American Crystal Sugar (ASCS) 10-Q 2010 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, 2010

Commission file number:  33-83868

AMERICAN CRYSTAL SUGAR COMPANY

(Exact name of registrant as specified in its charter)

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

101 North Third Street

Moorhead, Minnesota 56560

(Address of principal executive offices)

Telephone Number (218) 236-4400

(Registrant’s telephone number, including area code)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES o  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 8, 2010
$10 Par Value	2,778

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 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	22
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	23
ITEM 5.	OTHER INFORMATION	23
ITEM 6.	EXHIBITS	24
SIGNATURES		26

American Crystal Sugar Company

Consolidated Balance Sheets

(Unaudited)

(In Thousands)

Assets

	February 28						August 31
	2010			2009			2009*
Current Assets:
Cash and Cash Equivalents	$	321		$	129		$	127
Receivables:
Trade	68,243			51,523			61,665
Members	28			20			4,480
Other	1,455			5,707			2,565
Advances to Related Parties	3,276			10,483			22,744
Inventories	493,777			492,539			181,311
Prepaid Expenses	1,849			1,534			864
Total Current Assets	568,949			561,935			273,756
Property and Equipment:
Land and Land Improvements	68,822			63,373			67,011
Buildings	120,229			114,899			116,907
Equipment	903,750			877,658			892,678
Construction in Progress	16,487			6,655			14,522
Less Accumulated Depreciation	(764,900		)	(727,404		)	(737,182		)
Net Property and Equipment	344,388			335,181			353,936
Net Property and Equipment Held for Lease	106,639			115,333			111,015
Other Assets:
Investments in CoBank, ACB	10,258			9,946			10,111
Investments in Marketing Cooperatives	368			4,247			135
Pension Asset	—			35,456			—
Other Assets	12,056			10,491			12,305
Total Other Assets	22,682			60,140			22,551
Total Assets	$	1,042,658		$	1,072,589		$	761,258

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						August 31
	2010			2009			2009*
Current Liabilities:
Short-Term Debt	$	150,026		$	189,721		$	45,989
Current Maturities of Long-Term Debt	11,507			20,192			18,789
Accounts Payable	24,784			23,534			35,381
Advances Due to Related Parties	1,397			1,180			1,863
Accrued Continuing Costs	81,655			57,659			—
Other Current Liabilities	35,648			26,628			34,034
Amounts Due Growers	222,493			206,823			87,218
Total Current Liabilities	527,510			525,737			223,274
Long-Term Debt, Net of Current Maturities	130,927			139,372			143,073
Accrued Employee Benefits	46,768			34,934			46,458
Other Liabilities	10,859			8,345			8,925
Total Liabilities	716,064			708,388			421,730
Commitments and Contingencies
Members’ Investments:
Preferred Stock	38,275			38,275			38,275
Common Stock	28			28			28
Additional Paid-In Capital	152,261			152,261			152,261
Unit Retains	164,384			149,502			181,601
Equity Retention	—			1,153			—
Accumulated Other Comprehensive Income (Loss)	(60,110		)	(8,603		)	(63,705		)
Retained Earnings (Accumulated Deficit)	(21,138		)	(25,378		)	(23,882		)
Total American Crystal Sugar Company Members’ Investments	273,700			307,238			284,578
Noncontrolling Interests	52,894			56,963			54,950
Total Members’ Investments	326,594			364,201			339,528
Total Liabilities and Members’ Investments	$	1,042,658		$	1,072,589		$	761,258

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 February 28						For the Three Months Ended February 28
	2010			2009			2010			2009
Net Revenue	$	587,770		$	596,587		$	268,362		$	273,532
Cost of Sales	45,463			75,515			(3,146		)	14,734
Gross Proceeds	542,307			521,072			271,508			258,798
Selling, General and Administrative Expenses	117,850			124,026			56,131			55,620
Accrued Continuing Costs	81,655			57,659			25,493			15,293
Operating Proceeds	342,802			339,387			189,884			187,885
Other Income (Expense):
Interest Income	33			118			24			9
Interest Expense, Net	(4,478		)	(5,345		)	(2,456		)	(2,918		)
Other, Net	(80		)	4,428			27			(181		)
Total Other Income (Expense)	(4,525		)	(799		)	(2,405		)	(3,090		)
Proceeds Before Income Tax Expense	338,277			338,588			187,479			184,795
Income Tax Expense	(1,902		)	(568		)	(516		)	(374		)
Consolidated Net Proceeds	336,375			338,020			186,963			184,421
Less: Net Proceeds Attributable to Noncontrolling Interests	(3,201		)	(3,059		)	(1,466		)	(1,388		)
Net Proceeds Attributable to American Crystal Sugar Company	$	333,174		$	334,961		$	185,497		$	183,033
Distributions of Net Proceeds Attributable to American Crystal Sugar Company:
Credited (Charged) to American Crystal Sugar Company’s Members’ Investments:
Non-Member Business Income	$	2,744		$	814		$	749		$	535
Unit Retains Declared to Members	—			—			—			—
Net Credit to American Crystal Sugar Company’s Members’ Investments	2,744			814			749			535
Payments To/Due Members for Sugarbeets, Net of Unit Retains Declared	330,430			334,147			184,748			182,498
Total	$	333,174		$	334,961		$	185,497		$	183,033

