UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x
Annual Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the fiscal year ended August 31, 2010
or
o
Transition Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
Commission File Nos. 33-83868;
333-11693 and 333-32251
AMERICAN CRYSTAL SUGAR COMPANY
(Exact name of registrant as specified in its charter)
Minnesota
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84-0004720
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(State of incorporation)
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(I.R.S. Employer Identification Number)
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101 North Third Street
Moorhead, MN 56560
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(218) 236-4400
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(Address of principal executive offices)
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(Registrants telephone number)
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Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate
by check mark if the registrant is a well known seasoned issuer, as defined in Rule 405
of the Securities Act. Yes
o
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13
or 15(d) of the Act. Yes
o
No
x
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 (or for such shorter period that the
Registrant was required to file such reports), 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.
See definition of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act. (Check one)
Large
accelerated filer
o
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Accelerated
filer
o
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Non-accelerated
filer
x
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Smaller
reporting company
o
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Indicate
by check mark whether the registrant is a shell company (as defined in rule 12b-2
of the Act). Yes
o
No
x
As
of October 28, 2010, 2,768 shares of the Registrants Common Stock and
498,570 shares of the Registrants Preferred Stock were outstanding. There is no established public market for the
Registrants Common Stock or Preferred Stock.
Although there is a limited, private market for shares of the Registrants
stock, the Registrant does not obtain information regarding the transfer price
in transactions between its members and therefore is unable to estimate the
aggregate market value of the Registrants shares held by non-affiliates.
DOCUMENTS INCORPORATED BY
REFERENCE
NONE
PART I
This report contains forward-looking statements and information based
upon assumptions by American Crystal Sugar Companys management, including
assumptions about risks and uncertainties faced by the Company. These forward-looking statements can be
identified by the use of forward-looking terminology such as expects, believes,
will or similar verbs or expressions.
If any of managements assumptions prove incorrect or should
unanticipated circumstances arise, the Companys actual results could
materially differ from those anticipated by such forward-looking
statements. The differences could be
caused by a number of factors or combination of factors, including, but not
limited to, those factors influencing the Company and its business which are
described in this report in the Risk Factors section below. Readers are urged to consider these factors
when evaluating any forward-looking statement.
The Company undertakes no obligation to update any forward-looking
statements in this report to reflect future events or developments.
Item 1.
BUSINESS
GENERAL
The
Company is a Minnesota 308A agricultural cooperative corporation owned by
approximately 2,800 sugarbeet growers in the Minnesota and North Dakota
portions of the Red River Valley. The
Red River Valley forms a band approximately 35 miles wide on either side of the
North Dakota and Minnesota border and extending approximately 200 miles south
from the border of the United States and Canada. The Company was organized in 1973 by
sugarbeet growers to acquire the business and assets of the American Crystal
Sugar Company, then a publicly held New Jersey corporation in operation since
1899. By owning and operating five
sugarbeet processing facilities in the Red River Valley, the Company provides
its shareholders with the ability to process their sugarbeets into sugar and
agri-products such as: molasses; sugarbeet pulp; and by-products of the
molasses desugarization process, betaine and concentrated separated by-product
(CSB). The Companys Board of Directors
establishes sugarbeet acreage planting requirements in the Red River Valley
(the Red River Valley crop) each year based on factory processing capacity,
expected crop quality, government regulations and other factors. The total authorized acres to be planted are
allocated ratably to each preferred share held by the members. The Company processed sugarbeets from
approximately 442,000 acres for the 2009 Red River Valley crop and expects to
process sugarbeets from approximately 415,000 acres for the 2010 Red River
Valley crop.
The
Company, through its wholly-owned subsidiary, Sidney Sugars Incorporated
(Sidney Sugars), owns two additional sugarbeet processing facilities. At the Sidney, Montana, facility, the Company
processed non-member sugarbeets from approximately 25,000 acres for the 2009 crop
and expects to process from approximately 31,000 acres for the 2010 crop. The Torrington, Wyoming, facility has been
leased on a long-term basis to another sugar producer.
The Company, through its wholly-owned subsidiary, Crab
Creek Sugar Company (Crab Creek), controls the long-term production of sugar at
a sugarbeet processing facility at Moses Lake, Washington. Neither Crab Creek nor the Company currently
operates or intends to operate the Moses Lake facility.
The
Company is the controlling member of ProGold Limited Liability Company (ProGold),
which owns a corn wet-milling plant in Wahpeton, North Dakota, that is
currently being leased to Cargill, Incorporated (Cargill) pursuant to a 10
year lease between ProGold and Cargill that runs through December 31,
2017. The lease provides that Cargill pay ProGold average annual rental
payments equal to $21,900,000.
2
The
Companys sugar marketing agent, United Sugars Corporation (United), is a
cooperative owned by the Company, Minn-Dak Farmers Cooperative and United
States Sugar Corporation. The Companys
agri-products are marketed through a marketing agent, Midwest Agri-Commodities
Company (Midwest). Midwest is a
cooperative owned by the Company, Minn-Dak Farmers Cooperative, Southern Minnesota
Beet Sugar Cooperative and Michigan Sugar Company.
Operating Segments
The
Company has identified two reportable operating 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. For financial information by
segment see Note 12 of Notes to the Consolidated Financial Statements.
Principal Products Produced
The Company is engaged primarily in the production and marketing of
sugar from sugarbeets. Total sugar sales
accounted for 88.1 percent, 85.6 percent and 87.1 percent of the Companys
consolidated total revenues for the years ended August 31, 2010, 2009 and
2008, respectively. United Sugars
Corporation, the Companys sugar marketing agent, sells sugar primarily to
industrial users such as confectioners, breakfast cereal manufacturers and
bakeries. For the fiscal year ended
August 31, 2010, 86.4 percent (by weight) of the sugar was sold to
industrial users. The remaining portion
is marketed by United Sugars Corporation to wholesalers and retailers under the
Crystal Sugar and various private labels for household consumption. With regard to brand name sales, the Company
licenses the use of the Crystal Sugar trademark to United Sugars Corporation.
The
majority of United Sugars Corporations sugar sales are contracted one or more
quarters in advance.
The Company also sells agri-products such as: molasses; sugarbeet pulp;
betaine and concentrated separated by-product (CSB), by-products of the
molasses desugarization process; and sugarbeet seed. Substantially all of the Companys
agri-products are marketed through Midwest Agri-Commodities Company, a common
marketing agency. Sugarbeet pulp is
marketed to livestock feed mixers and livestock feeders in the United States
and foreign markets. A large proportion
of the Companys pulp production is exported to Japan and Europe. The market for sugarbeet pulp is affected by
the availability and quality of competitive feedstuffs and foreign exchange
rates. Sugarbeet molasses is marketed
primarily to yeast manufacturers, livestock feed mixers and livestock feeders. Total agri-product sales accounted for 8.7
percent of the Companys consolidated total revenues during fiscal 2010, of
which export agri-product sales accounted for 3.8 percent of such
revenues. Agri-products sales accounted
for 10.4 percent and 9.9 percent of the Companys consolidated total revenues
in fiscal 2009 and fiscal 2008, respectively, while agri-product export sales
accounted for 4.8 percent and 4.4 percent of the Companys total revenues in
fiscal 2009 and fiscal 2008, respectively.
There is no single customer of United or Midwest attributable to the
Company that accounts for 10 percent or more of the revenues of the Company.
The Companys total annual sugar and agri-product production is
influenced by the amount and the quality of sugarbeets grown by its members and
non-members, the processing capacity of the Companys plants, by its ability to
store harvested sugarbeets and by government programs and regulations.
3
Raw Materials
The Company purchases all of its Red River Valley sugarbeets from
members under contract with the Company.
All members are party to a five year contract for the 2008 through 2012
crop years which will automatically renew for additional five-year terms unless
terminated by one of the parties at the end of the current term. In addition, each member has an annual
contract with the Company specifying the number of acres the member is
obligated to grow during that year. Each
share of Preferred Stock held by a member requires that member to grow sugarbeets,
subject to the planting tolerance, for sale to the Company. The Companys Board of Directors has the
discretion to adjust the acreage that is required to be planted for each share
of Preferred Stock held by the members.
The Companys Board of Directors set the planting tolerance for the 2010
crop year at .80 to .85 acres per share of preferred stock. Based on current market conditions and
processing capacity, the Company estimates planting tolerances for the 2011
crop year and beyond will be in the range of .80 to .85 acres per Preferred
Share. The Board of Directors and management regularly review and determine the
relationship between the ownership of Preferred Stock and acreage planting.
The
gross beet payment is the value of recovered sugar from the sugarbeets a member
delivers plus the members share of agri-product revenues, minus the members
share of member business operating costs.
The following allowances, costs and deductions, if applicable, are used
to adjust the gross beet payment to arrive at the net payment to the members:
hauling program allowance and costs, pre-pile premium and costs, tare incentive
premium/penalty program, late harvest program costs and unit retains. The costs of these programs are shared among
members on the basis of the net tonnage of sugarbeets delivered by each member.
Under
the grower contracts, payments to members for sugarbeets must be made in at
least three installments: (i) on or about November 15, the Company
pays its members an amount equal to 65 percent of the Companys estimate of the
members net beet payment; (ii) on or about March 31, the Company
pays an amount, which combined with the November payment, equals 90
percent of the members estimated net beet payment; (iii) and not more
than 15 days after completion and acceptance of the audit of the Companys
annual consolidated financial statements by the Board of Directors, the Company
pays the remainder of the members net beet payment. Except for unit retains, the Company must pay
to its members for their sugarbeets all proceeds from the sale of the members
sugar and agri-products in excess of related member business operating costs,
as described above.
All
of the sugarbeets processed at the Sidney, Montana, factory are purchased from
non-member growers under contract with Sidney Sugars. Each non-member grower has an annual contract
with Sidney Sugars specifying the number of acres the non-member grower is obligated
to grow during each year.
The
price per ton of sugarbeets paid to the growers who deliver to Sidney Sugars
(the Scale Payment) is determined according to the sugarbeet payment scale
contained in the grower contract and is calculated based on Sidney Sugars
average net return for sugar from that years crop, the adjusted average sugar
content of each growers sugarbeets and sugarbeet storage results.
