AMERICAN CRYSTAL SUGAR CO /MN/ - FORM 10-Q

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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 29, 2012

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 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 9, 2012
$10 Par Value		2,775

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AMERICAN CRYSTAL SUGAR COMPANY

FORM 10-Q

INDEX

		PAGE NO.

PART I	FINANCIAL INFORMATION

ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS

	CONSOLIDATED BALANCE SHEETS	1

	CONSOLIDATED STATEMENTS OF OPERATIONS	3

	CONSOLIDATED STATEMENTS OF CASH FLOWS	4

	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS	5

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	15
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	21
ITEM 4.	CONTROLS AND PROCEDURES	21

PART II	OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	21
ITEM 1A.	RISK FACTORS	23
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	23
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	23
ITEM 4.	MINE SAFETY DISCLOSURES	23
ITEM 5.	OTHER INFORMATION	23
ITEM 6.	EXHIBITS	24

SIGNATURES		26

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American Crystal Sugar Company

Consolidated Balance Sheets

(Unaudited)

(In Thousands)

Assets

	February 29			February 28			August 31
	2012			2011			2011*
Current Assets:
Cash and Cash Equivalents	$	133		$	127		$	127
Receivables:
Trade	64,869			82,112			78,215
Members	—			—			5,889
Other	3,984			4,972			4,961
Advances to Related Parties	21,089			2,071			32,184
Inventories	675,770			673,626			244,038
Prepaid Expenses	1,894			9,836			739

Total Current Assets	767,739			772,744			366,153

Property and Equipment:
Land and Land Improvements	84,054			78,906			83,852
Buildings	135,467			126,361			134,534
Equipment	998,340			954,408			992,911
Construction in Progress	7,768			20,045			2,064
Less Accumulated Depreciation	(842,967		)	(802,876		)	(814,946		)

Net Property and Equipment	382,662			376,844			398,415

Net Property and Equipment Held for Lease	88,193			97,113			92,824

Other Assets:
Investments in CoBank, ACB	7,348			8,846			7,348
Investments in Marketing Cooperatives	1,225			2,316			997
Restricted Cash from Revenue Bonds	—			15,000			—
Other Assets	12,140			11,488			12,370

Total Other Assets	20,713			37,650			20,715

Total Assets	$	1,259,307		$	1,284,351		$	878,107

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 29			February 28			August 31
	2012			2011			2011*
Current Liabilities:
Short-Term Debt	$	306,095		$	221,729		$	66,197
Current Maturities of Long-Term Debt	5,765			375			5,765
Accounts Payable	39,730			24,570			33,641
Advances Due to Related Parties	3,109			2,022			4,831
Accrued Continuing Costs	85,269			131,824			—
Other Current Liabilities	37,632			37,777			41,723
Amounts Due Growers	225,231			315,391			160,886

Total Current Liabilities	702,831			733,688			313,043

Long-Term Debt, Net of Current Maturities	128,640			155,698			128,640

Accrued Employee Benefits	60,654			75,082			63,844

Other Liabilities	15,263			11,958			11,081

Total Liabilities	907,388			976,426			516,608

Commitments and Contingencies

Members’ Investments:
Preferred Stock	38,275			38,275			38,275
Common Stock	28			27			28
Additional Paid-In Capital	152,261			152,261			152,261
Unit Retains	188,919			164,212			207,599
Accumulated Other Comprehensive Income (Loss)	(68,668		)	(80,208		)	(71,903		)
Retained Earnings (Accumulated Deficit)	(2,544		)	(14,879		)	(9,715		)

Total American Crystal Sugar Company Members’ Investments	308,271			259,688			316,545

Noncontrolling Interests	43,648			48,237			44,954

Total Members’ Investments	351,919			307,925			361,499

Total Liabilities and Members’ Investments	$	1,259,307		$	1,284,351		$	878,107

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 29			February 28			February 29			February 28
	2012			2011			2012			2011
Net Revenue	$	707,247		$	729,827		$	343,975		$	377,848

Cost of Sales	68,620			(68,142		)	(12,562		)	(3,590		)

Gross Proceeds	638,627			797,969			356,537			381,438

Selling, General and Administrative Expenses	142,526			134,235			71,102			68,956
Accrued Continuing Costs	85,269			131,824			66,459			45,708

Operating Proceeds	410,832			531,910			218,976			266,774

Other Income (Expense):
Interest Income	19			51			2			38
Interest Expense, Net	(3,881		)	(4,357		)	(2,200		)	(2,386		)
Other, Net	66			(161		)	52			(41		)

Total Other Income (Expense)	(3,796		)	(4,467		)	(2,146		)	(2,389		)

Proceeds Before Income Tax Expense	407,036			527,443			216,830			264,385

Income Tax Expense	(4,983		)	(2,786		)	(3,050		)	(1,471		)

Consolidated Net Proceeds	402,053			524,657			213,780			262,914

Less: Net Proceeds Attributable to Noncontrolling Interests	(3,076		)	(2,786		)	(1,524		)	(1,344		)

Net Proceeds Attributable to American Crystal Sugar Company	$	398,977		$	521,871		$	212,256		$	261,570

Distributions of Net Proceeds Attributable to American Crystal Sugar Company:
Credited (Charged) to American Crystal Sugar Company’s Members’ Investments:
Non-Member Business Income	$	7,171		$	3,577		$	4,390		$	1,684
Unit Retains Declared to Members	—			—			—			—
Net Credit to American Crystal Sugar Company’s Members’ Investments	7,171			3,577			4,390			1,684
Payments To/Due Members for Sugarbeets, Net of Unit Retains Declared	391,806			518,294			207,866			259,886
Total	$	398,977		$	521,871		$	212,256		$	261,570

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 29			February 28
	2012			2011
Cash Provided By (Used In) Operating Activities:
Net Proceeds Attributable to American Crystal Sugar Company	$	398,977		$	521,871
Payments To/Due Members for Sugarbeets, Net of Unit Retains Declared	(391,806		)	(518,294		)
Add (Deduct) Non-Cash Items:
Depreciation and Amortization	34,560			36,516
Income from Equity Method Investees	(63		)	(3		)
Loss on the Disposition of Property and Equipment	41			239
Non-Cash Portion of Patronage Dividend from CoBank, ACB	—			(75		)
Deferred Gain Recognition	(32		)	(32		)
Noncontrolling Interests	3,076			2,786
Changes in Assets and Liabilities:
Receivables	20,212			(25,201		)
Inventories	(431,732		)	(469,508		)
Prepaid Expenses	(1,145		)	(9,017		)
Advances To/Due to Related Parties	9,373			9,497
Accounts Payable	10,980			(4,023		)
Accrued Continuing Costs	85,269			131,824
Other Liabilities	(5		)	(1,463		)
Amounts Due Growers	64,345			178,258
Net Cash Used In Operating Activities	(197,950		)	(146,625		)

Cash Provided By (Used In) Investing Activities:
Purchases of Property and Equipment	(17,628		)	(34,594		)
Purchases of Property and Equipment Held for Lease	(1,079		)	(489		)
Proceeds from the Sale of Property and Equipment	—			5
Restricted Cash from Revenue Bonds	—			(15,000		)
Changes in Other Assets	(174		)	(202		)
Net Cash Used In Investing Activities	(18,881		)	(50,280		)

Cash Provided By (Used In) Financing Activities:
Net Proceeds from Short-Term Debt	239,898			216,729
Proceeds from Issuance of Long-Term Debt	—			15,000
Payment of Unit Retains	(18,680		)	(29,567		)
Distributions to Noncontrolling Interests	(4,381		)	(5,258		)
Net Cash Provided By Financing Activities	216,837			196,904
Increase (Decrease) In Cash and Cash Equivalents	6			(1		)
Cash and Cash Equivalents, Beginning of Year	127			128

Cash and Cash Equivalents, End of Period	$	133		$	127

Non-Cash Investing Activities: Purchases of Property and Equipment include the changes in accounts payable related to these purchases of ($4,892,000) and ($8,706,000) for the six months ended February 29, 2012 and February 28, 2011, 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 29, 2012 and February 28, 2011

(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, 2011.