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
	2010			2009
Cash Provided By (Used In) Operating Activities:
Net Proceeds Attributable to American Crystal Sugar Company	$	333,174		$	334,961
Payments To/Due Members for Sugarbeets, Net of Unit Retains Declared	(330,430		)	(334,147		)
Add (Deduct) Non-Cash Items:
Depreciation and Amortization	35,175			35,274
(Income)/Loss from Equity Method Investees	1			(10		)
Loss on the Disposition of Property and Equipment	131			494
Non-Cash Portion of Patronage Dividend from CoBank, ACB	(147		)	—
Deferred Gain Recognition	(32		)	(54		)
Noncontrolling Interests	3,201			3,059
Changes in Assets and Liabilities:
Receivables	(1,016		)	14,201
Inventories	(312,466		)	(304,211		)
Prepaid Expenses	(1,004		)	(372		)
Non Current Pension Asset/Liability	2,560			315
Advances To/Due to Related Parties	19,002			7,745
Accounts Payable	(5,401		)	(7,754		)
Accrued Continuing Costs	81,655			57,659
Other Liabilities	4,711			1,377
Amounts Due Growers	135,275			85,891
Net Cash Used In Operating Activities	(35,611		)	(105,572		)
Cash Provided By (Used In) Investing Activities:
Purchases of Property and Equipment	(24,808		)	(17,709		)
Purchases of Property and Equipment Held for Lease	(1,287		)	(1,057		)
Proceeds from the Sale of Property and Equipment	3			6
Changes in Other Assets	(238		)	78
Net Cash Used In Investing Activities	(26,330		)	(18,682		)
Cash Provided By (Used In) Financing Activities:
Net Proceeds from Short-Term Debt	104,037			174,424
Proceeds from Issuance of Long-Term Debt	—			34,350
Long-Term Debt Repayment	(19,428		)	(53,578		)
Distributions to Noncontrolling Interests	(5,257		)	(5,935		)
Payment of Unit Retains and Equity Retention	(17,217		)	(25,006		)
Net Cash Provided By Financing Activities	62,135			124,255
Increase In Cash and Cash Equivalents	194			1
Cash and Cash Equivalents, Beginning of Year	127			128
Cash and Cash Equivalents, End of Period	$	321		$	129

Non-Cash Investing Activities: Purchases of Property and Equipment include the changes in accounts payable related to these purchases of ($5,196,000) and ($4,548,000) for the six months ended February 28, 2010 and 2009, respectively.

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, 2010 and 2009

(Unaudited)

Note 1:  Basis of Presentation

The unaudited consolidated financial statements of American Crystal Sugar Company (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, 2009.

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.

In accordance with authoritative guidance issued by the Financial Accounting Standards Board (FASB), the Company has, on a retrospective basis for all periods presented in this report, included the net proceeds attributable to noncontrolling interests, previously referred to as minority interest, as a component of consolidated net proceeds reflected on the Consolidated Statements of Operations. In addition, noncontrolling interests on the Consolidated Balance Sheets are now reflected as a component of Total Members’ Investments.

Certain other reclassifications have been made to the February 28, 2009 consolidated financial statements to conform with the February 28, 2010 presentation.  These reclassifications had no effect on previously reported results of operations or Members’ Investments.

The operating results for the six months ended February 28, 2010, are not necessarily indicative of the results that may be expected for the year ended August 31, 2010.  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 2009 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 2009 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

In December 2008, the FASB issued authoritative guidance regarding an employer’s disclosure about plan assets of a defined benefit pension plan or other postretirement plan.  This guidance becomes effective for the Company in the fourth quarter of fiscal 2010.  The Company does not expect that the adoption of this guidance will have a material effect on the Company’s financial statements.

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

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assets.  This guidance becomes effective for the Company in fiscal 2011.  The Company does not expect that the adoption of this guidance will have a material effect on the Company’s financial statements.

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

In October 2009, the FASB issued an update to the authoritative guidance which contains amendments to the criteria for separating consideration in multiple-deliverable arrangements and expands disclosures related to such arrangements.  The guidance provided by this update becomes effective for the Company in fiscal 2011. The Company does not expect that the adoption of this guidance will have a material effect on the Company’s financial statements.

In January 2010, the FASB issued an update to the authoritative guidance which contains amendments to the guidance related to accounting for decreases in the ownership of a subsidiary and expands the disclosures related to such events. The guidance provided by this update became effective and was adopted by the Company in the second quarter of fiscal 2010.

In January 2010, the FASB issued an update to the authoritative guidance which contains amendments and clarification to the guidance related to the disclosures involving recurring or nonrecurring fair value measurements. The new disclosures and clarifications become effective for the Company in the third quarter of fiscal 2010 except for the disclosures about purchases, sales, issuances and settlements in the roll forward activity in Level 3 fair value measurements which becomes effective for the Company in the first quarter of fiscal 2012. The Company does not expect that the adoption of this guidance 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 2010		February 28 2009		August 31 2009
Sugar, Pulp, Molasses, Other Agri-Products and Sugarbeet Seed	$	334,665	$	304,794	$	138,039
Unprocessed Sugarbeets	122,755		152,255		—
Maintenance Parts and Supplies	36,357		35,490		43,272
Total Inventories	$	493,777	$	492,539	$	181,311

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 through July 30, 2012, with a consortium of lenders led by CoBank, ACB of $320.0 million and a line of credit with Wells Fargo Bank for $1.0 million.  The Company’s commercial paper program provides short-term borrowings of up to $320 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, 2010, the Company had outstanding commercial paper of $150.0 million at average interest rates of .35% to .53% and maturity dates between March 1, 2010 and March 31, 2010.  The Company had no outstanding short-term debt with CoBank, ACB or the CCC as of February 28,

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2010.  The Company had $2.9 million of short-term letters of credit outstanding as of February 28, 2010.  The unused seasonal line of credit as of February 28, 2010 was $168.1 million.

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.

Note 5:  Long-Term Debt

The Company has long-term debt availability through December 31, 2011, with CoBank, ACB of $156.6 million, of which $22.3 million in loans and $70.8 million in long-term letters of credit were outstanding as of February 28, 2010.  The unused long-term line of credit as of February 28, 2010, was $63.5 million.  In addition, the Company had long-term debt outstanding, as of February 28, 2010, of $50 million from a private placement of Senior Notes that occurred in September of 1998 and $70.1 million from five separate issuances of Pollution Control and Industrial Development Revenue Bonds.

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.

Note 6:  Interest Paid and Interest Capitalized

Interest paid, net of amounts capitalized, was $2.9 million and $5.2 million for the six months ended February 28, 2010 and 2009, respectively and $1.7 million and $4.1 million for the three months ended February 28, 2010 and 2009, respectively.  Interest capitalized was $ ..2 million and $ .4 million for the six months ended February 28, 2010 and 2009, respectively and $ .1 million and $ .2 million for the three months ended February 28, 2010 and 2009, respectively.