Under
grower contracts between Sidney Sugars and its growers, payments to these
growers for sugarbeets must be made in three installments following delivery of
the crop: (i) in November, Sidney Sugars pays the growers an amount equal
to 65 percent of the estimated Scale Payment for that years crop; (ii) in
April, Sidney Sugars pays an amount, which combined with the
November payment, equals 90 percent of the estimated Scale Payment for
that years crop; (iii) and in October, Sidney Sugars pays the remainder
of the actual Scale Payment.
4
Seasonality
The period during which the Companys plants are in
operation to process sugarbeets into sugar and agri-products is referred to as
the campaign. During the campaign, the
Companys factories operate twenty-four hours per day, seven days per
week. In the Red River Valley, the
campaign typically begins in September and continues until the available
supply of sugarbeets has been depleted, which generally occurs in May of
the following year. Based on current
processing capacity, an average campaign lasts approximately 250 days, assuming
normal crop yields. At the Sidney,
Montana factory, the campaign begins in late September or early
October. The 2010 campaign lasted 111
days.
The sales of sugar and agri-products occur ratably
throughout the year with modest increases in sugar sales occurring prior to
holiday seasons.
Sales Backlog
The backlog of any unfilled sales orders at August 31,
2010 and 2009 was not material to the Company.
Market and Competition
Current
United States government statistics estimate total United States refined sugar
deliveries at approximately 204 million hundredweight for the year
beginning October 1, 2009 and ending September 30, 2010. For the same period ending
September 2009, total deliveries were approximately 198 million
hundredweight. Comparing the two years
shows an increase in demand of approximately three percent.
The
United States refined sugar market has grown less than one percent per year
over the last ten years. Corn sweeteners
and non-nutritive sweeteners also constitute a large portion of the overall sweetener
market. The Company believes that the
United States annual market growth for sugar in the near future will
approximate that of the last ten years.
The
United States sugar industry has been subject to industry consolidation. Today, there are fewer than 10 sugar sellers,
with approximately 72 percent of United States sugar market
share concentrated in the top three sellers.
The Companys sugar production and sales represent approximately 14
percent of the total domestic market for refined sugar in 2009/2010. The Company had the right to market, or to
have marketed on its behalf, approximately 32 million hundredweight of sugar
from the 2009 crop. Sugar sales by
United Sugars Corporation, the Companys marketing agent, represent
approximately 24 percent of the United States sugar market.
United
is currently the second largest marketer of sugar in the United States. Main
competitors in the domestic market are: The American Sugar Refining Company;
Imperial Sugar Company; Cargill, Incorporated; The Amalgamated Sugar
Company LLC; Michigan Sugar Company; and The Western Sugar Cooperative. Because sugar is a fungible commodity,
competition in the United States sugar industry is primarily based upon price,
customer service and reliability as a supplier.
Government Programs and
Regulations
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:
5
·
maintains a non-recourse loan program,
·
sets a minimum overall allotment quantity for
U.S. producers at no less than 85% of domestic consumption,
·
maintains a system of marketing allocations
for sugarbeet and sugar cane producers,
·
restricts imports of foreign sugar and
·
provides a new market balancing mechanism to
divert any oversupply of sugar from sugar producers to ethanol producers.
Under
the Farm Bill, sugar processors can borrow funds on a non-recourse basis from
the Commodity Credit Corporation (CCC), with repayment of such funds secured by
sugar. If the price of sugar drops below
the forfeiture price, the processors can forfeit the sugar securing the loans
to the CCC in lieu of repayment.
Processors may also obtain CCC loans for in-process sugar or syrups at
80 percent of the loan rate.
The
Farm Bill incorporates gradual loan rate increases for raw and refined
sugar. For raw sugar, the loan rate
increases three-quarters of a cent per pound, raw value, phased-in in
quarter-cent increments over crop years 2009-2011. Raw cane loan rates were at 18.25 cents/lb
for the 2009 crop 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
23.45 cents/lb for the 2009 crop and are set at a rate equal to 128.5 percent
of the loan rate per pound for raw cane sugar for each of the 2010 through 2012
crop years.
The
U.S. Department of Agriculture (USDA) has historically maintained raw and
refined sugar prices above the forfeiture price without cost to the U.S.
Treasury by regulating the supply of sugar in the U.S. market through
management of a tariff rate quota system.
Currently, forty exporting countries retain guaranteed preferential
access to the U.S. market under World Trade Organization (WTO) and Free Trade
Agreement (FTA) rules. Mexicos 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 human 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. No sugar has been diverted under this market
balancing mechanism.
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 Companys marketing allocation for the
2009 crop was set at approximately 32 million hundredweight. The Companys marketing allocation for the
2010 crop is currently set at approximately 34 million hundredweight. The
Companys allocation may decrease 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 years ended September 30,
2010, 2009 and 2008, Mexico
6
exported
approximately 14 million, 26 million and 13 million hundredweight of sugar into
the United States, respectively. 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. governments 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
Companys 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 Companys 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.
Employees
As
of October 15, 2010, the Company had
1,361 full-time employees, of which
1,103 were hourly and 258 were salaried.
The Company had 16 part-time employees.
In addition, the Company
7
employs
approximately 874 hourly seasonal workers, approximately 373 during the
sugarbeet harvest and approximately 501 during the remainder of the sugarbeet
processing campaign.
During the sugarbeet harvest, the
Company also contracts with third party agencies for approximately another
1,300 additional workers.
Substantially
all of the hourly employees at the Companys factories, including full-time and
seasonal employees, are represented by the Bakery, Confectionery, Tobacco
Workers and Grain Millers (BCTGM) AFL-CIO, and are covered by collective
bargaining agreements expiring July 31, 2011 for the Red River Valley
factory employees and April 30, 2012 for the Sidney, Montana, factory
employees. 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. The Company considers its employee relations
to be good.
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
Companys 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 Companys 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 Companys beet payment to
shareholders if the Company is not able to pass the increased costs on to the
Companys customers.
On June 26, 2009, the House of Representatives
passed H.R. 2454, the American Clean Energy and Security Act (ACES), a bill
that would 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 Courts
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 EPAs effort to use existing legal authority to
regulate GHGs. As an emitter of GHGs covered by ACES, the Company is
watching legislative and regulatory developments carefully yet cannot predict
whether new proposed laws or 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
8
changes
in operating procedures to contain hydrogen sulfide emissions at the Minnesota
factories. The Company is on schedule with the agreed to changes.
On
September 7, 2010, the Company entered into an Administrative Consent
Agreement with the North Dakota Department of Health related to pulp dryer
emissions at the Hillsboro, North Dakota factory. As part of the Administrative
Consent Agreement, the Company agreed to pay a penalty of $103,181, which was
recognized in fiscal 2010.
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 Companys factory locations of approximately $18.5
million.
Available Information
The
Companys corporate headquarters are located at 101 North Third Street,
Moorhead, Minnesota 56560, telephone number (218) 236-4400. The Companys fiscal year ends
August 31. The Companys website is
www.crystalsugar.com. The Company files
annual, quarterly and periodic reports with the United States Securities and
Exchange Commission (SEC). These reports
can be accessed by selecting Links on the Companys website or electronic or
paper copies can be obtained free of charge upon request. In addition, the Companys reports may be
read or copied at the SEC Public Reference Room at 100 F. Street, N.E.,
Washington, D.C. 20549. The public may
obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The
SEC maintains an Internet site at http://www.sec.gov that contains reports and
other information filed electronically about the Company.
Item 1A. RISK
FACTORS
The
risks described below together with all of the other information included in
this Annual Report on Form 10-K should be considered carefully. The risks and uncertainties described below
and elsewhere in this Annual Report on Form 10-K are not the only ones we
face. If any of the following risks
actually occur, our business, financial condition or results of operations
would likely suffer. In that case, the
beet payments made to our members may decrease, the value of our Preferred
Stock could fall, and a member could lose all or part of their investment.
Rising
operating expenses might inhibit our ability to compete effectively in our
industry.
Our
Company operates in a commodity market environment. Our strategy involves, to a substantial degree,
maximizing profitability by continuing to control operating expenses. In
furtherance of this strategy, we have engaged in ongoing, company-wide
efficiency activities intended to increase productivity and reduce costs. These activities have included realigning and
streamlining our operations and optimizing the efficiency of our production
facilities. We cannot assure that our
efforts will result in our continued or increased profitability.
An
oversupply of sugar could reduce the price of sugar and our profitability.
Many
factors can lead to an oversupply of sugar.
Excess supply may result in a decline in domestic sugar prices. Lower sugar prices directly impact
profitability of selling refined sugar in the United States. If the selling price of sugar decreases, our
revenues will decrease which will result in a direct negative impact on our
profitability.
9
Under
the current terms of the NAFTA and other government regulations, imports of
sugar from Mexico may enter the U.S. market.
These imports could oversupply the U.S. market and reduce the price of
sugar.
The
United States government has been engaged in regional and bilateral trade
negotiations with countries that produce sugar.
If the United States government enters into bilateral trade agreements
with sugar producing countries, the amount of sugar in the domestic sugar
market could increase. An increase in
the supply of sugar could reduce the price of sugar, which would reduce our
profitability.
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 for sugar in place 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.
If we
are unable to compete in the sweetener market, our operating results may
suffer.
Sugar
is a fungible commodity with competition for sales volume based primarily upon
price, customer service and reliability.
The overall sweetener market, in addition to sugar, includes corn-based
sweeteners, such as regular and high fructose corn syrups, and non-nutritive,
high-intensity sweeteners such as aspartame.
Differences in functional properties and prices have tended to define
the use of these various sweeteners.
Although the various sweeteners are not interchangeable in all
applications, the substitution of other sweeteners for sugar has occurred in certain
products, such as soft drinks. We cannot
predict the availability, development or potential use of these and other
alternative sweeteners and their possible impact on us or our members. We believe that we possess the ability to
compete successfully with other producers of sugar in the United States. In spite of this competitive advantage,
substitute products could reduce the demand for sugar which could lower the
price of sugar, resulting in reduced profitability in the future.
Our
Board of Directors authorized the planting of Roundup Ready® sugarbeets
beginning with the 2008 crop. Sugar and
agri-products produced from Roundup Ready® sugarbeets have received regulatory
approval in most of the countries in which we have direct or indirect sales of
our products. While the sale of sugar
and agri-products from Roundup Ready® sugarbeet seed has been approved in most
markets, marketing risks still exist.