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.

Certain reclassifications have been made to the February 28, 2011 consolidated financial statements to conform with the February 29, 2012 presentation. These reclassifications had no effect on previously reported results of operations, cash flows or Members’ Investments.

The operating results for the six months ended February 29, 2012 are not necessarily indicative of the results that may be expected for the year ended August 31, 2012. 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 2011 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 2011 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 May 2011, the FASB issued an update to the authoritative guidance which establishes common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS). The guidance provided by this update becomes effective for the Company in the third 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.

In June 2011, the FASB issued an update to the authoritative guidance which improves the comparability, consistency and transparency of financial reporting and increases the prominence of items reported in other comprehensive income. The guidance provided by this update becomes effective for the Company in the first quarter of fiscal 2013. The Company does not expect that the adoption of this guidance will have a material effect on the Company’s financial statements.

In September 2011, the FASB issued an update to the authoritative guidance which reduces the complexity and cost by allowing for a qualitative evaluation about the likelihood of goodwill impairment to determine whether the calculation of the fair value of a reporting unit is required. The guidance provided by this update becomes effective for the Company in the first quarter of fiscal 2013. The

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Company does not expect that the adoption of this guidance will have a material effect on the Company’s financial statements.

In December 2011, the FASB issued an update to the authoritative guidance which requires disclosure information about offsetting and related arrangements for financial instruments and derivative instruments. The guidance provided by this update becomes effective for the Company in the first quarter of fiscal 2014. The Company does not expect that the adoption of this guidance will have a material effect on the Company’s financial statements.

In December 2011, the FASB issued an update to the authoritative guidance which defers the effective date of the presentation of reclassification adjustments out of accumulated other comprehensive income. The guidance provided by this update becomes effective for the Company in the first quarter of fiscal 2013. The Company does not expect that the adoption of this guidance will have a material effect on the Company’s financial statements.

Note 3: Accounts Receivable and Credit Policies

The Company grants credit, individually and through its marketing cooperatives, to its customers, which are primarily companies in the food processing industry located throughout the United States.

Trade receivables are uncollateralized customer obligations due under normal trade terms requiring payment within 15 to 90 days from the invoice date. The receivables are non-interest bearing. Trade receivables are stated at the amount billed to the customer. Payments of trade receivables are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoices.

Ongoing credit evaluations of customers’ financial condition are performed and the Company maintains a reserve for potential credit losses. The carrying amount of trade receivables is reduced by a valuation allowance that reflects the Company’s best estimate of the amounts that will not be collected. The Company determines a receivable to be uncollectable and is written off against the reserve based on several criteria including such items as the credit evaluation of a customer’s financial condition, the aging of the receivable and previous unsuccessful collection efforts.

Note 4: Inventories

The major components of inventories are as follows:

	February 29		February 28		August 31
(In Thousands)	2012		2011		2011
Sugar, Agri-Products, and Sugarbeet Seed	$	463,796	$	463,122	$	178,862
Unprocessed Sugarbeets	148,531		168,550		—
Operating Supplies and Maintenance Parts	63,443		41,954		65,176

Total Inventories	$	675,770	$	673,626	$	244,038

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

Note 5: Short-Term Debt

The Company has a seasonal line of credit through June 19, 2015 with a consortium of lenders led by CoBank, ACB of $350.0 million along with an additional $50.0 million which can be utilized for either short-term or long-term borrowing purposes. The Company also has a line of credit with Wells Fargo Bank for $1.0 million. The Company’s commercial paper program provides short-term borrowings up to the amount of the CoBank, ACB seasonal line of credit. Any borrowings under the commercial

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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 can also utilize the Commodity Credit Corporation (CCC) to meet its short-term borrowing needs. The Company can borrow funds on a non-recourse basis from the CCC, with repayment of such funds secured by sugar. The limitations on such borrowings are based on the amount of the Company’s sugar inventory and certain loan covenant restrictions by CoBank, ACB. As of February 29, 2012, the Company had the capacity to obtain non-recourse loans from the CCC of approximately $220.0 million. The Company has not utilized the CCC during fiscal 2012.

As of February 29, 2012, the Company had outstanding commercial paper of $306.1 million at interest rates of. 42% to. 57% and maturity dates between March 1, 2012 and March 27, 2012. The Company had no outstanding short-term debt with CoBank, ACB, Wells Fargo Bank or the CCC as of February 29, 2012. The Company had $3.1 million of short-term letters of credit outstanding and $9.0 million of the $50.0 million additional line of credit was utilized for long-term borrowing purposes as of February 29, 2012. The unused line of credit as of February 29, 2012 was $82.8 million which includes $41.0 million that can also be utilized for long-term borrowing purposes.

As of February 28, 2011, the Company had outstanding commercial paper of $221.7 million at interest rates of. 40% to. 55% and maturity dates between March 1, 2011 and April 19, 2011. The Company had no outstanding short-term debt with CoBank, ACB, Wells Fargo Bank or the CCC as of February 28, 2011. The Company had $2.8 million of short-term letters of credit outstanding as of February 28, 2011. The unused seasonal line of credit as of February 28, 2011 was $176.5 million.

Note 6: Long-Term Debt

The Company has a long-term debt line of credit through July 30, 2015 with CoBank, ACB of $60.8 million along with an additional $50.0 million, as mentioned in Note 5 above, which can be utilized for either short-term or long-term borrowing purposes. As of February 29, 2012, there was no outstanding balance with CoBank, ACB but the Company had $69.8 million in long-term letters of credit outstanding. The unused long-term line of credit as of February 29, 2012 was $41.0 million which can also be utilized for short-term borrowing purposes. In addition, the Company had long-term debt outstanding as of February 29, 2012 of $50 million from a private placement of Senior Notes that occurred in September 1998 and $84.4 million from five separate issuances of Pollution Control and Industrial Development Revenue Bonds.