Note 7:  Derivative Instruments and Hedging Activities

The Company, as a result of its operating and financing activities, is exposed to changes in foreign currency exchange rates and interest rates which may adversely affect its results of operations and financial position.  In seeking to minimize the risks and/or costs associated with such activities, the Company may enter into derivative contracts.

The Company manages its foreign currency related risks primarily through the use of foreign currency forward contracts. The contracts held by the Company are denominated in Euros. The Company has entered into foreign currency forward contracts that are designated as cash flow hedges of exchange rate risk related to foreign currency-denominated purchases of equipment.  At February 28, 2010, the Company had cash flow hedges for approximately 154,000 Euros with a maturity date of October 15, 2010.  At February 28, 2010, the fair value of the open contracts was a loss of approximately $8,000 recorded in accumulated other comprehensive income/(loss) in members’ equity.  Amounts deferred to accumulated other comprehensive income/(loss) will be reclassified into the cost of the equipment when the actual purchase takes place.

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The Company is exposed to interest risk primarily through its borrowing activities.  On December 24, 2009, the Company entered into an interest rate swap contract associated with a $27.3 million tax exempt variable rate demand bond issue that matures on September 1, 2019.  The interest rate swap contract requires payment of a fixed interest rate of 2.827 % and the receipt of a variable rate of interest based on the Securities Industry and Financial Market Association (SIFMA) index of .208 % as of February 28, 2010 on $27.3 million of indebtedness. The Company has designated this interest rate swap contract as a cash flow hedge.  As of February 28, 2010, the fair value of the cash flow hedge, which is a loss of approximately $374,000, is deferred to accumulated other comprehensive income/(loss) and will be reclassified to interest expense over the life of the swap contract. No ineffectiveness was recognized in earnings during the quarter ended February 28, 2010.  The current period loss of $129,000 is classified as interest expense on the statements of operations.  As of February 28, 2010, $641,000 of deferred net losses on the interest rate swap contract contained in accumulated other comprehensive income/(loss) are expected to be reclassified to earnings during the next 12 months.

	Liability Derivatives as of February 28
		Fair Value (In Thousands)
	Balance Sheet Location	2010		2009
Derivatives Designated as Hedging Instruments:
Foreign Currency Forward Contracts	Other Current Liabilities	$	8	$	173
Interest Rate Contracts	Other Long-Term Liabilities	374		—
Total Derivatives		$	382	$	173

Note 8:  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 be processed 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 be processed 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.

Note 9:  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, 2010 and 2009:

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Components of Net Periodic Pension Cost

(In Thousands)

	For the Six Months Ended February 28						For the Three Months Ended February 28
	2010			2009			2010			2009
Service Cost	$	1,816		$	2,099		$	908		$	1,049
Interest Cost	4,563			5,337			2,282			2,668
Expected Return on Plan Assets	(4,962		)	(7,729		)	(2,481		)	(3,864		)
Amortization of Prior Service Costs	658			822			329			411
Amortization of Net Actuarial Loss	3,470			35			1,735			18
FAS 158 Measurement Date Adjustment	—			(113		)	—			(56		)
Net Periodic Pension Cost	$	5,545		$	451		$	2,773		$	226

Components of Net Periodic Post-Retirement Cost

(In Thousands)

	For the Six Months Ended February 28						For the Three Months Ended February 28
	2010			2009			2010			2009
Service Cost	$	484		$	484		$	242		$	242
Interest Cost	927			944			464			472
Amortization of Net Actuarial Gain	(344		)	(338		)	(172		)	(169		)
Net Periodic Post-Retirement Cost	$	1,067		$	1,090		$	534		$	545

The Company has made contributions to the pension plans of approximately $2.5 million during the six months ended February 28, 2010 and is anticipating making total contributions of approximately $4.3 million to the pension plans during this fiscal year.  The Company has contributed and made benefit payments of approximately $50,000 related to the Supplemental Executive Retirement Plans during the six months ended February 28, 2010.  The Company expects to contribute and make benefit payments totaling approximately $99,000 this fiscal year related to the Supplemental Executive Retirement Plans.

The Company has contributed and made benefit payments of approximately $571,000 related to the post-retirement plans during the six months ended February 28, 2010.  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.

Note 10:  Members’ Investments

			Shares	Shares Issued
	Par Value		Authorized	& Outstanding
Preferred Stock:
April 8, 2010	$	76.77	600,000	498,570
February 28, 2010	$	76.77	600,000	498,570
August 31, 2009	$	76.77	600,000	498,570
February 28, 2009	$	76.77	600,000	498,570
Common Stock:
April 8, 2010	$	10.00	4,000	2,778
February 28, 2010	$	10.00	4,000	2,788
August 31, 2009	$	10.00	4,000	2,812
February 28, 2009	$	10.00	4,000	2,803

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Note 11: 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 $77.5 million and $82.7 million for the six months ended February 28, 2010 and 2009, respectively and $37.0 million and $35.2 million for the three months ended February 28, 2010 and 2009, respectively.

