	Filed herewith electronically
++10.23	Second Amendment to 2005 Long-Term Incentive Plan, dated November 5, 2007.	Filed herewith electronically
++10.24	Third Amendment to 2005 Long-Term Incentive Plan, dated December 11, 2008.	Filed herewith electronically
21.1	List of Subsidiaries of the Registrant	Incorporated by reference to Exhibit 21.1 from the Company’s Annual Report on Form 10-K for the year ended August 31, 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

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

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

SIGNATURES

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

		AMERICAN CRYSTAL SUGAR COMPANY
			(Registrant)
Date:	April 14, 2009	/s/ Teresa Warne
		Teresa Warne
		Corporate Controller,
		Chief Accounting Officer
		Duly Authorized Officer

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