On December 16, 2010, the Company closed a bond issuance for $15.0 million. The City of Moorhead, Minnesota issued the Recovery Zone Facility Revenue Bonds Series 2010 in the principal amount of $15.0 million (Bonds). Proceeds of the Bonds were used by the Company to construct a tower diffuser and associated enclosure at the Company’s sugar beet processing facility in Moorhead, Minnesota. The principal amount of the Bonds of $3.0 million is due on June 1, 2024 and the remaining principal amount of the bonds is due in equal payments of $4.0 million each on June 1 of the subsequent three years. The Bonds carry fixed interest rates of 5.35% and 5.65%. Interest on the Bonds is payable semiannually on each June 1 and December 1, commencing June 1, 2011. As of February 28, 2011, the entire proceeds from the bond issuance were held by a Trustee and were subsequently released as the Company provided documentation of allowable expenditures to the Trustee. The proceeds are reflected on the accompanying Company’s Consolidated Balance Sheet for February 28, 2011 under Other Assets as “Restricted Cash from Revenue Bonds.”

Note 7: Interest Paid and Interest Capitalized

Interest paid, net of amounts capitalized, was $4.0 million and $2.5 million for the six months ended February 29, 2012 and February 28, 2011, respectively and $1.0 million and $1.2 million for the three months ended February 29, 2012 and February 28, 2011, respectively. Interest capitalized was $20,000 and $197,000 for the six months ended February 29, 2012 and February 28, 2011, respectively and $18,000 and $117,000 for the three months ended February 29, 2012 and February 28, 2011, respectively.

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Note 8: 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. Inputs used to measure the fair value of the foreign currency forward contracts are contained within level 1 of the fair value hierarchy. At February 29, 2012, the Company had cash flow hedges for approximately 1.4 million Euros with maturity dates of April 13, 2012 to December 31, 2012. At February 29, 2012, the fair value of the open contracts was a gain of approximately $15,000 recorded in accumulated other comprehensive income/(loss) in members’ equity. At February 28, 2011, the Company had cash flow hedges for approximately 169,000 Euros with maturity dates of April 21, 2011 to June 15, 2011. At February 28, 2011, the fair value of the open contracts was a gain of approximately $3,000 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.

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 Industrial Development Revenue 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. 16 % as of February 29, 2012 on $27.3 million of indebtedness. The Company has designated this interest rate swap contract as a cash flow hedge. Inputs used to measure the fair value of the interest rate swap contracts are contained within level 2 of the fair value hierarchy. As of February 29, 2012, the fair value of the cash flow hedge reflected a loss of approximately $2.5 million recorded in 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 29, 2012. The current period loss of $185,000 is classified as interest expense on the statements of operations. As of February 29, 2012, $691,000 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. As of February 28, 2011, the fair value of the cash flow hedge reflected a loss of approximately $1.0 million recorded in accumulated other comprehensive income/(loss).

Fair Value of Asset Derivatives as of February 29, 2012 and February 28, 2011

(In Thousands)	Balance Sheet Location	2012		2011
Derivatives Designated as Hedging Instruments:
Foreign Currency Forward Contracts	Prepaid Expenses	$	15	$	3

Total Asset Derivatives		$	15	$	3

Fair Value of Liability Derivatives as of February 29, 2012 and February 28, 2011

(In Thousands)	Balance Sheet Location	2012		2011
Derivatives Designated as Hedging Instruments:
Interest Rate Contracts	Other Current Liabilities	$	691	$	675
Interest Rate Contracts	Other Long-Term Liabilities	1,798		333

Total Liability Derivatives		$	2,489	$	1,008

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Note 9: Accrued Continuing Costs

For interim reporting, the net proceeds from member business is based on the estimated 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 10: 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 29, 2012 and February 28, 2011:

Components of Net Periodic Pension Cost

(In Thousands)

	For the Six Months Ended						For the Three Months Ended
	February 29			February 28			February 29			February 28
	2012			2011			2012			2011
Service Cost	$	2,233		$	2,286		$	1,117		$	1,143
Interest Cost	4,827			4,522			2,413			2,261
Expected Return on Plan Assets	(6,256		)	(5,114		)	(3,128		)	(2,557		)
Amortization of Prior Service Costs	—			494			—			247
Amortization of Net Actuarial Loss	3,564			4,744			1,782			2,372
Net Periodic Pension Cost	$	4,368		$	6,932		$	2,184		$	3,466

Components of Net Periodic Post-Retirement Cost

(In Thousands)

	For the Six Months Ended						For the Three Months Ended
	February 29			February 28			February 29			February 28
	2012			2011			2012			2011
Service Cost	$	319		$	321		$	159		$	161
Interest Cost	840			767			420			383
Amortization of Net Actuarial Gain	(353		)	(405		)	(176		)	(203		)
Net Periodic Post-Retirement Cost	$	806		$	683		$	403		$	341

The Company made contributions of $5.0 million to the pension plans during the six months ended February 29, 2012 and is anticipating making $5.0 million of additional contributions to the pension plans during the remainder of the 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 29, 2012. 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 $568,000 related to the post-retirement plans during the six months ended February 29, 2012. The Company expects to

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contribute and make benefit payments of approximately $1.1 million related to the post-retirement plans during the current fiscal year.

Note 11: Members’ Investments

			Shares	Shares Issued
	Par Value		Authorized	& Outstanding
Preferred Stock:
February 29, 2012	$	76.77	600,000	498,570
August 31, 2011	$	76.77	600,000	498,570
February 28, 2011	$	76.77	600,000	498,570

Common Stock:
February 29, 2012	$	10.00	4,000	2,772
August 31, 2011	$	10.00	4,000	2,780
February 28, 2011	$	10.00	4,000	2,744

The components of Accumulated Other Comprehensive Income (Loss) as reflected in Members’ Investments on the Consolidated Balance Sheets are as follows:

	February 29			February 28			August 31
(In Thousands)	2012			2011			2011
Pension and Other Post-Retirement Benefits	$	(60,564	)	$	(74,374	)	$	(63,774	)
Derivative Interest Rate Contract	(2,489		)	(1,008		)	(2,338		)
Foreign Currency Forward Contracts	15			3			4
OCI of Equity Method Investees	(5,630		)	(4,829		)	(5,795		)

Total Accumulated Other Comprehensive Income (Loss)	$	(68,668	)	$	(80,208	)	$	(71,903	)

Note 12: 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 $98.9 million and $93.1 million for the six months ended February 29, 2012 and February 28, 2011, respectively and $51.1 million and $49.5 million for the three months ended February 29, 2012 and February 28, 2011, respectively.