Note 12: 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, 2010 and 2009, is shown below:

	For the Six Months Ended February 28, 2010 (Dollars In Thousands)
	Sugar			Leasing			Consolidated
Net Revenue from External Customers	$	575,533		$	12,237		$	587,770
Gross Proceeds	$	535,676		$	6,631		$	542,307
Depreciation and Amortization	$	29,569		$	5,606		$	35,175
Interest Income	$	33		$	—		$	33
Interest Expense	$	4,478		$	—		$	4,478
Income from Equity Method Investees	$	(1	)	$	—		$	(1	)
Other Income/(Expense), Net	$	(22	)	$	(57	)	$	(79	)
Consolidated Net Proceeds	$	329,843		$	6,532		$	336,375
Capital Additions	$	19,612		$	1,287		$	20,899

	For the Six Months Ended February 28, 2009 (Dollars In Thousands)
	Sugar		Leasing			Consolidated
Net Revenue from External Customers	$	584,580	$	12,007		$	596,587
Gross Proceeds	$	514,650	$	6,422		$	521,072
Depreciation and Amortization	$	29,689	$	5,585		$	35,274
Interest Income	$	117	$	1		$	118
Interest Expense	$	5,345	$	—		$	5,345
Income from Equity Method Investees	$	10	$	—		$	10
Other Income/(Expense), Net	$	4,558	$	(140	)	$	4,418
Consolidated Net Proceeds	$	331,777	$	6,243		$	338,020
Capital Additions	$	13,161	$	1,057		$	14,218

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	For the Three Months Ended February 28, 2010 (Dollars In Thousands)
	Sugar		Leasing		Consolidated
Net Revenue from External Customers	$	262,547	$	5,815	$	268,362
Gross Proceeds	$	268,496	$	3,012	$	271,508
Depreciation and Amortization	$	14,806	$	2,803	$	17,609
Interest Income	$	24	$	—	$	24
Interest Expense	$	2,456	$	—	$	2,456
Income from Equity Method Investees	$	—	$	—	$	—
Other Income/(Expense), Net	$	27	$	—	$	27
Consolidated Net Proceeds	$	183,972	$	2,991	$	186,963
Capital Additions	$	11,590	$	340	$	11,930

	For the Three Months Ended February 28, 2009 (Dollars In Thousands)
	Sugar			Leasing			Consolidated
Net Revenue from External Customers	$	267,750		$	5,782		$	273,532
Gross Proceeds	$	255,807		$	2,991		$	258,798
Depreciation and Amortization	$	14,731		$	2,791		$	17,522
Interest Income	$	9		$	—		$	9
Interest Expense	$	2,918		$	—		$	2,918
Income from Equity Method Investees	$	5		$	—		$	5
Other Income/(Expense), Net	$	(46	)	$	(140	)	$	(186	)
Consolidated Net Proceeds	$	181,588		$	2,833		$	184,421
Capital Additions	$	8,292		$	307		$	8,599

	As of February 28, 2010 (Dollars In Thousands)
	Sugar		Leasing		Consolidated
Property and Equipment, Net	$	344,388	$	—	$	344,388
Assets Held for Lease, Net	$	—	$	106,639	$	106,639
Segment Assets	$	931,578	$	111,080	$	1,042,658

	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

Note 13: Fair Value of Financial Instruments

Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  Quoted market prices are generally not available for the Company’s financial instruments.  Fair values are based on judgments regarding anticipated cash flows, future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors.  These estimates involve uncertainties and matters of

11

judgment, and therefore, cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.

Long-Term Debt, Inclusive of Current Maturities - Based upon current borrowing rates with similar maturities, the fair value of the long-term debt as of February 28, 2010 was approximately $136.9 million in comparison to the carrying value of $142.4 million.

Foreign Currency Forward Contracts — Based on a variety of pricing factors, which include the market price of the foreign currency forward contract available in the dealer-market, the fair value of the open contracts as of February 28, 2010 was a loss of approximately $8,000.

Interest Rate Contracts — Based on the zero coupon method in which the term, notional amount, and repricing date of the interest rate swap match the term, repricing date, and principal amount of the interest-bearing liability on which the hedging interest payments are due, the fair value of the interest rate contract as of February 28, 2010 was a loss of approximately $374,000.

Investments in CoBank, ACB and Investments in Marketing Cooperatives - The Company believes it is not practical to estimate the fair value of these investments without incurring excessive costs because there is no established market for these securities and equity interests, and it is inappropriate to estimate future cash flows which are largely dependent on future earnings of these organizations.

Note 14: 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 matters that may arise in the ordinary course of business.  The Company works closely with all affected government agencies to resolve environmental issues that have arisen and believes such issues will be resolved without any material adverse effect on the Company.

The Company’s sugar manufacturing process is energy intensive and generates carbon dioxide and other “Greenhouse Gases” (GHGs).  Several bills have been passed or 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 relating to 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 sugar market may have a competitive disadvantage compared with imported sugar.  These policies could have a significant negative impact on the Company’s beet payment to shareholders if the Company is not able to pass the increased costs on to the Company’s customers.

On June 26th, 2009, the House of Representatives passed H.R. 2454, the American Clean Energy and Security Act (ACES), a bill that will place a cap on GHG emissions.  Similar legislation is being considered in the U.S. Senate.  Separately, the Environmental Protection Agency (EPA) finalized findings that GHG emissions endanger public health and welfare through their impact on climate change, and that motor vehicles “cause or contribute” to dangerous GHG pollution.  The findings, which respond to the Supreme Court’s 2007 decision in Massachusetts v. EPA, legally obligates the EPA to issue GHG standards for motor vehicles under the Clean Air Act and supports the EPA’s effort to use existing legal authority to regulate GHGs.  As an emitter of GHGs covered by ACES, the Company is watching legislative developments carefully yet cannot predict whether new proposed regulations will have a material impact on the Company.

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 subsequent three years and implement specified changes in

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

Including the expenditures related to the MPCA stipulation agreement, the Company has identified capital expenditures for environmental related projects over the next three years at the Company’s factory locations of approximately $21.2 million.

Note 15: Legal Matters

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

The District Court has scheduled a hearing for July of 2010 regarding remedies that will be imposed while the EIS is being completed. The timing of the hearing is subject to change by the District Court.  The results of this hearing will determine the actual direct impact of the decision on the Company and its sugarbeet producers.  There is no way to predict how the District Court will rule in the remedy phase.  It is possible that the District Court could in some way restrict the use of Roundup Ready® sugarbeet seed for the seed and/or commercial root crops pending completion of the EIS.  The number of years required to complete the EIS is currently uncertain.

Note 16: Subsequent Events

The Company has evaluated events through the date that the financial statements were issued for potential recognition or disclosure in the February 28, 2010 financial statements.