United Sugars Corporation and Midwest Agri-Commodities, our sugar and
agri-product marketing agents, respectively, feel they can successfully sell
and distribute products from Roundup Ready® sugarbeets with minimal affect on
our revenue. However, customers views
on the use of products from biotechnology derived crops such as Roundup Ready®
sugarbeets may change over time which could negatively impact our
profitability.
Our
operations are sensitive to energy prices.
The
prices we pay for energy related products, such as natural gas, coal, coke and
diesel fuel, have been volatile and may continue to be volatile. We use substantial amounts of these products
in our manufacturing process. We believe
that the prices for these energy related products will continue to be
10
volatile
and higher than historical levels.
Higher energy prices may also increase the costs of many goods and
services we acquire. These higher prices
may materially increase our cost of production, thus reducing our
profitability.
Quantity
and quality of sugarbeets is sensitive to weather and other factors such as
seed varieties.
The
sugarbeet, as with most other crops, is affected by many factors, including
seed varieties and weather conditions during the growing season. Additionally, the quantity of sugarbeets to
be processed and weather conditions during the processing season affect our
ability to store sugarbeets held for processing. Growing and storage conditions different from
what we predict or expect may change the quantity and quality of sugarbeets
available for processing and therefore may affect the quantity of the sugar we
produce.
A
significant decrease in the quantity or quality of sugarbeets harvested due to
poor weather conditions would result in higher unit operating costs and lower
earnings.
A
significant increase in the quantity or quality of sugarbeets harvested due to
good weather conditions or improved seed varieties could result in an
unpredictably large quantity of sugarbeets to be processed. If we are required to process a larger than
anticipated quantity of sugarbeets we may experience increased per unit of
sugar processing cost which in turn would have an adverse financial consequence
to us and our members.
In order to manage the quantity and quality of sugarbeets that are
harvested or available for processing, our Grower Contract allows for a
reduction in the number of acres to be planted at the beginning of a crop year or
harvested at the end of a crop year.
Adequate sugarbeet storage conditions during a processing campaign are
critical to ensure that the quantity and quality of sugarbeets available for
processing are maintained. If we are not
able to obtain or maintain adequate storage conditions, the sugarbeets stored
for processing at a later date may deteriorate, resulting in increased
production costs, and decreased production which in turn would have an adverse
financial consequence to us and our members.
Based
on results of recent yield trials and crop results, we expect that new
sugarbeet varieties may continue to result in increases in the average
sugarbeet crop yields over the next five years.
As a result, we anticipate that there may continue to be a need to
reduce the number of acres of sugarbeets that can be planted by each
shareholder in order to match the sugarbeet crop volume to our processing and
marketing capacity. This reduction, if
necessary, would be accomplished by reducing the per share planting tolerance
by an amount that may be material.
Assuming there are no changes in other variables, the increased yield
per acre expected to result from the continued use of the new sugarbeet
varieties would allow shareholders to deliver substantially the same number of
tons of sugarbeets to us from fewer acres.
Individual shareholder profitability will continue to depend on the
circumstances unique to each shareholder.
On
September 21, 2009 the U.S. District Court (District Court) ruled against
the 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.
11
Following
the August 13, 2010 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. In addition, the
District Court immediately 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 is prohibited until further action is taken by USDA in accordance with
applicable law to allow planting of Roundup Ready® sugarbeet seed. It is impractical to speculate on the
likelihood of the USDA taking action prior to the planting of the 2011
sugarbeet crop. Given the recent ruling,
and the uncertain timing of USDA action, it is possible that the Companys
shareholders may not be able to plant Roundup Ready® sugarbeets in 2011. The ability of shareholders to plant Roundup
Ready® sugarbeets in subsequent years will be determined as a final matter
based on the outcome of the EIS and further decision by USDA. The number of years required to complete the
EIS is uncertain.
If
the Companys shareholders are not able to plant Roundup Ready® sugarbeets,
conventional varieties would need to be utilized which could have a negative
impact on our crop yields. Chemical
manufacturers have significantly reduced planned production of conventional
herbicides due to the rapid increase in planting of Roundup Ready®
sugarbeets. Weed control for
conventional varieties could be difficult if there is an inadequate supply of
conventional herbicides. While we are
taking precautionary measures, the risk of Roundup Ready® sugarbeet
restrictions still exists and the negative financial impact to us and our
members could be significant.
If
we are unable to manage the quantity and quality of sugarbeets available for
processing, we could experience adverse financial consequences that would
impact both us and our members.
Increased
profitability of alternative crops could adversely affect the desirability of
growing sugarbeets.
The
prices growers receive from crops other than sugarbeets could impact their
decisions as to which crop to plant and how much to plant. Higher prices and increased profitability for
alternative crops could negatively impact the desirability of growing sugarbeets
for delivery to us for processing, our financial results, and our continued
viability.
Federal,
state and local environmental laws and regulations may impact our operations.
We
are subject to extensive federal and state environmental laws and regulations
with respect to water and air quality and solid waste disposal. We conduct on-going programs designed to meet
these environmental laws and regulations.
Changes in environmental laws or regulations or complying with existing
environmental laws and regulations or enforcement action brought under such
environmental laws and regulations might increase the cost of operating our
facilities or result in significant capital investment. Any such changes or compliance costs could
reduce our profitability.
Our
sugar manufacturing process is energy intensive and generates carbon dioxide
and other Greenhouse Gases (GHGs).
Several bills have been introduced in the United States Senate and House
of Representatives that would regulate GHGs and carbon dioxide emissions to
reduce the impact of global climate change.
We believe it is likely that industries generating GHGs, including us,
will be subject to either federal or state regulation under climate change
policies in the relatively near future.
These policies, if adopted, will increase our energy and other operating
costs. Depending on how these policies
address imports, the domestic sugar market may have a competitive disadvantage
with imported
12
sugar. These policies could have a significant negative
impact on the beet payment to our shareholders if we are not able to pass the
increased costs on to our customers.
Healthcare
Legislation may impact our operations.
In
March 2010, the Patient Protection and Affordable Care Act (PPACA) and the
Health Care and Education Reconciliation Act which amends certain provisions of
the PPACA were signed into law. We
believe healthcare costs could increase as a result of this legislation,
negatively affecting our profitability.
Item 1B.
UNRESOLVED
STAFF COMMENTS
None.
Item 2.
PROPERTY
AND PROCESSING FACILITIES
The
Company operates five sugarbeet processing factories in the Red River Valley
and one in Sidney, Montana. The Company
owns all of its factories and the land on which they are located. The factories range in size from 150,000 to
400,000 square feet. These properties
are used in the Companys sugar segment. The location and processing capacity
of the Companys factories are:
Location
|
|
Approximate Daily Slicing Capacity
(Tons of Sugarbeets)
|
|
|
|
Crookston,
MN
|
|
5,950
|
East
Grand Forks, MN
|
|
9,200
|
Moorhead,
MN
|
|
6,000
|
Drayton,
ND
|
|
6,850
|
Hillsboro,
ND
|
|
9,000
|
Sidney,
MT
|
|
6,400
|
Each
of the processing factories includes the physical facilities and equipment
necessary to process sugarbeets into sugar.
Each factory has space for sugarbeet storage, including ventilated
storage sites. The Red River Valley
factories also have cold storage facilities.
Each of the Red River Valley factories is currently operating at or near
its capacity. The Sidney, Montana
factory is currently operating at less than full capacity. The Company owns molasses desugarization
(MDS) plants at its East Grand Forks and Hillsboro facilities. The MDS plants process molasses to extract
additional sugar. The Company has sugar
packaging facilities located at the Moorhead, Hillsboro, Crookston, East Grand
Forks and Sidney factories.
The
Company also owns a sugarbeet processing plant in Torrington, Wyoming. The Torrington, Wyoming, facility is leased
on a long-term basis to another sugar company.
ProGold
owns a corn wet-milling plant in Wahpeton, North Dakota, which is currently
being leased to Cargill. The corn
wet-milling plant is capable of processing corn to produce high fructose corn
syrup and various agri-products. This
property is used in the Companys leasing segment. The 10 year lease between ProGold and Cargill
runs through December 31, 2017 and provides that Cargill pay ProGold
average annual rental payments equal to $21,900,000.
The
Companys corporate office is located in a 30,000 square foot, two-story office
building in Moorhead, Minnesota. The
Company also has a 100,000 square foot Technical Services Center situated
13
on
approximately 200 acres in Moorhead, Minnesota.
The Company owns both facilities.
The Company also owns numerous sites as sugarbeet receiving and storage
stations located within proximity of their factories. Substantially all non-current assets are
mortgaged or pledged as collateral for its indebtedness to various financial
institutions.
Item 3.
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 workers
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 Companys
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 Companys 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 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.
Following
the August 13, 2010 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. In addition, the
District Court immediately 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 is prohibited until further action is taken by USDA in accordance with
applicable law to allow planting of Roundup Ready® sugarbeet seed. It is impractical to speculate on the
likelihood of the USDA taking action prior to the planting of the 2011
sugarbeet crop. Given the recent ruling,
and the uncertain timing of USDA action, it is possible that the Companys
shareholders may not be able to plant Roundup Ready® sugarbeets in 2011. The ability of shareholders to plant Roundup
Ready® sugarbeets in subsequent years will be determined as a final matter
based on the outcome of the EIS and further decision by USDA. The number of years required to complete the
EIS is uncertain.
Item 4.
(REMOVED
AND RESERVED)
14
PART II
Item 5.
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
As
of August 31, 2010, the Company had 2,768 shares of the Common Stock and
498,570 shares of the Preferred Stock issued and outstanding. There is no established public market for the
Companys Common Stock or Preferred Stock, as such shares may be held only by
farmer-producers who are eligible for membership in the Company. The Companys shares are not listed for
trading on any exchange or quotation system.
Although transfers of the Companys shares may occur only with the
consent of the Board of the Directors, the Company does not obtain information
regarding the transfer price in connection with such transfers. As a result, the Company is not able to
provide information regarding the prices at which the Companys shares have
been transferred.
Because
the number of acres of sugarbeets a member may grow for sale to the Company is
directly related to the number of shares of Preferred Stock owned, a limited,
private market for Preferred Stock exists.