Note 13: 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 29, 2012 and February 28, 2011 is shown below:

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	For the Six Months Ended February 29, 2012
(In Thousands)	Sugar		Leasing		Consolidated
Net Revenue from External Customers	$	695,218	$	12,029	$	707,247
Gross Proceeds	$	632,308	$	6,319	$	638,627
Depreciation and Amortization	$	28,850	$	5,710	$	34,560
Interest Income	$	19	$	—	$	19
Interest Expense	$	3,881	$	—	$	3,881
Income from Equity Method Investees	$	63	$	—	$	63
Other Income/(Expense), Net	$	3	$	—	$	3
Consolidated Net Proceeds	$	395,776	$	6,277	$	402,053

Capital Additions	$	12,736	$	1,079	$	13,815

	For the Six Months Ended February 28, 2011
(In Thousands)	Sugar			Leasing			Consolidated
Net Revenue from External Customers	$	718,388		$	11,439		$	729,827
Gross Proceeds	$	792,212		$	5,757		$	797,969
Depreciation and Amortization	$	30,834		$	5,682		$	36,516
Interest Income	$	51		$	—		$	51
Interest Expense	$	4,357		$	—		$	4,357
Income from Equity Method Investees	$	3		$	—		$	3
Other Income/(Expense), Net	$	(137	)	$	(27	)	$	(164	)
Consolidated Net Proceeds	$	518,970		$	5,687		$	524,657

Capital Additions	$	25,888		$	489		$	26,377

	For the Three Months Ended February 29, 2012
(In Thousands)	Sugar		Leasing		Consolidated
Net Revenue from External Customers	$	337,994	$	5,981	$	343,975
Gross Proceeds	$	353,409	$	3,128	$	356,537
Depreciation and Amortization	$	14,192	$	2,853	$	17,045
Interest Income	$	2	$	—	$	2
Interest Expense	$	2,200	$	—	$	2,200
Income from Equity Method Investees	$	44	$	—	$	44
Other Income/(Expense), Net	$	8	$	—	$	8
Consolidated Net Proceeds	$	210,671	$	3,109	$	213,780

Capital Additions	$	7,414	$	506	$	7,920

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	For the Three Months Ended February 28, 2011
(In Thousands)	Sugar			Leasing		Consolidated
Net Revenue from External Customers	$	372,240		$	5,608	$	377,848
Gross Proceeds	$	378,672		$	2,766	$	381,438
Depreciation and Amortization	$	15,521		$	2,842	$	18,363
Interest Income	$	38		$	—	$	38
Interest Expense	$	2,386		$	—	$	2,386
Income from Equity Method Investees	$	1		$	—	$	1
Other Income/(Expense), Net	$	(42	)	$	—	$	(42	)
Consolidated Net Proceeds	$	260,171		$	2,743	$	262,914

Capital Additions	$	10,549		$	133	$	10,682

	As of February 29, 2012
(In Thousands)	Sugar		Leasing		Consolidated
Property and Equipment, Net	$	382,662	$	—	$	382,662
Assets Held for Lease, Net	$	—	$	88,193	$	88,193
Segment Assets	$	1,167,891	$	91,416	$	1,259,307

	As of February 28, 2011
(In Thousands)	Sugar		Leasing		Consolidated
Property and Equipment, Net	$	376,844	$	—	$	376,844
Assets Held for Lease, Net	$	—	$	97,113	$	97,113
Segment Assets	$	1,183,173	$	101,178	$	1,284,351

Note 14: Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at 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 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 discounted cash flows and current borrowing rates with similar maturities, the fair value of the long-term debt as of February 29, 2012 was approximately $143.3 million in comparison to the carrying value of $134.4 million. The fair value of the long-term debt as of February 28, 2011 was approximately $158.9 million in comparison to the carrying value of $156.1 million.

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.

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 29, 2012 was an asset of approximately $15,000. The fair value of the open contracts as of February 28, 2011 was an asset of approximately $3,000. Inputs used to measure the fair value of the foreign currency forward contracts are quoted prices in active markets for identical assets or liabilities and therefore are contained within level 1 of the fair value hierarchy. See the tables below.

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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 29, 2012 was a liability of approximately $2.5 million. The fair value of the interest rate contract as of February 28, 2011 was a liability of approximately $1.0 million. Inputs used to measure the fair value of the interest rate swap contracts are quoted prices in active markets for similar assets or liabilities and therefore are contained within level 2 of the fair value hierarchy. See the tables below.

The tables below reflect the assets and liabilities measured at fair value on a recurring basis as of February 29, 2012 and February 28, 2011.

Fair Value of Assets as of February 29, 2012

(In Thousands)	Level 1		Level 2		Level 3		Total
Foreign Currency Forward Contracts	$	15	$	—	$	—	$	15
Total	$	15	$	—	$	—	$	15

Fair Value of Assets as of February 28, 2011

(In Thousands)	Level 1		Level 2		Level 3		Total
Foreign Currency Forward Contracts	$	3	$	—	$	—	$	3
Total	$	3	$	—	$	—	$	3

Fair Value of Liabilities as of February 29, 2012

(In Thousands)	Level 1		Level 2		Level 3		Total
Interest Rate Contracts	$	—	$	2,489	$	—	$	2,489
Total	$	—	$	2,489	$	—	$	2,489

Fair Value of Liabilities as of February 28, 2011

(In Thousands)	Level 1		Level 2		Level 3		Total
Interest Rate Contracts	$	—	$	1,008	$	—	$	1,008
Total	$	—	$	1,008	$	—	$	1,008

Note 15: 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 GHG emissions to reduce the impact of global climate change. The Company believes that industries generating GHGs, including the Company, could 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 its customers.

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On August 12, 2011, the Company received a Finding of Violation and Notice of Violation from the United States Environmental Protection Agency (EPA) for alleged violations of the Clean Air Act concerning certain air emissions at the Company’s three Minnesota factories. The Company has entered into discussions with the EPA concerning the alleged violations. The Company, at this time, cannot predict the outcome of these discussions or the financial impact, if any, resulting from the resolution of this matter.

The Company has identified capital expenditures for environmental related projects over the next three years at the Company’s factory locations of approximately $9.3 million.

Note 16: 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 August 13, 2010, at a District Court hearing on interim remedies, the District Court issued a ruling confirming the ability of the shareholders to harvest the 2010 root crop even though it was produced primarily from Roundup Ready® sugarbeet seed but vacated the original decision by USDA to deregulate the use of Roundup Ready® sugarbeet seed. As a result, the planting of Roundup Ready® sugarbeet seed after August 13, 2010 was prohibited until further action was taken by USDA.

On February 4, 2011, the USDA issued an Environmental Assessment that partially deregulated Roundup Ready® sugarbeet seed, an action that allowed for the planting of Roundup Ready® sugarbeet seed for the 2011 sugarbeet crop, subject to certain conditions. On March 23, 2011, the Company entered into a compliance agreement with the USDA that sets forth the growing conditions the Company and its shareholders must comply with in order to plant Roundup Ready® sugarbeet seed. On March 30, 2011, the Company’s Board of Directors authorized the planting of Roundup Ready® sugarbeet seed for the 2011 growing season. This authorization allowed the Company shareholders to choose between conventional sugarbeet seed and Roundup Ready® sugarbeet seed.

The compliance agreement between the Company and USDA includes a number of conditions that individual shareholders, and the Company as a whole, must strictly observe. Each shareholder desiring to plant Roundup Ready® sugarbeets must sign an addendum to their annual contract, under which they agree to comply with all regulatory requirements associated with planting Roundup Ready® sugarbeets. Failure to comply with the conditions may result in a shareholder not being permitted to harvest his or her crop. In addition, a shareholder’s noncompliance could result in a breach of the compliance agreement by the Company, which conceivably could mean that no Roundup Ready® sugarbeets planted by any shareholder would be harvested. If a significant number of shareholders are not allowed to harvest their Roundup Ready® sugarbeets for any reason the Company could experience material adverse financial consequences that would impact both the Company and its members.