The Company is currently evaluating the provisions of the Health Care and Education Reconciliation Act of 2010 which was enacted into law on March 25, 2010.  The Company does not currently know the impact that this legislation will have on the Company’s financial condition or on its results of operations.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Six Months and Three Months Ended February 28, 2010 and 2009

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 2009 Form 10-K.

OVERVIEW

The harvest of the Red River Valley and Sidney sugarbeet crops grown during 2009 and to be processed during fiscal 2010 produced a total of 10.5 million tons of sugarbeets, or approximately 22.5 tons of sugarbeets per acre from approximately 467,000 acres.  This represents a decrease in total tons harvested of approximately 1.9 percent compared to the 2008 crop.  The sugar content of the 2009 crop is 16.7 percent as compared to the 17.6 percent sugar content of the 2008 crop.  The Company expects to produce a total of approximately 28.1 million hundredweight of sugar from the 2009 crop, a decrease of approximately 8.3 percent compared to the 2008 crop.

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Net proceeds attributable to American Crystal Sugar Company for fiscal 2010 is expected to be approximately 15 percent lower than in fiscal 2009.  This expected 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. Also contributing to this expected decrease are lower anticipated net selling prices for agri-products and increased operating costs. These anticipated decreases will be partially offset by anticipated higher net selling prices for sugar.

RESULTS OF OPERATIONS

Comparison of the Six Months Ended February 28, 2010 and 2009

Revenue for the six months ended February 28, 2010, was $587.8 million, a decrease of $8.8 million from the six months ended February 28, 2009.  The table below reflects the percentage changes in product revenues, prices and volumes for the six months ended February 28, 2010, as compared to the six months ended February 28, 2009.

Product	Revenue		Selling Price		Volume
Sugar	1.2	%	10.0	%	-8.0	%
Pulp	-13.9	%	-25.3	%	15.2	%
Molasses	-1.5	%	14.7	%	-14.1	%
CSB	-11.8	%	-7.3	%	-4.9	%
Betaine	7.6	%	28.0	%	-15.9	%

The increases in selling prices for sugar, molasses and betaine reflect strong markets due to supply and demand factors. The decrease in the selling price of pulp is the result of lower prices for competing alternative products in the marketplace.  The decreases in the volumes of sugar and molasses sold are primarily due to the timing of deliveries this year as compared to the previous year.  The increase in the volume of pulp sold reflects the impact of more product availability due to higher beginning inventories and increased production of pulp this year as compared to the previous year.  The decreases in the volumes of CSB and betaine sold are primarily due to lower production this year.

Rental revenue on the ProGold operating lease was $12.2 million and $12.0 million for the six months ended February 28, 2010 and 2009, respectively.

Cost of sales for the six months ended February 28, 2010, exclusive of payments to members for sugarbeets, decreased $30.1 million as compared to the six months ended February 28, 2009.  This decrease 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 29, 2010 was $191.1 million as compared to an increase of $149.6 million for the previous year’s six month period ended February 28, 2009 resulting in a $ 41.5 million favorable 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 February 28
(In Millions)	2010			2009			Change
Beginning Product Inventories at Net Realizable Value	$	(137.6	)	$	(150.6	)	$	13.0	(1)
Ending Product Inventories at Net Realizable Value	328.7			300.2			28.5		(2)
Increase in the Net Realizable Value of Product Inventories	$	191.1		$	149.6		$	41.5

(1) The change is primarily due to a 26 percent decrease in the hundredweight of sugar inventory as of August 31, 2009 as compared to August 31, 2008 partially offset by a 14 percent increase in the per hundredweight net

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realizable value of sugar inventory as of August 31, 2009 as compared to August 31, 2008, a 172 percent increase in the tons of pulp inventory as of August 31, 2009 as compared to August 31, 2008 and a 68 percent increase in the per ton net realizable value of pulp inventory as of August 31, 2009 as compared to August 31, 2008.

(2) The change is primarily due to a 15 percent increase in the per hundredweight net realizable value of sugar inventory as of February 28, 2010 as compared to February 28, 2009 partially offset by a 48 percent decrease in the per ton net realizable value of pulp inventory as of February 28, 2010 as compared to February 28, 2009.

·Due to lower than anticipated sugar production and inventory levels during the first quarter of last 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 were $7.7 million higher for the six months ended February 28, 2009, as compared to the six months ended February 28, 2010.

·Factory operating costs increased $4.4 million for the six months ended February 28, 2010, as compared to the six months ended February 28, 2009, primarily due to higher labor and benefits, coke and purchased power costs partially offset by decreased natural gas costs.

·The cost recognized associated with the non-member sugarbeets increased $14.6 million for the six months ended February 28, 2010, when compared to the six months ended February 28, 2009.  This increase was primarily due to an increase in tons of sugarbeets harvested this year.

Selling, general and administrative expenses decreased $6.2 million for the six months ended February 28, 2010, as compared to the six months ended February 28, 2009.  Selling expenses decreased $7.3 million primarily due to the decreased freight costs resulting from lower sales volumes.  General and administrative expenses increased $1.1 million due to general cost increases.

Interest expense decreased $ .9 million for the six months ended February 28, 2010, as compared to the six months ended February 28, 2009.  This was primarily due to decreased short term and long term average borrowing levels and lower short term and long term average interest rates.

Other Income/(Expense), Net decreased $4.5 million for the six months ended February 28, 2010, as compared to the six months ended February 28, 2009.  This was due primarily to the one-time receipt of $4.8 million in November 2008 related to a legal settlement.

Net proceeds attributable to American Crystal Sugar Company decreased $1.8 million for the six months ended February 28, 2010, as compared to the six months ended February 28, 2009.  Payments to/due members for sugarbeets decreased $3.7 million due to a lower forecasted gross beet payment for the 2009 crop as compared to that forecasted for the 2008 crop at this time last year partially offset by an increase in the tons of sugarbeets processed during the six months ended February 28, 2010, as compared to the six months ended February 28, 2009.  Non-member business activities resulted in a gain of $2.7 million for the six months ended February 28, 2010 as compared to a gain of $ .8 million for the six months ended February 28, 2009.  The increase of $1.9 million was primarily related to the activities of Sidney Sugars.