It is not anticipated that a general public market for the Companys
shares of Common Stock or Preferred Stock will develop due to the limitations
on transfer and the various membership requirements which must be satisfied in
order to acquire such shares.
A
member desiring to sell his or her Common Stock or Preferred Stock must first
offer them to the Company for purchase at par value. If the Company declines to purchase such
shares, either class may be sold to a new member (i.e., another farm operator
not already a member) and Preferred Stock may be sold to one or more existing
members or farm operators approved for membership, in each case subject to
approval by the Board of Directors. To
date, the Companys Board of Directors has not exercised the Companys right of
first refusal to purchase preferred shares offered for sale by its
members. Because the Company does not
require parties seeking approval for transfers to provide information regarding
the transfer price, the Company does not possess verifiable information
regarding the transfer price involved in recent transfers of the Companys
Preferred Stock.
Item 6.
SELECTED
FINANCIAL DATA
The
selected financial data of the Company should be read in conjunction with the
consolidated financial statements and related notes included in Appendix A of
this report.
|
|
Fiscal Year Ended August 31,
(In Thousands, except for ratios)
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues
|
|
$
|
1,203,897
|
|
$
|
1,200,229
|
|
$
|
1,232,832
|
|
$
|
1,222,857
|
|
$
|
1,005,716
|
|
Consolidated Net Proceeds (1)
|
|
$
|
532,544
|
|
$
|
542,254
|
|
$
|
549,589
|
|
$
|
607,028
|
|
$
|
449,658
|
|
Total Assets
|
|
$
|
787,678
|
|
$
|
761,258
|
|
$
|
813,299
|
|
$
|
875,315
|
|
$
|
839,997
|
|
Long-Term Debt, Net of Current Maturities
|
|
$
|
140,698
|
|
$
|
143,073
|
|
$
|
157,801
|
|
$
|
157,974
|
|
$
|
200,037
|
|
Total Members Investments
|
|
$
|
330,610
|
|
$
|
339,528
|
|
$
|
391,115
|
|
$
|
395,620
|
|
$
|
379,355
|
|
Property and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
Additions, net of retirements
|
|
$
|
73,512
|
|
$
|
47,687
|
|
$
|
45,188
|
|
$
|
63,032
|
|
$
|
45,453
|
|
Working Capital
|
|
$
|
54,057
|
|
$
|
50,482
|
|
$
|
57,775
|
|
$
|
36,929
|
|
$
|
58,214
|
|
Ratio of Long-Term Debt to Total Equity (2)
|
|
.43:1
|
|
.42:1
|
|
.40:1
|
|
.40:1
|
|
.53:1
|
|
15
|
|
Fiscal Year Ended August 31,
(In Thousands, except for Tons purchased per acre harvested
and Sugar content of sugarbeets)
|
|
Crop Data (3)
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acres harvested
|
|
467
|
|
422
|
|
529
|
|
507
|
|
507
|
|
Tons purchased
|
|
10,501
|
|
10,707
|
|
12,465
|
|
12,845
|
|
9,628
|
|
Tons purchased per acre harvested
|
|
22.5
|
|
25.4
|
|
23.6
|
|
25.3
|
|
19.0
|
|
Sugar Content of Sugarbeets
|
|
16.7
|
%
|
17.6
|
%
|
18.1
|
%
|
18.2
|
%
|
18.0
|
%
|
Sugar hundredweight
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
29,028
|
|
30,679
|
|
36,613
|
|
37,193
|
|
29,728
|
|
Sold, including purchased sugar
|
|
30,370
|
|
32,870
|
|
36,879
|
|
35,243
|
|
29,691
|
|
Purchased sugar sold
|
|
335
|
|
618
|
|
179
|
|
7
|
|
45
|
|
Agri-Products tons
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
669
|
|
695
|
|
849
|
|
930
|
|
717
|
|
Sold
|
|
694
|
|
672
|
|
871
|
|
898
|
|
721
|
|
(1)
Consolidated Net Proceeds are the Companys gross revenues, including lease
revenue, less the costs and expenses of producing and marketing sugar,
agri-products and sugarbeet seed, but before payments to members for
sugarbeets. (For a more complete
description of the calculation of the payment to members for sugarbeets, see Item
1. Business Raw Materials.)
(2)
Calculated by dividing the Companys long term debt, exclusive of the current
maturities of such debt, by total members investments.
(3)
Information for a fiscal year relates to the crop planted and harvested in the
preceding calendar year (i.e., information for the fiscal year ended August 31,
2010 relates to the crop of 2009). Crop
data reflect the combined data of the Red River Valley crop and the Sidney
crop.
Item 7.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial conditions and results of
operations of the Company should be read in conjunction with the Companys
consolidated financial statements and notes thereto included in Appendix A of
this report.
Liquidity and Capital Resources
Under
the Companys 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 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 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.
16
During
the recent 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 August 31, 2010 and a line of
credit with Wells Fargo Bank for $1.0 million, against which there was no
outstanding balance as of August 31, 2010.
The Companys commercial paper program provides short-term borrowings of
up to $320 million of which approximately $5.0 million was outstanding as of August 31,
2010. The Company had $3.0 million of
short-term letters of credit outstanding as of August 31, 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 August 31, 2010, was $313.0 million. The
Company is currently seeking an increase in the seasonal line of credit with
the consortium of lenders led by CoBank, ACB in anticipation of the funds
required for the final 2009 crop net beet payment and the initial 2010 crop
estimated net beet payment which will be issued in November. The Company expects to complete the amended seasonal
line of credit agreement in early November.
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 Company did not utilize the CCC during
fiscal 2010. The limitations on such
borrowings are based on the amount of the Companys sugar inventory and certain
loan covenant restrictions by CoBank, ACB.
As of August 31, 2010, the Company had the capacity to obtain
non-recourse loans from the CCC of approximately $66.9 million.
The
Company also has a long-term debt line of credit through July 30, 2015,
with CoBank, ACB of
$132.1
million, of which $21.3 million in loans and $69.9 million in long-term letters
of credit were outstanding as of August 31, 2010. The unused long-term line of credit as of August 31,
2010, was $40.9 million. In addition,
the Company had long-term debt outstanding, as of August 31, 2010, of
$50 million from a private placement of Senior Notes that occurred in September of
1998 and $69.8 million from five separate issuances of Pollution Control
and Industrial Development Revenue Bonds.
The
Company had outstanding purchase commitments totaling $23.2 million as of August 31,
2010, for equipment and construction contracts related to various capital
projects.
As
of August 31, 2010, Midwest had outstanding short-term debt with CoBank,
ACB of $4.9 million, of which $2.3 million was guaranteed by the Company.
The
net cash provided by operations was $159.4 million for the year ended August 31,
2010, as compared to $72.1 million for the year ended August 31,
2009. This increase in the cash provided
of $87.3 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 $3.2 million from
the prior year which was the result of a decrease in the member gross beet
payment of $13.2 million and increased revenue of $3.6 million partially offset
by increased costs of $12.1 million and decreased unit retains of $1.5 million.
·
There was a net favorable change in assets
and liabilities of $84.1 million primarily comprised of the following:
·
The decrease in cash used
related to the Amount Due Growers of $83.6 million was due to a reduction of
$33.7 million in the final grower payments issued in fiscal 2010 for the
17
previous years crop as
compared to the final grower payments issued in fiscal 2009. Also adding to
this favorable change was $49.9 million due to a larger increase this year as
compared to last year in the grower payments since the last payments were made
to the growers in March of each year partially offset by a lower current
years total estimated grower payment due to a reduction in tons harvested.
·
The decrease in cash used
related to changes in advances to related parties of $15.2 million was
primarily due to the timing of the cash requirements of our marketing agents.
·
The decrease in cash used
related to changes in other liabilities of $6.8 million and $4.8 million in
non-current pension asset/liabilities is due to the timing of payments.
·
The increase in cash
provided by receivables of $4.1 million is due to the timing of collections.
·
These favorable changes in
cash were partially offset by an increase in cash used related to the change in
inventories of $29.8 million which was primarily due to an increase in finished
product inventories as of August 31, 2010.
Sugar and molasses on hand increased due primarily to early startup of
the factories and an increased net realizable value per hundredweight of sugar
and per ton of Betaine. This increase
was partially offset by a decreased net realizable value per ton of molasses,
pulp and CSB.
The
net cash used in investing activities was $69.6 million for the year ended August 31,
2010, as compared to $49.8 million for the year ended August 31,
2009. The increase of $19.8 million was
primarily due to increased purchases of property and equipment of $22.7 million
partially offset by a change in other assets of $1.5 million and an equity
distribution from CoBank, ACB in 2010 of $1.5 million.
The
net cash used for financing activities was $89.8 million for the year ended August 31,
2010, as compared to $22.3 million for the year ended August 31,
2009. This increase of $67.5 million was
primarily due to increased payments on short-term debt of $71.7 million,
decreased proceeds from long term debt of $100.0 million, partially offset by
decreased payments on long term debt of $96.2 million, increased distributions
to minority interest of $ .3 million and decreased payments of unit retains of
$7.7 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.
The following table provides information regarding
the Companys contractual obligations as of August 31, 2010:
(In Thousands)
|
|
Total
|
|
Less than
One Year
|
|
One to
Three Years
|
|
Four to Five
Years
|
|
After Five
Years
|
|
Long-Term Debt
|
|
$
|
141,073
|
|
$
|
375
|
|
$
|
13,345
|
|
$
|
14,943
|
|
$
|
112,410
|
|
Interest on Fixed Rate L-T
Debt
|
|
52,464
|
|
3,846
|
|
11,422
|
|
7,527
|
|
29,669
|
|
Purchase Obligations
|
|
26,465
|
|
25,858
|
|
495
|
|
112
|
|
|
|
Operating Lease
Obligations
|
|
12,972
|
|
1,598
|
|
4,143
|
|
2,142
|
|
5,089
|
|
Other Long-Term
Obligations(1)
|
|
89,684
|
|
6,169
|
|
9,864
|
|
6,761
|
|
66,890
|
|
Pension Plan
Contributions(2)
|
|
10,000
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Obligations
|
|
$
|
332,658
|
|
$
|
47,846
|
|
$
|
39,269
|
|
$
|
31,485
|
|
$
|
214,058
|
|
(1)
Accrued Employee benefits of $2.2 million with corresponding offsetting assets
and requiring no future payments have been excluded from the amounts
presented. Other Long-Term Liabilities
of $2.5 million, which relate to deferred revenue also requiring no future
payments, have also been excluded from the table.