In order to mitigate the risk of non-delivery by a shareholder who plants Roundup Ready® sugarbeet seed, both the Five Year Agreement that each shareholder already has in place with the Company as well as the Roundup Ready® addendum that must be signed in order to plant Roundup Ready® varieties, include language that obligates the shareholder to pay liquidated damages equal to the Company’s fixed costs if the shareholder’s Roundup Ready® sugarbeets are not harvested for legal or regulatory reasons. This liquidated damage requirement is in place to mitigate the financial risk to the Company in the event of decision that prevents the harvest of Roundup Ready® sugarbeets by one or more shareholders.

The same plaintiffs who have repeatedly raised legal challenges to the planting of Roundup Ready® sugarbeets have made public statements that they plan to continue to oppose the use of the technology. Litigation is currently pending in two consolidated cases in the Federal District Court in Washington, D.C. concerning the scope and validity of the Environmental Assessment. No decision is expected in those cases before the spring of 2012. Although the Company believes the risk is low, the possibility exists that a subsequent ruling by the District Court could result in the inability of shareholders to plant Roundup Ready® sugarbeet seed in subsequent years.

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On October 11, 2011, the USDA issued a draft Environmental Impact Statement (EIS) fully analyzing the impact of Roundup Ready® sugarbeets. The draft EIS considers the impact of one of three alternative regulatory approaches — the regulation, deregulation, or partial deregulation of Roundup Ready® sugarbeets. USDA indicated that its preferred alternative is to fully deregulate Roundup Ready® sugarbeets. After receiving and analyzing public comments on the draft EIS, USDA will issue a final EIS, likely sometime in 2012. The final EIS could then be subject to further legal challenge. In the meantime, the Company anticipates that the 2012 sugarbeet crop will again be planted under the compliance agreements that were signed in 2011. At this time, there is no regulatory basis to allow planting of Roundup Ready® sugarbeet seed in 2013 and beyond. If Roundup Ready® sugarbeets are not deregulated as contemplated in the draft EIS, shareholders may be required to plant conventional sugarbeet seed.

Note 17: Subsequent Events

The Company has evaluated events through the date that the financial statements were issued for potential recognition or disclosure in the February 29, 2012 financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Six Months and Three Months Ended February 29, 2012 and February 28, 2011

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 2011 Form 10-K.

OVERVIEW

The harvest of the Red River Valley and the Sidney sugarbeet crops grown during 2011 and to be processed during fiscal 2012 produced a total of 9.9 million tons of sugarbeets, or approximately 21.0 tons of sugarbeets per acre from approximately 472,000 acres. This represents a decrease in total tons harvested of approximately 15.7 percent compared to the 2010 crop. The sugar content of the 2011 crop is 18.0 percent, the same as the 2010 crop. The Company expects to produce a total of approximately 28.7 million hundredweight of sugar from the 2011 crop, a decrease of approximately 19.4 percent compared to the 2010 crop.

Net proceeds attributable to American Crystal Sugar Company for fiscal 2012 is expected to be approximately 32 percent lower than in fiscal 2011. This expected decrease is primarily due to decreased tons harvested resulting in the decreased production of sugar and agri-products along with anticipated higher operating costs. Partially offsetting this expected decrease are higher anticipated net selling prices for our products.

RESULTS OF OPERATIONS

Comparison of the Six Months Ended February 29, 2012 and February 28, 2011

Revenue for the six months ended February 29, 2012 was $707.2 million, a decrease of $22.6 million from the six months ended February 28, 2011. The table below reflects the percentage changes in product revenues, prices and volumes for the six months ended February 29, 2012 as compared to the six months ended February 28, 2011.

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Product	Revenue		Selling Price		Volume
Sugar	-4.4	%	14.7	%	-16.6	%
Pulp	10.0	%	62.8	%	-32.4	%
Molasses	67.7	%	11.5	%	50.4	%
CSB	-24.5	%	12.4	%	-32.8	%
Betaine	-28.7	%	6.2	%	-32.9	%

The increases in selling prices for our products reflect strong markets due to supply and demand factors. The decreases in the volume of sugar and pulp reflect the impact of less product availability due to a smaller sugarbeet crop and a later start to the processing campaign this year as compared to the previous year. The volume change for molasses reflects a change in the timing of sales between the two years as well as increased product availability due to a later start-up of the molasses desugarization facilities this year. The decreased volumes for CSB and Betaine reflect the impact of the later start-up of the molasses desugarization facilities this year.

Rental revenue on the ProGold operating lease was $12.0 million and $11.4 million for the six months ended February 29, 2012 and February 28, 2011, respectively.

Cost of sales for the six months ended February 29, 2012, exclusive of payments to members for sugarbeets, increased $136.8 million as compared to the six months ended February 28, 2011. This increase was primarily related to product inventories that are recorded at their net realizable value, increased operating costs, which include additional costs associated with the on-going union labor lockout, and costs associated with purchased sugar at United Sugars Corporation, the Company’s sugar marketing agent. 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, 2012 was $278.6 million as compared to an increase of $343.6 million for the six months ended February 28, 2011 resulting in a $65.0 million unfavorable change in the cost of sales between the two periods as shown in the table below:

Change in the Net Realizable Value of Product Inventories

	For the Six Months Ended
	February 29			February 28
(In Millions)	2012			2011			Change
Beginning Product Inventories at Net Realizable Value	$	(176.4	)	$	(111.8	)	$	(64.6	)(1)
Ending Product Inventories at Net Realizable Value	455.0			455.4			(0.4		)(2)
Increase (Decrease) in the Net Realizable Value of Product Inventories	$	278.6		$	343.6		$	(65.0	)

(1) The change is primarily due to a 42.7 percent increase in the hundredweight of sugar inventory as of August 31, 2011 as compared to August 31, 2010; a 14.8 percent increase in the per hundredweight net realizable value of sugar inventory as of August 31, 2011 as compared to August 31, 2010, partially offset by a 56.0 percent decrease in the tons of pulp inventory as of August 31, 2011 as compared to August 31, 2010; and a 4.7 percent decrease in the per ton net realizable value of pulp inventory as of August 31, 2011 as compared to August 31, 2010.

(2) The change is primarily due to a 7.8 percent decrease in the hundredweight of sugar inventory as of February 29, 2012 as compared to February 28, 2011and a 24.9 percent decrease in the tons of pulp inventory as of February 29, 2012 as compared to February 28, 2011, partially offset by a 6.8 percent increase in the per hundredweight net realizable value of sugar as of February 29, 2012 as compared to February 28, 2011; and a 107.54 percent increase in the per ton net realizable value of pulp inventory as of February 29, 2012 as compared to February 28, 2011.

Selling, general and administrative expenses increased $8.3 million for the six months ended February 29, 2012 as compared to the six months ended February 28, 2011. Selling expenses increased $7.2 million primarily due to an increase in sugar packaging costs and freight costs associated with the shipment of sugar. This increase was partially offset by lower selling expenses due to the decrease in the volume of products sold for the six months ended February 29, 2012 as compared to the six months ended February 28, 2011. General and administrative expenses increased $1.1 million due to general cost increases.