Comparison of the Three Months Ended February 28, 2010 and 2009

Revenue for the three months ended February 28, 2010, was $268.4 million, a decrease of $5.2 million from the three months ended February 28, 2009.  The table below reflects the percentage changes in product revenues, prices and volumes for the three months ended February 28, 2010, as compared to the three months ended February 28, 2009.

Product	Revenue		Selling Price		Volume
Sugar	4.2	%	13.3	%	-8.0	%
Pulp	-27.9	%	-33.8	%	8.9	%
Molasses	59.3	%	-0.6	%	60.3	%
CSB	7.0	%	-6.5	%	14.4	%
Betaine	3.7	%	16.8	%	-11.3	%

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The increases in selling prices for sugar and betaine reflect strong markets due to supply and demand factors. The decrease in the selling price of pulp is the result of lower prices for competing alternative products in the marketplace.  The decrease in the volume of sugar sold reflects the impact of less product availability due to lower beginning inventories this quarter as compared to the previous year.  The increase in the volume of pulp sold reflects the impact of more product availability due to higher beginning inventories and increased production of pulp this year as compared to the previous year.  The increase in the volume of molasses and CSB sold reflects the impact of more product availability this quarter due to increased production. The decline in the volume of betaine sold is primarily due to lower production this quarter.

Rental revenue on the ProGold operating lease was $5.8 million for each of the three months ended February 28, 2010 and 2009.

Cost of sales for the three months ended February 28, 2010, exclusive of payments to members for sugarbeets, decreased $17.9 million as compared to the three months ended February 28, 2009.  This decrease 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, 2010 was $125.6 million as compared to an increase of $91.6 million for the previous year’s three month period ended February 28, 2009 resulting in a $34.0 million favorable 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 February 28
(In Millions)	2010			2009			Change
Beginning Product Inventories at Net Realizable Value	$	(203.1	)	$	(208.6	)	$	5.5	(1)
Ending Product Inventories at Net Realizable Value	328.7			300.2			28.5		(2)
Increase in the Net Realizable Value of Product Inventories	$	125.6		$	91.6		$	34.0

(1) The change is primarily due to a 7.8 percent decrease in the hundredweight of sugar inventory as of November 30, 2009 as compared to November 30, 2008 partially offset by a 5.7 percent increase in the per hundredweight net realizable value of sugar inventory.

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

·In order to fulfill our customer’s needs on a timely basis, the Company’s sugar marketing agent, United Sugars Corporation, purchased and sold additional sugar during the three months ended February 28, 2010.  As a result, the costs associated with purchased sugar were $1.6 million higher for the three months ended February 28, 2010, as compared to the three months ended February 28, 2009.

·Factory operating costs increased $1.3 million for the three months ended February 28, 2010, as compared to the three months ended February 28, 2009, due to general cost increases.

·The cost recognized associated with the non-member sugarbeets increased $13.3 million for the three months ended February 28, 2010, when compared to the three months ended February 28, 2009.  This increase was due to an increase in tons of sugarbeets harvested this year and an increased per ton beet payment.

Selling, general and administrative expenses increased $ .5 million for the three months ended February 28, 2010, as compared to the three months ended February 28, 2009. General and administrative expenses increased $ .8 million due to general cost increases.  Selling expenses decreased $ ..3 million primarily due to the decreased freight costs resulting from lower sugar sales volume.

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Interest expense decreased $ .5 million for the three months ended February 28, 2010, as compared to the three months ended February 28, 2009.  This was primarily due to decreased short term and long term average borrowing levels and lower short term and long term average interest rates.

Net proceeds attributable to American Crystal Sugar Company increased $2.5 million for the three months ended February 28, 2010, as compared to the three months ended February 28, 2009.  Payments to/due members for sugarbeets increased $2.3 million primarily due to a larger increase in the forecasted gross beet payment for the 2009 crop during the second quarter this year as compared to the increase in the forecasted gross beet payment for the 2008 crop during the second quarter last year.  Non-member business activities resulted in a gain of $ .7 million for the three months ended February 28, 2010 as compared to a gain of $ .5 million for the three months ended February 28, 2008.  The increase was primarily related to the activities of Sidney Sugars.

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.

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

During the current national economic downturn and financial market instability, the Company, due to its strong financial position and relationships with its lenders, has continued to secure the necessary financing for its working capital requirements and capital expenditures.

The Company has a seasonal line of credit through July 30, 2012, with a consortium of lenders led by CoBank, ACB of $320.0 million, against which there was no outstanding balance as of February 28, 2010 and a line of credit with Wells Fargo Bank for $1.0 million, against which there was no outstanding balance as of February 28, 2010.  The Company’s commercial paper program provides short-term borrowings of up to $320 million of which approximately $150.0 million was outstanding as of February 28, 2010.  The Company had $2.9 million of short-term letters of credit outstanding as of February 28, 2010.  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, 2010, was $168.1 million.

The Company also has long-term debt availability through December 31, 2011, with CoBank, ACB of $156.6 million, of which $22.3 million in loans and $70.8 million in long-term letters of credit were outstanding as of February 28, 2010.  The unused long-term line of credit as of February 28, 2010 was $63.5 million.  In addition, the Company had long-term debt outstanding, as of February 28, 2010, of $50.0 million from a private placement of Senior Notes that occurred in September of 1998 and $70.1 million from five separate issuances of Pollution Control and Industrial Development Revenue Bonds.

The Company had outstanding purchase commitments totaling $13.6 million as of February 28, 2010, for equipment and construction contracts related to various capital projects.

The liquidity changes that have occurred in the Company’s financial statements from August 31, 2009, to February 28, 2010, 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

17

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 $35.6 million for the six months ended February 28, 2010, as compared to $105.6 million for the six months ended February 28, 2009.  This decrease in the use of cash of $70.0 million was primarily the result of the following:

·Reflected in the change in the net cash provided by operating activities is a net cash increase of $1.5 million from the prior year which was the result of a decrease in the forecasted member gross beet payment of $3.7 million and decreased costs of $6.6 million partially offset by a decrease in revenue of $8.8 million.