18
(2)
The Company expects to make contributions of approximately $10.0 million to the
defined benefit pension plans during the next fiscal year. Contributions for future years are not known
at this time and therefore are not included in the above table. The Company expects to make contributions in
the next fiscal year of approximately $99,000 related to Supplemental Executive
Retirement Plans. This amount is
reflected in Other Long-Term Obligations in the above table.
Critical
Accounting Policies and Estimates
Preparation
of the Companys consolidated financial statements requires estimates and
judgments to be made that affect the amounts of assets, liabilities, revenues
and expenses reported. Such decisions include the selection of the
appropriate accounting principles to be applied and the assumptions on which to
base accounting estimates. Management continually evaluates these
estimates based on historical experience and other assumptions we believe to be
reasonable under the circumstances.
The
difficulty in applying these policies arises from the assumptions, estimates
and judgments that have to be made currently about matters that are inherently
uncertain, such as future economic conditions, operating results and valuations
as well as management intentions. As the difficulty increases, the level
of precision decreases, meaning that actual results can and probably will be
different from those currently estimated.
Estimates
are considered to be critical if they meet both of the following criteria: (1) the
estimate requires assumptions about material matters that are uncertain at the
time the accounting estimates are made, and (2) other materially different
estimates could have been reasonably made or material changes in the estimates
are reasonably likely to occur from period to period. The Companys critical accounting estimates
include the following:
Inventory Valuation
Sugar,
pulp, molasses and other agri-product inventories are valued at estimated net
realizable value. The Company derives
its estimates from sales contracts, recent sales and evaluations of market
conditions and trends. Sugarbeets are
valued at the projected gross per-ton beet payment related to that years
crop. Changes in market conditions and
the Companys operations may cause managements estimates to differ from actual
results.
Property
and Equipment, Property and Equipment Held for Lease, and Depreciation
Property
and equipment, and property and equipment held for lease are depreciated for
financial reporting purposes principally using straight-line methods with
estimated useful lives ranging from 3 to 40 years. Economic circumstances or other factors may
cause managements estimates of expected useful lives to differ from actual.
The
Company reviews its property and equipment, and property and equipment held for
lease for impairment whenever events indicate that the carrying amount of the
asset may not be recoverable. An
impairment loss is recorded when the sum of the future cash flows is less than
the carrying amount of the asset. An
impairment loss is measured as the amount by which the carrying amount of the
asset exceeds its fair value. Considerable
management judgment is necessary to estimate future cash flows and may differ
from actual results.
Intangible
Assets and Amortization
Intangible
assets are amortized for financial reporting purposes principally using
straight-line methods based on the expected useful lives of the assets. Economic circumstances or other factors may
cause managements estimates of expected useful lives to differ from actual.
19
Pension Plan and Other Post-Retirement Benefits
Accumulated
plan benefits are those future periodic payments, including lump-sum
distributions, which are attributable under the Companys Pension Plan and
Post-Retirement Plan to the service employees have rendered. Accumulated plan
benefits include benefits expected to be paid to retired or vested terminated
employees or their beneficiaries; beneficiaries of employees who have died; and
present employees or their beneficiaries.
The
actuarial present value of accumulated plan benefits is determined by an
actuary and is the amount that results from applying actuarial assumptions to
adjust the accumulated plan benefits to reflect the time value of money and the
probability of payment.
The
significant actuarial assumptions used in the determination of the actuarial
present value of accumulated pension plan benefits for fiscal 2010 were as
follows:
Valuation Funding Method
- Entry age
normal, frozen initial liability;
Life Expectancy
2010 PPA separate static annuitant and non-annuitant mortality tables;
Retirement Age
graded rates from 1 percent retiring at age
55 to 100 percent retired by age 70
; Investment Return - 7
.50 percent
compounded annually for funding
; Discount
Rate-
5.00 percent compounded annually;
Salary Scale
- 3.5 percent compounded annually (Plan A
only).
The
significant actuarial assumptions used in the determination of the actuarial
present value of accumulated post-retirement benefits for fiscal 2010 were as
follows:
Healthcare Cost Trend
- an 8.5 percent
annual rate of increase in the per capita cost of covered healthcare benefits
for participants under age 65 was assumed for 2010. The rate is assumed to decline to 6.5 percent
over the next five years. For
participants age 65 and older, a 9.5 percent annual rate of increase in the per
capita cost of covered healthcare benefits was assumed for 2010. The rate is assumed to decline to 7.5 percent
over the next five years
; Discount
Rate
- 5.00 percent compounded annually.
Actual
events may differ from the assumptions used and may result in plan benefit
payments differing significantly from these current estimates.
Self-Insurance
The
Company is self-insured for a portion of the risks related to workers
compensation claims and employees health insurance. The estimate of self-insurance liability is
based upon known claims and an estimate of incurred but not reported (IBNR)
claims. IBNR claims are estimated using
historical claims lag information received by a third party claims
administrator. Actual events may differ
from the assumptions used and may result in claim payments differing from the
current estimates.
Results of Operations
The
Companys operational results and the resulting beet payment to its members are
substantially dependent on market factors, including domestic prices for
refined sugar. These factors are
continuously influenced by a wide variety of market forces, including domestic
sugarbeet and cane production, weather conditions and United States farm and
trade policy, which the Company is unable to predict.
In addition, highly variable weather conditions
during the growing, harvesting and processing seasons, as well as diseases and
insects, may materially affect the quality and quantity of sugarbeets available
for purchase as well as the unit costs of raw materials and processing.
Comparison
of the Years Ended August 31, 2010 and 2009
The harvest of the Red River Valley and Sidney sugarbeet crops grown
during 2009 and processed during fiscal 2010 produced a total of
10.5 million tons of sugarbeets, or approximately 22.5
20
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 was 16.7
percent as compared to the 17.6 percent sugar content of the 2008 crop. The Company produced a total of approximately
29.0 million hundredweight of sugar from the 2009 crop, a decrease of
approximately 5.3 percent compared to the 2008 crop.
Revenue was $1.2 billion for each of the years ended August 31, 2010
and 2009. The table below reflects the
percentage changes in product revenues, prices and volumes for the year ended
August 31, 2010, as compared to the year ended August 31, 2009.
Product
|
|
Revenue
|
|
Selling Price
|
|
Volume
|
|
Sugar
|
|
3.2
|
%
|
11.7
|
%
|
-7.6
|
%
|
Pulp
|
|
-18.6
|
%
|
-27.0
|
%
|
11.5
|
%
|
Molasses
|
|
-25.8
|
%
|
7.6
|
%
|
-31.1
|
%
|
CSB
|
|
-5.8
|
%
|
-5.2
|
%
|
-0.6
|
%
|
Betaine
|
|
4.1
|
%
|
16.0
|
%
|
-10.2
|
%
|
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 lower beginning inventories this year as compared to the
previous year along with reduced sugar production this year. The increase in
the volume of pulp sold reflects the impact of more product availability due to
higher beginning inventories 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.
Cost
of sales for the years ended August 31, 2010, exclusive of payments to members
for sugarbeets, increased $15.1 million as compared to the year ended August
31, 2009. This increase was primarily related to the following:
·
At the end of each reporting period, product
inventories are recorded at their net realizable value. The change in the net
realizable value of the product inventories from the beginning of the reporting
period is recorded on the balance sheet as either an increase or decrease to
inventories with a corresponding dollar for dollar adjustment to cost of sales
on the statement of operations. The decrease in the net realizable value of
product inventories for the year ended August 31, 2010 was $25.8 million as
compared to a decrease of $13.0 million for the previous year ended August 31,
2009 resulting in a $12.8 million unfavorable change in the cost of sales
between the two years as shown in the table below:
Change in the Net Realizable Value of Product Inventories
|
|
For the Years Ended August 31
|
|
(In Millions)
|
|
2010
|
|
2009
|
|
Change
|
|
Beginning Product Inventories at Net Realizable
Value
|
|
$
|
137.6
|
|
$
|
150.6
|
|
$
|
(13.0
|
)(1)
|
|
|
|
|
|
|
|
|
Ending Product Inventories at Net Realizable Value
|
|
(111.8
|
)
|
(137.6
|
)
|
25.8
|
(2)
|
|
|
|
|
|
|
|
|
Decrease in the Net Realizable Value of Product
Inventories
|
|
$
|
25.8
|
|
$
|
13.0
|
|
$
|
12.8
|
|
(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 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
21
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 22.6 percent decrease in the hundredweight of
sugar inventory as of August 31, 2010 as compared to August 31, 2009 partially
offset by an 11.3 percent increase in the per hundredweight net realizable
value of sugar inventory as of August 31, 2010 as compared to August 31, 2009;
a 35.4 percent decrease in the tons of pulp inventory as of August 31, 2010 as
compared to August 31, 2009; a 47.3 percent decrease in the per ton net
realizable value of pulp inventory as of August 31, 2010 as compared to August
31, 2009; and a 35.4 percent decrease in the per ton net realizable value of
molasses as of August 31, 2010 as compared to August 31, 2009 partially offset
by a 10.7 percent increase in the tons of molasses inventory as of August 31,
2010 as compared to August 31, 2009.
·
Factory operating costs decreased $3.5
million for the year ended August 31, 2010, as compared to the year ended
August 31, 2009 primarily due to lower costs associated with natural gas,
property taxes and sugarbeet transportation. These costs were partially offset
by higher labor and employee benefit costs.
·
The cost recognized associated with the
non-member sugarbeets increased $14.4 million for the year ended August 31,
2010, when compared to last year. This
increase was primarily due to an increase in tons of sugarbeet harvested this
year.
·
Due to lower than anticipated sugar
production and inventory levels during the first quarter of fiscal 2009, the
Companys sugar marketing agent, United Sugars Corporation, purchased and sold
additional sugar to meet our customers needs. The requirements for purchased
sugar were much less in fiscal 2010. As
a result, the costs associated with purchased sugar were $8.1 million lower for
the year ended August 31, 2010, as compared to the year ended August 31, 2009.