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Net proceeds attributable to American Crystal Sugar Company decreased $122.9 million for the six months ended February 29, 2012 as compared to the six months ended February 28, 2011. This decrease was primarily due to a smaller crop requiring a later processing campaign start-up this year resulting in 19.3% fewer tons processed during the six months ended February 29, 2012 as compared to the six months ended February 28, 2011.

Comparison of the Three Months Ended February 29, 2012 and February 28, 2011

Revenue for the three months ended February 29, 2012 was $344.0 million, a decrease of $33.9 million from the three months ended February 28, 2011. The table below reflects the percentage changes in product revenues, prices and volumes for the three months ended February 29, 2012 as compared to the three months ended February 28, 2011.

Product	Revenue		Selling Price		Volume
Sugar	-13.0	%	10.5	%	-21.3	%
Pulp	30.8	%	62.9	%	-19.7	%
Molasses	479.0	%	23.8	%	367.7	%
CSB	-3.3	%	15.7	%	-16.4	%
Betaine	-37.5	%	8.2	%	-42.3	%

Rental revenue on the ProGold operating lease was $6.0 million and $5.6 million for the three months ended February 29, 2012 and February 28, 2011, respectively.

Cost of sales for the three months ended February 29, 2012, exclusive of payments to members for sugarbeets, decreased $9.0 million as compared to the three months ended February 28, 2011. This decrease was primarily related to product inventories that are recorded at their net realizable value partially offset by increased operating costs, which include additional costs associated with the on-going union labor lockout, and costs associated with purchased sugar at United Sugars Corporation, the Company’s sugar marketing agent. 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 29, 2012 was $188.6 million as compared to an increase of $147.3 million for the three months ended February 28, 2011 resulting in a $41.3 million favorable change in the cost of sales between the two quarters as shown in the table below:

Change in the Net Realizable Value of Product Inventories

	For the Three Months Ended
	February 29			February 28
(In Millions)	2012			2011			Change
Beginning Product Inventories at Net Realizable Value	$	(266.4	)	$	(308.1	)	$	41.7	(1)
Ending Product Inventories at Net Realizable Value	455.0			455.4			(0.4		)(2)
Increase in the Net Realizable Value of Product Inventories	$	188.6		$	147.3		$	41.3

(1) The change is primarily due to a 22.0 percent decrease in the hundredweight of sugar inventory as of November 30, 2011 as compared to November 30, 2010; a 46.0 percent decrease in the tons of pulp inventory as of November 30, 2011 as compared to November 30, 2010, partially offset by a 9.0 percent increase in the per hundredweight net

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realizable value of sugar as of November 30, 2011as compared to November 30, 2010; and a 98.0 percent increase in the per ton net realizable value of pulp inventory as of November 30, 2011 as compared to November 30, 2010.

Selling, general and administrative expenses increased $2.1 million for the three months ended February 29, 2012 as compared to the three months ended February 28, 2011. Selling expenses increased $1.4 million primarily due to an increase in sugar packaging costs and freight costs associated with the shipment of sugar. This increase was partially offset by lower selling expenses due to the decrease in the volume of products sold for the three months ended February 29, 2012 as compared to the three months ended February 28, 2011. General and administrative expenses increased slightly due to general cost increases.

Net proceeds attributable to American Crystal Sugar Company decreased $49.3 million for the three months ended February 29, 2012 as compared to the three months ended February 28, 2011. This decrease was primarily due to a lower forecasted Gross Beet Payment this year as compared to that forecasted at this time last year resulting from fewer tons harvested and increased operating costs partially offset by increased selling prices for our products.

LIQUIDITY AND CAPITAL RESOURCES

Under the Company’s agreement with its shareholders, payments for member-delivered sugarbeets for each crop year are calculated based on the revenues from sugar and agri-products derived from the sugarbeet crop less 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 capital.

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 utilizes substantial outside financing on both a seasonal and long-term basis to fund its operations.

The Company has a seasonal line of credit through July 19, 2015 with a consortium of lenders led by CoBank, ACB of $350.0 million along with an additional $50.0 million that can be utilized for either short-term or long-term borrowing purposes. There was no outstanding balance with CoBank, ACB as of February 29, 2012. The Company also has a line of credit with Wells Fargo Bank for $1.0 million, against which there was no outstanding balance as of February 29, 2012. The Company’s commercial paper program provides short-term borrowings up to the amount of the CoBank, ACB seasonal line of credit. As of February 29, 2012, approximately $306.1 million of commercial paper was outstanding. The Company had $3.1 million of short-term letters of credit outstanding and $9.0 million of the $50.0 million additional line of credit was utilized for long-term borrowing purposes as of February 29, 2012. 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 29, 2012 was $82.8 million which includes $41.0 million that can also be utilized for long-term borrowing purposes.

Under the Farm Bill, the Company can borrow funds on a non-recourse basis from the CCC, with repayment of such funds secured by sugar. The limitations on such borrowings are based on the amount of the Company’s sugar inventory and certain loan covenant restrictions by CoBank, ACB. As of February 29, 2012, the Company had the capacity to obtain non-recourse loans from the CCC of approximately $220.0 million. The Company has not utilized the CCC during fiscal 2012.

The Company also has a long-term debt line of credit through July 30, 2015 with CoBank, ACB of $60.8 million along with an additional $50.0 million that can be utilized for either short-term or long-term

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borrowing purposes. As of February 29, 2012, there was no outstanding balance with CoBank, ACB but the Company had $69.8 million in long-term letters of credit outstanding. The unused long-term line of credit as of February 29, 2012 was $41.0 million which can also be utilized for short-term borrowing purposes. In addition, the Company had long-term debt outstanding, as of February 29, 2012 of $50 million from a private placement of Senior Notes that occurred in September 1998 and $84.4 million from five separate issuances of Pollution Control and Industrial Development Revenue Bonds.

The Company had outstanding purchase commitments totaling $11.7 million as of February 29, 2012 for equipment and construction contracts related to various capital projects.

The Company has a 55 percent ownership interest and a 25 percent voting interest in Midwest Agri-Commodities Company (Midwest). Substantially all of the Company’s agri-products are sold by Midwest as an agent for the Company. The owners of Midwest are guarantors of the short-term line of credit Midwest has with CoBank, ACB. As of February 29, 2012, Midwest had outstanding short-term debt with CoBank, ACB of $7.2 million, of which $4.1 million was guaranteed by the Company.

The net cash used in operations was $198.0 million for the six months ended February 29, 2012 as compared to $146.6 million for the six months ended February 28, 2011. This increase in the use of cash of $51.4 million was primarily the result of the following:

· Reflected in the change in the net cash used in operating activities is a net cash increase of $1.7 million from the prior year which was the result of a decrease in the member gross beet payment of $126.5 million partially offset by decreased revenue of $22.6 million and an increase in costs of $102.2 million.

· There was a net unfavorable change in assets and liabilities from the prior year of $53.1 million primarily comprised of the following:

· The increase in cash related to receivables of $45.4 million is primarily due to a lower volume of sales and the timing of the deliveries of products and collections.