·There was a net favorable change in assets and liabilities of $68.0 million primarily comprised of the following:

·The decrease in cash used related to the Amount Due Growers of $49.4 million was due to a reduction in the current year’s total estimated grower payment based on a reduction in tons harvested and a lower estimated per ton member grower payment this year as compared to this time last year. Also adding to this decrease was a larger increase in the forecasted grower payment this year during the second quarter.

·The decrease in cash used related to changes in advances to related parties of $11.3 million was primarily due to the timing of the cash requirements of our marketing agents.

·The decrease in cash used related to changes in accrued continuing costs of $24.0 million was the result of a difference in the timing of revenues and expenses between the two years.

·The decrease in cash used related to changes in accounts payable of $2.4 million, $3.3 in other liabilities and $2.2 in non-current pension asset/liabilities is due to the timing of payments.

·These decreases in cash used were partially offset by an increase in receivables of $15.2 million due to the timing of collections.

·An increase in cash used related to the change in inventories of $8.3 million was primarily due to a $37.7 million increase in finished product inventories related to an increased net realizable value per hundredweight of sugar. This was partially offset by a $29.5 million decrease in the value of unprocessed sugarbeets, primarily the result of less tons of unprocessed sugarbeets remaining this year as compared to this time last year.

The net cash used in investing activities was $26.3 million for the six months ended February 28, 2010, as compared to $18.7 million for the six months ended February 28, 2009.  The increase of $7.6 million was primarily due to increased purchases of property and equipment.

The net cash provided by financing activities was $62.1 million for the six months ended February 28, 2010, as compared to $124.3 million for the six months ended February 28, 2009.  This decrease of $62.1 million was primarily due to decreased net proceeds from short-term debt of $70.4 million partially offset by decreased payment of unit retains of $7.8 and decreased distributions to Noncontrolling Interests of $ .7 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.

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OTHER

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 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 remained at 18.00 cents/lb in 2008 and will gradually rise 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 were 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.

The 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.  The 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 2009 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.  During the year ended September 30, 2008, Mexico exported approximately

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13 million hundredweight of sugar into the United States.  During the year ended September 30, 2009, Mexico exported approximately 26 million hundredweight of sugar into the United States.  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

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 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 reduce domestic sugar prices.

The Peru Free Trade Agreement became effective on February 1, 2009.  Under this agreement, sugar trade with Peru is subject to a net surplus producer 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 U.S.-Colombian Free Trade Agreement would allow Colombia to export into the U.S. an additional 1.0 million cwt of sugar above its traditional WTO level of 521,000 cwt.  The U.S.-Panama Free Trade Agreement would allow Panama to export into the U.S. an additional 144,000 cwt of sugar above its traditional WTO level of 629,000 cwt. 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 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 its 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 matters that may arise in the ordinary course of business.  The Company works closely with all affected government agencies to resolve environmental issues that have arisen and believes such issues will be resolved without any material adverse effect on the Company.

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The Company’s sugar manufacturing process is energy intensive and generates carbon dioxide and other “Greenhouse Gases” (GHGs).  Several bills have been passed or 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 relating to 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 sugar market may have a competitive disadvantage compared with imported sugar.  These policies could have a significant negative impact on the Company’s beet payment to shareholders if the Company is not able to pass the increased costs on to the Company’s customers.

On June 26th, 2009, the House of Representatives passed H.R. 2454, the American Clean Energy and Security Act (ACES), a bill that will place a cap on GHG emissions.  Similar legislation is being considered in the U.S. Senate.  Separately, the Environmental Protection Agency (EPA) finalized findings that GHG emissions endanger public health and welfare through their impact on climate change, and that motor vehicles “cause or contribute” to dangerous GHG pollution.  The findings, which respond to the Supreme Court’s 2007 decision in Massachusetts v. EPA, legally obligates the EPA to issue GHG standards for motor vehicles under the Clean Air Act and supports the EPA’s effort to use existing legal authority to regulate GHGs.  As an emitter of GHGs covered by ACES, the Company is watching legislative developments carefully yet cannot predict whether new proposed regulations will have a material impact on the Company.

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 subsequent three years and implement specified changes in operating procedures to contain hydrogen sulfide emissions at the Minnesota factories. The Company is on schedule with the agreed to changes.

Including the expenditures related to the MPCA stipulation agreement, the Company has identified capital expenditures for environmental related projects over the next three years at the Company’s factory locations of approximately $21.2 million.

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 4T.  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, 2010.  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

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

The District Court has scheduled a hearing for July of 2010 regarding remedies that will be imposed while the EIS is being completed. The timing of the hearing is subject to change by the District Court.  The results of this hearing will determine the actual direct impact of the decision on the Company and its sugarbeet producers.  There is no way to predict how the District Court will rule in the remedy phase.  It is possible that the District Court could in some way restrict the use of Roundup Ready® sugarbeet seed for the seed and/or commercial root crops pending completion of the EIS.  The number of years required to complete the EIS is currently uncertain.

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 2009 Annual Report on Form 10-K.

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

None

Item 3.  Defaults Upon Senior Securities

None

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

The Company held meetings in December 2009 with its shareholders from the Hillsboro Factory and the Moorhead Factory districts.

At the Hillsboro Factory District meeting held on December 3, 2009, the shareholders elected David Mueller as a director.  He received 41 of the 42 votes cast.  His three-year term begins December 3, 2009 and expires in December 2012.  Mr. Mueller has been a sugarbeet farmer near Cummings, North Dakota since 1985.  Mr. Mueller previously served on the Red River Valley Sugarbeet Growers Association Boards’ Executive Committee and as treasurer of its Research and Education Board. Mr. Mueller replaces Francis L. Kritzberger who was unable to stand for re-election due to the provisions of the Company Bylaws which prohibit a person from serving more than four consecutive three year terms as a director.  John Brainard and Jeff D. McInnes will continue as directors for the Hillsboro Factory District.