Selling,
general and administrative expenses decreased $5.3 million for the year ended
August 31, 2010, as compared to the year ended August 31, 2009. Selling expenses decreased $6.8 million
primarily due to a decrease in freight and warehousing costs due to lower volumes
of products sold. General and administrative
expenses increased $1.5 million due to general cost increases.
Interest
expense decreased $1.0 million for the year ended August 31, 2010, as compared
to the year ended August 31, 2009. This
reflects a decrease in the average borrowing level and average interest rates
for short-term debt and a decrease in the average borrowing level for long-term
debt partially offset by an increased average interest rate for long-term debt.
Other
Income/(Expense), Net decreased $4.4 million for the year ended August 31,
2010, as compared to the year ended August 31, 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 $10.0 million
for the year ended August 31, 2010, as compared to the year ended August 31,
2009. Payments to/due members for sugarbeets along with unit retains declared
to members decreased $13.1 million from $533.8 million in 2009 to $520.7
million in 2010. This decrease was primarily due to fewer tons harvested and a
lower sugar content of the sugarbeets partially offset by increased sugar
selling prices. Non-member business activities resulted in a gain of $5.4
million for the year ended August 31, 2010, as compared to a gain of $2.3
million for the year ended August 31, 2009.
The increase of $3.1 million was primarily related to increased income
from the operations of Sidney Sugars and the activities of ProGold.
Comparison
of the Years Ended August 31, 2009 and 2008
The harvest of the Red River Valley and Sidney sugarbeet crops grown
during 2008 and processed during fiscal 2009 produced a total of
10.7 million tons of sugarbeets, or approximately 25.4
22
tons of sugarbeets per acre from approximately 422,000 acres. This represents a decrease in total tons
harvested of approximately 14.1 percent compared to the 2007 crop. The sugar content of the 2008 crop was 17.6
percent as compared to the 18.1 percent sugar content of the 2007 crop. The Company produced a total of approximately
30.7 million hundredweight of sugar from the 2008 crop, a decrease of
approximately 16.2 percent compared to the 2007 crop.
Revenue for the year ended August 31, 2009 was $1.2 billion, a decrease
of $32.6 million from the year ended August 31, 2008. The table below reflects the percentage
changes in product revenues, prices and volumes for the year ended August 31,
2009, as compared to the year ended August 31, 2008.
Product
|
|
Revenue
|
|
Selling Price
|
|
Volume
|
|
Sugar
|
|
-4.4
|
%
|
7.3
|
%
|
-10.9
|
%
|
Pulp
|
|
14.9
|
%
|
40.4
|
%
|
-18.1
|
%
|
Molasses
|
|
-48.2
|
%
|
21.9
|
%
|
-57.5
|
%
|
CSB
|
|
14.1
|
%
|
17.1
|
%
|
-2.5
|
%
|
Betaine
|
|
-0.8
|
%
|
32.1
|
%
|
-24.9
|
%
|
The
increases in selling prices for our products reflect strong markets due to
supply and demand factors. The decrease in the volume of sugar sold reflects
the impact of less product availability due to a 16.2 percent decline in sugar
produced for the year ended August 31, 2009, as compared to the year ended
August 31, 2008. The decreases in the volumes of pulp and molasses sold were
due in part to lower product availability resulting from an 11.5 percent
decrease in pulp produced and a 65.8 percent decrease in molasses produced for
the year ended August 31, 2009, as compared to the year ended August 31, 2008.
Lower beginning inventory levels for both pulp and molasses for the year ended
August 31, 2009, as compared to the year ended August 31, 2008 also contributed
to the reduction in the availability of these products for sale.
Cost
of sales for the year ended August 31, 2009, exclusive of payments to members
for sugarbeets, increased $2.8 million as compared to the year ended August 31,
2008. This increase was primarily
related to the following:
·
At the end of each reporting period, product
inventories are recorded at their net realizable value. The change in the net
realizable value of the product inventories from the beginning of the reporting
period is recorded on the balance sheet as either an increase or decrease to
inventories with a corresponding dollar for dollar adjustment to cost of sales
on the statement of operations. The
decrease in the net realizable value of product inventories for the year ended
August 31, 2009 was $13.0 million as compared to a decrease of $5.8 million for
the year ended August 31, 2008 resulting in a $7.2 million unfavorable change
in the cost of sales between the two years as shown in the table below:
Change in the Net Realizable Value of Product
Inventories
|
|
For the Years Ended August 31
|
|
(In Millions)
|
|
2009
|
|
2008
|
|
Change
|
|
Beginning Product Inventories at Net Realizable
Value
|
|
$
|
150.6
|
|
$
|
156.4
|
|
$
|
(5.8
|
)(1)
|
|
|
|
|
|
|
|
|
Ending Product Inventories at Net Realizable Value
|
|
(137.6
|
)
|
(150.6
|
)
|
13.0
|
(2)
|
|
|
|
|
|
|
|
|
Decrease in the Net Realizable Value of Product
Inventories
|
|
$
|
13.0
|
|
$
|
5.8
|
|
$
|
7.2
|
|
(1)
The change is primarily due to lower quantities of products as of August 31,
2008 as compared to August 31, 2007.
23
(2)
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 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.
·
Factory operating costs increased $9.2
million for the year ended August 31, 2009, as compared to the year ended
August 31, 2008 primarily due to higher costs associated with coke, chemicals,
operating supplies, property taxes and maintenance costs. These costs were
partially offset by lower natural gas costs.
·
An impairment loss of $11.9 million related
to the property and equipment at the Sidney, Montana facility was recognized in
2008 and included in cost of sales. There was no impairment loss in 2009.
·
The cost recognized associated with the
non-member sugarbeets decreased $18.8 million for the year ended August 31,
2009, when compared to the year ended August 31, 2008. This decrease was primarily due to a 56.6
percent decrease in tons purchased.
·
Due to lower than anticipated sugar
production and inventory levels during the first quarter of fiscal 2009, the
Companys sugar marketing agent, United Sugars Corporation, purchased and sold
additional sugar to meet our customers needs.
As a result, the costs associated with purchased sugar increased $14.2
million for the year ended August 31, 2009, as compared to the year ended
August 31, 2008.
·
The cost of beet seed sold increased $4.0
million for the year ended August 31, 2009, as compared to the year ended
August 31, 2008. This increase was due to higher seed processing costs along
with a 93.8 percent increase in the volume of beet seed sold.
Selling,
general and administrative expenses decreased $23.4 million for the year ended
August 31, 2009, as compared to the year ended August 31, 2008. Selling expenses decreased $24.5 million
primarily due to the decrease in the volumes of products sold and decreased
transportation rates resulting in decreased shipping and handling
expenses. General and administrative
expenses increased $1.1 million due to general cost increases.
Interest
expense decreased $4.7 million for the year ended August 31, 2009, as compared
to the year ended August 31, 2008. This
reflects a decrease in the average borrowing levels and lower average interest
rates for both short-term and long-term debt.
Other
income, net increased $4.1 million for the year ended August 31, 2009, as
compared to the year ended August 31, 2008.
This was due primarily to the receipt of $4.8 million in November 2008
related to a legal settlement.
Net
proceeds attributable to American Crystal Sugar Company decreased $6.5 million
for the year ended August 31, 2009, as compared to the year ended August 31,
2008. Payments to/due members for sugarbeets along with unit retains declared
to members decreased by $13.6 million from $547.4 million in 2008 to $533.8
million in 2009. This decrease was
primarily due to fewer tons harvested and a lower sugar content of the sugarbeets
partially offset by increased product selling prices. Non-member business
activities resulted in a gain of $2.3 million for the year ended August 31,
2009, as compared to a loss of $4.8 million for the year ended August, 2008. The $7.1 million change was primarily related
to the impairment loss recognized in 2008 for Sidney Sugars Incorporated.
24
2010 Crop and Estimated Fiscal
Year 2011 Information
This
discussion contains the Companys current estimate of the results to be
obtained from the Companys processing of the 2010 sugarbeet crop. This discussion includes forward-looking
statements regarding the quantity of sugar to be produced from the 2010
sugarbeet crop. These forward-looking
statements are based largely upon the Companys expectations and estimates of
future events; as a result, they are subject to a variety of risks and
uncertainties. The actual results
experienced by the Company could differ materially from the forward-looking statements
contained herein.
The
harvest of the Red River Valley and the Sidney sugarbeet crops grown during
2010 is estimated to produce a total of 11.7 million tons of sugarbeets,
or approximately 26.3 tons of sugarbeets per acre from approximately 446,000
acres. This represents an increase in
total tons harvested of approximately 11.8 percent compared to the 2009
crop. The sugar content of the 2010 crop
is estimated to be 18.0 percent as compared to the 16.7 percent sugar content
of the 2009 crop. The Company expects to
produce a total of approximately 33.8 million hundredweight of sugar from the
2010 crop, an increase of approximately 16.4 percent compared to the 2009 crop.
Item 7A.
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 it is subject to
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 8.
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
The
consolidated financial statements of the Company for the fiscal years ended
August 31, 2010, 2009 and 2008 have been audited by Eide Bailly LLP, an
independent registered public accounting firm.
Such consolidated financial statements have been included herein in
reliance upon the report of Eide Bailly LLP.
The consolidated financial statements of the Company are included in
Appendix A to this annual report.
Item 9.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
Item 9A.
CONTROLS
AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
The
Companys chief executive officer and chief financial officer have reviewed and
evaluated the effectiveness of the Companys 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 August 31, 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 Companys
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
25
under
the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the Security and Exchange
Commissions rules and forms, including ensuring that such information is
accumulated and communicated to the Companys management, including the chief
executive officer and the chief financial officer, as appropriate to allow
timely decisions regarding required disclosure.
Managements
Report on Internal Control over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934, as amended.
Our internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.
All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation. Because of
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also,
because of changes in conditions, the effectiveness of internal control may
vary over time.
Management
assessed the effectiveness of the Companys internal control over financial
reporting as of August 31, 2010, using criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework
and concluded that the
Company maintained effective internal control over financial reporting as of
August 31, 2010 based on these criteria.