· The increase in cash related to the change in inventories of $37.8 million was primarily due to a decrease in the hundredweight of sugar and tons of pulp and molasses inventory partially offset by an increased net realizable value per hundredweight of sugar and an increased net realizable value per ton of pulp and molasses.

· The increase in cash related to changes in other liabilities of $1.5 million, the increase in cash related to changes in prepaid expenses of $7.8 million, and the increase in cash of $15.0 million related to accounts payable are primarily due to the timing of payments.

· The decrease in cash related to changes in accrued continuing costs of $46.6 million was the result of the differences in the timing of actual revenues and expenses and forecasted revenues and expenses between the two years.

· The decrease in cash related to the Amount Due Growers of $113.9 million was due to a decrease in the current year’s total estimated grower payment resulting from a decrease in tons harvested and a lower forecasted per ton grower payment this year as compared to this time last year.

The net cash used in investing activities was $18.9 million for the six months ended February 29, 2012 as compared to $50.3 million for the six months ended February 28, 2011. The decrease of $31.4 million was primarily due to decreased purchases of property and equipment of $17.0 million and decreased proceeds from the issuance of bonds of $15.0 million partially offset by an increase in purchases of property and equipment held for lease of $ .6 million.

The net cash provided by financing activities was $216.8 million for the six months ended February 29, 2012 as compared to $196.9 million for the six months ended February 28, 2011. This increase of $19.9 million was primarily due to increased net proceeds from short-term debt of $23.1 million, decreased unit retains paid of $10.9 million and decreased distributions to noncontrolling interests of $ .9 million partially offset by decreased proceeds from the issuance of long term debt of $15.0 million.

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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.

OTHER

Significant Accounting Policies and Estimates

The Company’s significant accounting policies are described in Note 1, Principal Activity and Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2011. The Company’s critical accounting estimates are discussed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2011. There has been no significant change in the Company’s significant accounting policies or critical accounting estimates since the end of fiscal 2011.

Environmental

The Company has identified capital expenditures for environmental related projects over the next three years at the Company’s factory locations of approximately $9.3 million.

Employees

Substantially all of the hourly employees at the Company’s factories, including full-time and seasonal employees, are represented by the Bakery, Confectionery, Tobacco Workers and Grain Millers (BCTGM) AFL-CIO. The collective bargaining agreement for the Red River Valley factory employees expired on July 31, 2011. The collective bargaining agreement for the Sidney, Montana, factory employees will expire on April 30, 2012. Office, clerical and management employees are not unionized, except for certain office employees at the Moorhead and Crookston, Minnesota, and Hillsboro, North Dakota, factories who are covered by the collective bargaining agreement with the BCTGM.

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On July 31, 2011, the Red River Valley factory and clerical employees represented by the BCTGM rejected the Company’s new contract offer. On August 1, 2011, the Company locked out the union employees and secured contract replacement workers to ensure the continued operation of the Company’s factories in order to meet its obligations to its customers and shareholders. The Company is continuing to recruit and hire non-union employees to replace the contract workers. The Company cannot predict the time-frame for the resolution of this matter.

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 29, 2012. 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 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

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Environmental Impact Statement (EIS) before deregulating Roundup Ready® sugarbeets. On August 13, 2010, at a District Court hearing on interim remedies, the District Court issued a ruling confirming the ability of the shareholders to harvest the 2010 root crop even though it was produced primarily from Roundup Ready® sugarbeet seed but vacated the original decision by USDA to deregulate the use of Roundup Ready® sugarbeet seed. As a result, the planting of Roundup Ready® sugarbeet seed after August 13, 2010 was prohibited until further action was taken by USDA.

On October 11, 2011, the USDA issued a draft Environmental Impact Statement (EIS) fully analyzing the impact of Roundup Ready® sugarbeets. The draft EIS considers the impact of one of three alternative regulatory approaches — the regulation, deregulation, or partial deregulation of Roundup Ready® sugarbeets. USDA indicated that its preferred alternative is to fully deregulate Roundup Ready® sugarbeets. After receiving and analyzing public comments on the draft EIS, USDA will issue a final EIS, likely sometime in 2012. The final EIS could then be subject to further legal challenge. In the meantime, the Company anticipates that the 2012 sugarbeet crop will again be planted under the compliance agreements that were signed in 2011. At this time there is no regulatory basis to allow planting of Roundup Ready® sugarbeet seed in 2013 and beyond. If Roundup Ready® sugarbeets are not deregulated as contemplated in the draft EIS, shareholders may be required to plant conventional sugarbeet seed.

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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 2011 Annual Report on Form 10-K.

The success or failure of our business is linked to certain government programs, regulations and legislation that may change in the future.

The nature and scope of future legislation and regulation affecting the sugar market and industry cannot be predicted. The current price supports and market protections in place for sugar may not continue in their present forms. If the price support programs were eliminated in their entirety, or if certain protections the federal government provides from foreign competitors were materially reduced, the amount of sugar we can sell, the amount of sugarbeets we can process and the price for which we can sell our sugar may be impacted, which could reduce the profitability of our business. If legislation or government programs change, we may not be able to adopt strategies that would allow us to compete effectively in a greatly changed domestic market for sugar and the adverse effects could negatively impact the desirability of growing sugarbeets for delivery to us for processing, our financial results, and our continued viability.

The Food, Conservation and Energy Act of 2008 (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. Legislative discussions have begun on a new Farm Bill. Any changes in the Farm Bill may impact our business. We cannot predict the changes to the Farm Bill or the impact such changes will have at this time.

Employee strikes and other labor-related disruptions may adversely affect our operations.

On July 31, 2011, the Red River Valley factory and clerical employees represented by the BCTGM rejected our new contract offer. On August 1, 2011, we locked out the union employees and secured contract replacement workers to ensure the continued operation of our factories in order to meet our obligations to our customers and shareholders. As of the date of this report, no agreement has been reached with the BCTGM and the union employees remain locked out. If we are unable to reach agreement with the BCTGM, the lockout may continue indefinitely. We have implemented a strategy to reduce the financial impact of operating during a protracted lockout. We are currently continuing to recruit and hire non-union employees to replace the contract workers. We expect the current rate of spending associated with the lockout to decline. However, if our strategy is not successful, the continued lockout or an unfavorable collective bargaining agreement may negatively impact our current and future financial performance and payments to our shareholders.

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

None

Item 3. Defaults Upon Senior Securities.

None

Item 4. Mine Safety Disclosures.

None

Item 5. Other Information.

None.

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Item 6. Exhibits

Exhibit No.		Exhibit Description

3.1		Restated Articles of Incorporation of American Crystal Sugar Company is 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 is 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 is 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

4.2		Restated By-laws of American Crystal Sugar Company is 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.

10.1		Form of Operating Agreement between Registrant and ProGold Limited Liability Company is 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 is incorporated by reference to Exhibit 10.24 from the Company’s Annual Report on Form 10-K for the year ended August 31, 1999 (File/Film No. 99764763) filed on November 26, 1999.

10.3		Registrant’s Senior Note Inter-creditor and Collateral Agency Agreement is incorporated by reference to Exhibit 10.25 from the Company’s Annual Report on Form 10-K for the year ended August 31, 1999 (File/Film No. 99764763) filed on November 26, 1999.