At the Moorhead Factory District meeting held on December 3, 2009, the shareholders elected Wayne Tang as a director.  He received 66 of the 76 votes cast with one abstention.  His three-year term begins December 3, 2009 and expires in December 2012.  Mr. Tang has been a farmer since 1972.  Mr. Tang currently serves on the American Sugarbeets Growers Association Board of Directors and was most recently Vice Chairman of the Red River Valley Sugarbeet Growers Association’s Executive Committee.  Mr. Tang replaces Richard Borgen who was unable to stand for re-election due to the provisions of the Company Bylaws which prohibit a person from serving more than four consecutive three year terms as a director.  William A. Hejl and Dale Kuehl will continue as directors for the Moorhead Factory District.

Item 5.  Other Information.

None.

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Item 6. Exhibits

Item No.		Method of Filing
3.1	Restated Articles of Incorporation of American Crystal Sugar Company	Incorporated by reference to Exhibit 3(i) from the Company’s Registration Statement on Form S-1 (File No. 33-83868), declared effective November 23, 1994.
3.2	Restated By-laws of American Crystal Sugar Company	Incorporated by reference to Exhibit 3(ii) from the Company’s Registration Statement on Form S-1 (File No. 333-11693), declared effective November 13, 1996.
4.1	Restated Articles of Incorporation of American Crystal Sugar Company	See Exhibit 3.1
4.2	Restated By-laws of American Crystal Sugar Company	See Exhibit 3.2
10.1	Form of Operating Agreement between Registrant and ProGold Limited Liability Company	Incorporated by reference to Exhibit 10(u) from the Company’s Registration Statement on Form S-1 (File No. 33-83868), declared effective November 23, 1994.
10.2	Registrant’s Senior Note Purchase Agreement	Incorporated by reference to Exhibit 10.24 from the Company’s Annual Report on Form 10-K for the year ended August 31, 1999
10.3	Registrant’s Senior Note Inter-creditor and Collateral Agency Agreement	Incorporated by reference to Exhibit 10.25 from the Company’s Annual Report on Form 10-K for the year ended August 31, 1999
10.4	Registrant’s Senior Note Restated Mortgage and Security Agreement	Incorporated by reference to Exhibit 10.26 from the Company’s Annual Report on Form 10-K for the year ended August 31, 1999
++10.5	Long Term Incentive Plan, dated June 23, 1999	Incorporated by reference to Exhibit 10.31 from the Company’s Annual Report on Form 10-K for the year ended August 31, 2000
10.6	Registrant’s Senior Note Purchase Agreement dated January 15, 2003	Incorporated by reference to Exhibit 10.29 from the Company’s Form 10-Q for the quarter ended February 28, 2003
++10.7	Long Term Incentive Plan, dated August 24, 2005	Incorporated by reference to Exhibit 10.25 from the Company’s Annual Report on Form 10-K for the year ended August 31, 2005

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++10.8	Employment Agreement dated March 21, 2007 between the Registrant and David A. Berg.	Incorporated by reference to Exhibit 10.26 from the Company’s Form 10-Q for the quarter ended February 28, 2007.
10.9	Growers’ Contract (5-year Agreement) for the crop years 2008 through 2012	Incorporated by reference to Exhibit 10.24 from the Company’s Annual Report on Form 10-K for the year ended August 31, 2007
10.10	Amended and Restated Uniform Member Sugar Marketing Agreement between the Registrant and United Sugars Corporation dated September 20, 2007.	Incorporated by reference to Exhibit 10.22 from the Company’s Annual Report on Form 10-K for the year ended August 31, 2008
10.11	Stipulation Agreement between Registrant and State of Minnesota Pollution Control Agency, dated November 25, 2008	Incorporated by reference to Exhibit 10.19 from the Company’s Form 10-Q for the quarter ended November 30, 2008
++10.12	Restated Supplemental Executive Retirement Plan, dated December 5, 2008	Incorporated by reference to Exhibit 10.20 from the Company’s Form 10-Q for the quarter ended November 30, 2008
++10.13	Restated Board of Directors Deferred Compensation Plan, dated December 8, 2008	Incorporated by reference to Exhibit 10.21 from the Company’s Form 10-Q for the quarter ended November 30, 2008
++10.14	First Amendment to 2005 Long-Term Incentive Plan, dated December 20, 2006.	Incorporated by reference to Exhibit 10.22 from the Company’s Form 10-Q for the quarter ended February 28, 2009
++10.15	Second Amendment to 2005 Long-Term Incentive Plan, dated November 5, 2007.	Incorporated by reference to Exhibit 10.23 from the Company’s Form 10-Q for the quarter ended February 28, 2009
++10.16	Third Amendment to 2005 Long-Term Incentive Plan, dated December 11, 2008.	Incorporated by reference to Exhibit 10.24 from the Company’s Form 10-Q for the quarter ended February 28, 2009
10.17	Amended and Restated Credit Agreement between the Registrant and CoBank, ACB dated July 30, 2009.	Incorporated by reference to Exhibit 10.17 from the Company’s Annual Report on Form 10-K for the year ended August 31, 2009
10.18	Amended and Restated Uniform Member Marketing Agreement between the Registrant and Midwest Agri-Commodities Company dated September 1, 2009.	Incorporated by reference to Exhibit 10.18 from the Company’s Annual Report on Form 10-K for the year ended August 31, 2009
10.19	Amended and Restated Member Control Agreement between Registrant and Golden Growers Cooperative dated September 1, 2009.	Incorporated by reference to Exhibit 10.19 from the Company’s Annual Report on Form 10-K for the year ended August 31, 2009
21.1	List of Subsidiaries of the Registrant	Incorporated by reference to Exhibit 21.1 from the Company’s Annual Report on Form 10-K for the year ended August 31, 2009

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

+              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, 2010		/s/ Teresa Warne
			Teresa Warne
			Corporate Controller,
			Chief Accounting Officer
			Duly Authorized Officer

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