This
annual report does not include an attestation report of the Companys
registered public accounting firm regarding internal control over financial
reporting. Managements report was not
subject to attestation by the Companys registered public accounting firm
pursuant to rules of the Securities and Exchange Commission that permit the
Company to provide only managements report in this annual report.
Changes
in Internal Control over Financial Reporting
There
were no changes in the Companys internal control over financial reporting that
occurred during the Companys most recent fiscal quarter that may have
materially affected, or are reasonably likely to materially affect, the Companys
internal control over financial reporting.
Item 9B. OTHER
INFORMATION
None.
26
PART III
Item 10.
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Board of Directors
The
Board of Directors of the Company consists of three directors from each of the
five Red River Valley factory districts.
Directors must hold common stock of the Company or must be
representatives of such shareholders belonging to the district they represent
and are elected by the members of that district. In the case of a holder of common stock who
is other than a natural person, a duly appointed or elected representative of
such shareholder may serve as a director.
Any holder of common stock can stand for election or be nominated from
the floor at the factory district meeting where elections are held. The directors were elected to serve
three-year terms expiring in December of the years indicated in the table
below. Each persons experience, qualifications,
attributes or skills to serve as a director are determined by the members
voting in the district meetings at which the election occurs and not reviewed
or otherwise considered by the Company before any election. One director is elected each year from each
Red River Valley factory district. A
director cannot serve more than four consecutive three-year terms. Our board officers consist of a Chairman and
a Vice-Chairman. These board offices are
populated by members of the Board of Directors who are elected by and at the
discretion of the Board of Directors.
Each of these individuals experience, qualifications, attributes or
skills to serve in their capacity as a board officer is determined by the
members of the Board of Directors who are voting to place these individuals in
these offices.
The
table below lists certain information concerning current directors of the
Company.
Name and Address
|
|
Age
|
|
Factory District
|
|
Director
Since
|
|
Term Expires
December
|
|
|
|
|
|
|
|
|
|
Neil
C. Widner (Chairman)
PO Box 47
Stephen, MN 56757
|
|
59
|
|
Drayton
|
|
2000
|
|
2012
|
|
|
|
|
|
|
|
|
|
Curtis
E. Haugen (Vice-Chairman)
45508 300th St. NW
Argyle, MN 56713
|
|
49
|
|
East Grand Forks
|
|
2001
|
|
2010
|
|
|
|
|
|
|
|
|
|
Donald
S. Andringa
422 4
th
Avenue NE
Crookston, MN 56716
|
|
56
|
|
Crookston
|
|
2008
|
|
2011
|
|
|
|
|
|
|
|
|
|
William
Baldwin
8244 144
th
Ave. NE
St Thomas, ND 58276
|
|
64
|
|
Drayton
|
|
2004
|
|
2010
|
|
|
|
|
|
|
|
|
|
John
Brainard
204 6
th
St. W
Ada, MN 56510
|
|
50
|
|
Hillsboro
|
|
2005
|
|
2011
|
|
|
|
|
|
|
|
|
|
Brian
R. Erickson
824 James Ave. SE
East Grand Forks, MN 56721
|
|
62
|
|
East Grand Forks
|
|
2005
|
|
2011
|
27
Robert
M. Green
220 Park St.
Saint Thomas, ND 58276
|
|
56
|
|
Drayton
|
|
2005
|
|
2011
|
|
|
|
|
|
|
|
|
|
John
F. Gudajtes
Box 37
Minto, ND 58261
|
|
61
|
|
East Grand Forks
|
|
2003
|
|
2012
|
|
|
|
|
|
|
|
|
|
William Hejl
15560
28th St. SE
Amenia, ND
58004
|
|
55
|
|
Moorhead
|
|
2007
|
|
2010
|
|
|
|
|
|
|
|
|
|
Curtis
Knutson
35545 290
th
St. SW
Fisher, MN 56723
|
|
52
|
|
Crookston
|
|
2007
|
|
2010
|
|
|
|
|
|
|
|
|
|
Dale
Kuehl
12213 12
th
Avenue South
Glyndon, MN 56547
|
|
53
|
|
Moorhead
|
|
2008
|
|
2011
|
|
|
|
|
|
|
|
|
|
Jeff
D. McInnes
16485 6
th
Street SE
Hillsboro, ND 58045
|
|
53
|
|
Hillsboro
|
|
2001
|
|
2010
|
|
|
|
|
|
|
|
|
|
David
Mueller
16283 7
th
Street NE
Cummings, ND 58223
|
|
50
|
|
Hillsboro
|
|
2009
|
|
2012
|
|
|
|
|
|
|
|
|
|
Wayne
Tang
25226 Town & Country Estates Rd
Detroit Lakes, MN 56501
|
|
56
|
|
Moorhead
|
|
2009
|
|
2012
|
|
|
|
|
|
|
|
|
|
Steve
Williams
515 Thompson Ave.
Fisher, MN 56723
|
|
59
|
|
Crookston
|
|
2006
|
|
2012
|
Below is the biographical information on each Director.
Neil C. Widner.
Mr. Widner has
been a director since 2000 and has served as Chairman since 2009. Mr. Widner has farmed near Stephen,
Minnesota, since 1973. Mr. Widner serves
on the Board of Directors of United Sugars Corporation, the Board of Directors
of Midwest Agri-Commodities Company, the Board of Governors of ProGold Limited
Liability Company and as a director for the American Sugarbeet Growers
Association.
Curtis E. Haugen.
Mr. Haugen has
been a director since 2001 and has served as Vice-Chairman since 2009. Mr. Haugen has been a farmer since 1981
and farms near Argyle, Minnesota. Mr. Haugen serves on the Board of
Directors of United Sugars Corporation, as a director for the American
Sugarbeet Growers Association and as a director and President of the Farmers
Union Oil Company, Oslo, Minnesota.
Donald S. Andringa.
Mr. Andringa has been a
director since 2008. Mr. Andringa has been a sugarbeet farmer for 37 years with
his farming operations near Crookston, Minnesota. Mr. Andringa currently serves on the Board of
Governors of ProGold Limited Liability Company and the Advisory Board for
28
the University of Minnesota-Crookston Northwest Research and Outreach
Center. Mr. Andringa previously served on Board of Directors of the Crookston
Factory District Grower Association, the Red River Valley Sugarbeet Growers
Associations Executive Committee, the Board of Directors of the Red River
Valley Farmers Insurance Pool and the American Sugarbeet Growers Association
Board of Directors.
William Baldwin.
Mr. Baldwin has
been a director since 2004. Mr. Baldwin
has been farming in the Drayton Factory District since 1966 and is the
President of Baldwin Farms Incorporated.
Mr. Baldwin is the past President of the Red River Valley Sugarbeet
Growers Association, served on the American Sugarbeet Growers Executive
Committee and is currently serving on the Farm Service Agency, State Committee.
John Brainard.
Mr. Brainard has been a director since 2005. Mr. Brainard has been a sugarbeet grower
since 1998. Mr. Brainard currently
serves on the Board of Directors of Midwest Agri-Commodities Company and as a
director of the American Sugarbeet Growers Association. Mr. Brainard is a past
director of the Minnesota Farm Bureau and has served on the executive committee
of the Red River Valley Sugarbeet Growers Association.
Brian R. Erickson.
Mr. Erickson has been a director since
2005. Mr. Erickson has been a sugarbeet
grower for over 20 years. Mr. Erickson
currently serves on the Board of Directors of United Sugars Corporation. Mr.
Erickson has served as a director and Chairman of the East Grand Forks Economic
Development and Housing Authority.
Robert M. Green.
Mr. Green has been a director since 2005. Mr. Green has been a sugarbeet grower since
1976. Mr. Green also serves as a
director for the American Sugarbeet Growers Association. Mr. Green served 12 years as a director of
the Red River Valley Sugarbeet Growers Association.
John F. Gudajtes.
Mr. Gudajtes
has been a director since 2003. Mr.
Gudajtes has farmed in the Minto, North Dakota area since 1967 and is the
President of Gudajtes Farms. Mr.
Gudajtes is a past President of the Walsh County Historical Society.
William A. Hejl.
Mr. Hejl has been a director since 2007. Mr. Hejl has farmed near Amenia, North Dakota
since 1987. Mr. Hejl currently serves as
a director of the American Sugarbeet Growers Association and is a manager of
the Rush River Water Resource District.
Mr. Hejl also served as President of the Red River Valley Sugarbeet
Growers Association and as President of the World Association of Beet and Cane
Growers.
Curtis Knutson.
Mr. Knutson has been a director since 2007. Mr. Knutson has farmed near Fisher, Minnesota
for 36 years. Mr. Knutson currently
serves on the Polk County Extension Board.
Dale Kuehl.
Mr. Kuehl has been a director since 2008. Mr. Kuehl has been a sugarbeet farmer for 33
years with his farming operations near Glyndon, Minnesota. Mr. Kuehl currently serves on the Board of
Governors of ProGold Limited Liability Company.
Mr. Kuehl previously served on the Boards of Directors of the Moorhead
Factory District Grower Association, the Red River Valley Sugarbeet Growers
Association, the American Sugarbeet Growers Association, the International
Sugarbeet Institute and the Red River Valley Coop Power Association.
Jeff D. McInnes.
Mr. McInnes has been a director since 2001. Mr. McInnes co-manages a 4,000 acre
farming operation near Hillsboro, North Dakota. Mr. McInnes serves on the Board of Governors
of ProGold Limited Liability Company.
David Mueller.
Mr. Mueller was elected as a director in
2009. Mr. Mueller has been a sugarbeet farmer near Cummings, North Dakota since
1985. Mr. Mueller previously served on
the Red River Valley
29
Sugarbeet
Growers Association Boards Executive Committee and as treasurer of its
Research and Education Board.
Wayne Tang.
Mr. Tang was elected as a director in 2009. Mr. Tang
has been a farmer since 1972. Mr. Tang
previously served on the American Sugarbeets Growers Association Board of
Directors and as Vice Chairman of the Red River Valley Sugarbeet Growers
Associations Executive Committee.
Steve Williams.
Mr. Williams
has been a director since 2006. Mr.
Williams has farmed near Fisher, Minnesota since 1987. Mr. Williams serves on the Board of Directors
of the American Sugarbeet Growers Association and served as its President from
2006 to 2008. Mr. Williams is also a
director of the Sugar Association and is the President of the Board of
Directors for the Halstad Cooperative Telephone Company. Mr. Williams served as a director of the Red
River Valley Sugarbeet Growers Association from 1998 to 2007, and served as its
Chairman from 2003 to 2007.