10.4		Registrant’s Senior Note Restated Mortgage and Security Agreement is incorporated by reference to Exhibit 10.26 from the Company’s Annual Report on Form 10-K for the year ended August 31, 1999 (File/Film No. 99764763) filed on November 26, 1999.

*10.5		Long Term Incentive Plan, dated June 23, 1999 is incorporated by reference to Exhibit 10.31 from the Company’s Annual Report on Form 10-K for the year ended August 31, 2000 (File/Film No. 775168) filed on November 22, 2000.

*10.6		Long Term Incentive Plan, dated August 24, 2005 is incorporated by reference to Exhibit 10.25 from the Company’s Annual Report on Form 10-K for the year ended August 31, 2005 (File/Film No. 051224287) filed on November 23, 2005.

*10.7		Employment Agreement dated March 21, 2007 between the Registrant and David A. Berg is incorporated by reference to Exhibit 10.26 from the Company’s Form 10-Q for the quarter ended February 28, 2007 (File/Film No. 07767289) filed on April 16, 2007.

10.8		Growers’ Contract (5-year Agreement) for the crop years 2008 through 2012 is incorporated by reference to Exhibit 10.24 from the Company’s Annual Report on Form 10-K for the year ended August 31, 2007 (File/Film No. 071273808) filed on November 29, 2007.

10.9		Amended and Restated Uniform Member Sugar Marketing Agreement between the Registrant and United Sugars Corporation dated September 20, 2007 is incorporated by reference to Exhibit 10.22 from the Company’s Annual Report on Form 10-K for the year ended August 31, 2008 (File/Film No. 081215861) filed on November 26, 2008.

10.10		Stipulation Agreement between Registrant and State of Minnesota Pollution Control Agency, dated November 25, 2008 is incorporated by reference to Exhibit 10.19 from the Company’s Form 10-Q for the quarter ended November 30, 2008 (File/Film No. 09525944) filed on January 14, 2009.

*10.11		Restated Supplemental Executive Retirement Plan, dated December 5, 2008 is incorporated by reference to Exhibit 10.20 from the Company’s Form 10-Q for the quarter

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		ended November 30, 2008 (File/Film No. 09525944) filed on January 14, 2009.

*10.12		Restated Board of Directors Deferred Compensation Plan, dated December 8, 2008 is incorporated by reference to Exhibit 10.21 from the Company’s Form 10-Q for the quarter ended November 30, 2008 (File/Film No. 09525944) filed on January 14, 2009.

*10.13		First Amendment to 2005 Long-Term Incentive Plan, dated December 20, 2006 is incorporated by reference to Exhibit 10.22 from the Company’s Form 10-Q for the quarter ended February 28, 2009 (File/Film No. 09747626) filed on April 14, 2009.

*10.14		Second Amendment to 2005 Long-Term Incentive Plan, dated November 5, 2007 is incorporated by reference to Exhibit 10.23 from the Company’s Form 10-Q for the quarter ended February 28, 2009 (File/Film No. 09747626) filed on April 14, 2009.

*10.15		Third Amendment to 2005 Long-Term Incentive Plan, dated December 11, 2008 is incorporated by reference to Exhibit 10.24 from the Company’s Form 10-Q for the quarter ended February 28, 2009 (File/Film No. 09747626) filed on April 14, 2009.

10.16		Amended and Restated Credit Agreement between the Registrant and CoBank, ACB dated July 30, 2009 is Incorporated by reference to Exhibit 10.17 from the Company’s Annual Report on Form 10-K for the year ended August 31, 2009 (File/Film No. 091156997) filed on November 4, 2009.

10.17		Amended and Restated Uniform Member Marketing Agreement between the Registrant and Midwest Agri-Commodities Company dated September 1, 2009 is incorporated by reference to Exhibit 10.18 from the Company’s Annual Report on Form 10-K for the year ended August 31, 2009 (File/Film No. 091156997) filed on November 4, 2009.

10.18		Amended and Restated Member Control Agreement between Registrant and Golden Growers Cooperative dated September 1, 2009 is incorporated by reference to Exhibit 10.19 from the Company’s Annual Report on Form 10-K for the year ended August 31, 2009 (File/Film No. 091156997) filed on November 4, 2009.

10.19		First Amendment to Amended and Restated Credit Agreement between the Registrant and CoBank, ACB dated July 30, 2010 is incorporated by reference to Exhibit 10.20 from the Company’s Annual Report on Form 10-K for the year ended August 31, 2010 (File/Film No. 101161560) filed on November 3, 2010.

*10.20		Fourth Amendment to 2005 Long-Term Incentive Plan, dated August 1, 2010 is incorporated by reference to Exhibit 10.21 from the Company’s Annual Report on Form 10-K for the year ended August 31, 2010 (File/Film No. 101161560) filed on November 3, 2010.

10.21		Administrative Consent Agreement between the Registrant and the North Dakota Department of Health dated September 7, 2010 is incorporated by reference to Exhibit 10.22 from the Company’s Annual Report on Form 10-K for the year ended August 31, 2010 (File/Film No. 101161560) filed on November 3, 2010.

10.22		Second Amendment to Amended and Restated Credit Agreement between the Registrant and CoBank, ACB dated November 4, 2010 is incorporated by reference to Exhibit 10.23 from the Company’s Form 10-Q for the quarter ended November 30, 2010 (File/Film No. 11528964) filed on January 14, 2011.

10.23		Third Amendment to Amended and Restated Credit Agreement between the Registrant and CoBank, ACB dated July 19, 2011 is incorporated by reference to Exhibit 10.23 from the Company’s Annual Report on Form 10-K for the year ended August 31, 2011 (File/Film No. 111224383) filed on November 23, 2011.

*10.24		Employment Agreement dated July 15, 2011 between the Registrant and Joseph J. Talley is incorporated by reference to Exhibit 10.24 from the Company’s Annual Report on Form 10-K for the year ended August 31, 2011 (File/Film No. 111224383) filed on November 23, 2011.

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Filed herewith electronically

31.1		Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-15(e)/15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-15(e)/15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

**101		The following materials from American Crystal Sugar Company’s Quarterly Report on Form 10-Q for the period ended February 29, 2012, filed with the SEC on April 13, 2012, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets for at February 29, 2012, February 28, 2011 and August 31, 2011, (ii) Consolidated Statements of Operations for the six month and three-month periods ended February 29, 2012 and February 28, 2011, (iii) Consolidated Statements of Cash Flows for the six month periods ended February 29, 2012 and February 28, 2011, and (iv) Notes to Financial Statements.

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

** Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed part of a registration statement, prospectus or other document filed under the Securities Act of the Exchange Act, except as shall be expressly set forth by specific reference to such filings.

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 13, 2012		/s/ Teresa Warne
			Teresa Warne
			Corporate Controller,
			Chief Accounting Officer
			Duly Authorized Officer

AMERICAN CRYSTAL SUGAR CO /MN/ - FORM 10-Q - April 13, 2012

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AMERICAN CRYSTAL SUGAR CO /MN/ Reports