Audit Committee and Audit Committee Financial Expert
The
Audit Committee assists the Board of Directors in fulfilling its oversight
responsibilities relating to the Companys financial reporting and controls,
the annual independent audit of the Companys consolidated financial statements
and the legal compliance and ethics programs as established by management and
the Board of Directors. The Audit
Committee selects the independent public accountants and approves the fees,
scope and procedural plans of the audits of the Companys consolidated
financial statements. The Audit
Committee administers the Companys employee complaint program and handles, on
behalf of the full Board of Directors, any issues that arise under the Companys
Code of Ethics. The Audit Committee has
a charter that is available from the Company upon request.
As
of August 31, 2010, the Board of Directors of the Company has determined that
there is no audit committee financial expert serving on the Audit
Committee. The Company is a cooperative
formed in accordance with the Minnesota cooperative law of the State of
Minnesota. In accordance with the
Minnesota cooperative law, the Amended and Restated Articles of Incorporation
of the Company and the Amended and Restated Bylaws of the Company, the Board of
Directors must be composed of members of the Company (the holders of common
stock). Membership in the Company is
limited to agricultural producers who are actively involved in the production
of sugarbeets. Based on the state law
requirements for both membership and board service, the Company is unable to
recruit outside of its membership to elect to its Board of Directors and its
audit committee an individual that possesses the attributes of an audit
committee financial expert as defined by the SEC. To
date, the Company has been unable to recruit from its membership an individual
to serve on the Board of Directors that possesses the attributes of an audit
committee financial expert.
The
Audit Committee has reviewed and discussed with management and Eide Bailly LLP
our audited consolidated financials statements contained in our Annual Report
on Form 10-K for the fiscal year ended August 31, 2010. The Audit Committee
also discussed with Eide Bailly LLP the matters required to be discussed
pursuant to SAS No. 61 (Codification of Statements of Auditing Standards,
AU Section 380), which includes, among other items, matters related to the
conduct of the audit of the Companys consolidated financial statements.
The
Audit Committee has received and reviewed the written disclosures and the
letter from Eide Bailly LLP required by the applicable requirements of the
Public Company Accounting Oversight Board regarding Eide Bailly LLPs
communications with the Audit Committee concerning its independence from the
Company and has discussed with Eide Bailly LLP its independence from the
Company.
30
Based
on the review and discussions referred to above, the Audit Committee
recommended to the Board that the audited financial statements be included in
our Annual Report on Form 10-K for our fiscal year ended August 31,
2010 for filing with the Commission.
On
August 31, 2010, the members of the Audit Committee were John Brainard
(Committee Chair), Donald S. Andringa, Brian R. Erickson, Robert M. Green,
William A. Hejl, David Mueller and Wayne Tang.
Company Officers
The
table below lists the officers of the Company for the fiscal year covered by
this report, none of whom owns any shares of Common Stock or Preferred
Stock. Officers are elected annually by
the Board of Directors.
Name
|
|
Age
|
|
Position
|
David
A. Berg
|
|
56
|
|
President
and Chief Executive Officer
|
Thomas
S. Astrup
|
|
41
|
|
Vice
President-Finance and Chief Financial Officer
|
Joseph
J. Talley
|
|
50
|
|
Chief
Operating Officer
|
Brian
F. Ingulsrud
|
|
47
|
|
Vice
President-Administration
|
Teresa
A. Warne
|
|
40
|
|
Corporate
Controller, Chief Accounting Officer, Assistant Secretary and Assistant
Treasurer
|
Daniel
C. Mott
|
|
51
|
|
Secretary
|
Samuel
S. M. Wai
|
|
56
|
|
Treasurer
and Assistant Secretary
|
Mark
L. Lembke
|
|
54
|
|
Finance
Administration Manager, Assistant Secretary and Assistant Treasurer
|
David
L. Malmskog
|
|
53
|
|
Director
- Economic Analysis, Assistant Secretary and Assistant Treasurer
|
Ronald
K. Peterson
|
|
55
|
|
Accounting &
Systems Manager, Assistant Secretary and Assistant Treasurer
|
Lisa
M. Maloy
|
|
46
|
|
Treasury
Operations Manager and Assistant Secretary
|
David A. Berg.
Mr. Berg
was named the Companys President in March 2007 and assumed the role as
the Companys Chief Executive Officer in October 2007. Mr. Berg served as the Companys Vice
President-Operations and Chief Operations Officer from January 2004 to March 2007. Mr. Berg was the Companys Vice
President-Agriculture during the period December 2000 to January 2004
and the Companys Vice President-Administration during the period from October 1998
to December 2000. Mr. Berg
currently serves on the Boards of Directors of United Sugars Corporation,
Midwest Agri-Commodities Company and Sidney Sugars Incorporated.
Thomas S. Astrup
. Mr. Astrup
was named the Companys Vice President-Finance and Chief Financial Officer in May 2007. Mr. Astrup was named the Chief Operating
Officer and Chief Financial Officer of Sidney Sugars Incorporated in May 2007. Mr. Astrup served as the Companys Vice
President-Agriculture from 2004 to 2007.
Mr. Astrup was the Companys Vice President-Administration from
2000 to 2004 and the Companys Corporate Controller, Assistant Treasurer and
Assistant Secretary from 1999 to 2000. Mr. Astrup
currently serves on the Board of Directors for Sidney Sugars Incorporated and
on the ProGold Limited Liability Company Board of Governors.
31
Joseph J. Talley.
Mr. Talley
was named the Companys Chief Operating Officer in May 2007. Mr. Talley was named as the Chairman of
the Board and Chief Executive Officer of Sidney Sugars Incorporated in May 2007. Mr. Talley served as the Companys Vice
President-Finance and Chief Financial Officer of the Company from 2003 to
2007. Mr. Talley was the Companys
Vice President-Finance from 1998 to 2003.
Mr. Talley also served as Chief Operating Officer of Sidney Sugars
Incorporated from 2002 to 2007. He
currently serves on the Board of Governors for ProGold Limited Liability
Company.
Brian F. Ingulsrud.
Mr. Ingulsrud was named the Companys
Vice President-Administration in February 2004. From 2000 to 2004, he served as the Companys
Corporate Controller, Assistant Secretary and Assistant Treasurer.
Teresa A. Warne.
Ms. Warne
was named the Companys Corporate Controller, Chief Accounting Officer,
Assistant Treasurer and Assistant Secretary in March 2008. Prior to joining the Company, Ms. Warne
was the Director of Accounting with Caribou Coffee Company at its corporate
headquarters in Brooklyn Center, Minnesota from 2006 to 2008. Ms. Warne previously was employed with
Northwest Airlines where she held various financial positions from 1999 to
2006.
Daniel C. Mott.
Mr. Mott became the Companys Secretary in 1999. Previously, he had served as Assistant
Secretary since 1995. Mr. Mott also
serves as the Companys General Counsel.
He is a Shareholder in the law firm of Fredrikson & Byron,
P.A. Mr. Mott is not an employee of
the Company.
Samuel S. M. Wai.
Mr. Wai was named the Companys Treasurer and Assistant Secretary
in 1999. Mr. Wai also serves as
Treasurer of the American Crystal Sugar Political Action Committee and on the
Board of Directors of the Institute of Cooperative Financial Officers.
Mark L. Lembke.
Mr. Lembke was named the Companys Assistant Secretary and
Assistant Treasurer in 1996 and also currently serves as the Companys Finance
Administration Manager.
Ronald K. Peterson.
Mr. Peterson was named the Companys
Assistant Secretary and Assistant Treasurer in 1993 and also currently serves
as the Companys Accounting and Systems Manager.
David L. Malmskog.
Mr. Malmskog was named the Companys Assistant
Secretary and Assistant Treasurer in 1998 and also currently serves as the
Companys Director-Economic Analysis.
Lisa M. Maloy.
Ms. Maloy was named the Companys
Assistant Secretary in 2002 and also currently serves as the Companys Treasury
Operations Manager.
Code of Ethics
The Company has adopted a code of ethics that applies to its principal
executive officer, principal financial officer, principal accounting officer or
controller as well as all employees and Directors of the Company. The Company will provide at no charge a copy
of the code of ethics to any person who requests a copy by sending a written
request to the Companys headquarters, attention of the Chief Executive Officer
of the Company.
32
Item 11. EXECUTIVE
COMPENSATION
Compensation Discussion and Analysis
Overview
This
compensation discussion and analysis addresses the compensation paid to the
individuals who served as our President and Chief Executive Officer, Chief
Financial Officer, Chief Operating Officer and Vice President of Administration
for fiscal year 2010, all of whom are identified on the Summary Compensation
Table immediately following this report (Named Executive Officers). Immediately following this compensation discussion
and analysis is the Compensation Committee Report of the Board of Directors
(the Committee Report) of the Compensation Committee.
Purpose
and Philosophy
We
believe that strong leadership is a key component of success. To be successful, we must be able to attract,
retain and motivate leaders with the skills necessary to excel in an integrated
cooperative environment and understand key business and technical matters
related to the diverse business influences that result from growers and owners,
marketing partnerships and activities, technical manufacturing processes, and
government policy. Our goal is to
provide a competitive compensation package to our Named Executive Officers
combining total direct compensation, retirement income and other benefits.
Total
direct compensation, which includes base salary, short-term cash incentive
compensation and long-term incentive compensation, is measured against
comparable companies in the market in which we compete.
We
believe the market in which we compete for executive talent consists of
companies with similar characteristics to the Company, for example,
manufacturing companies with similar revenues.
We further believe that the market also includes privately owned businesses
in general and exclusively as it relates to long-term incentive compensation
because of the structure and nature of our business. Therefore, we have compared our compensation
versus compensation data points for these types of companies (our market).
Our
management, on behalf of the Compensation Committee and Board of Directors,
retained Towers Watson, an outside compensation consultant (Compensation
Consultant), to prepare market-based compensation data comparing compensation
information for our Named Executive Officers with that of executive officers in
our market. This analysis uses market data from published national survey sources,
including
Towers Perrin and Watson
Wyatt. In addition, pay data from the
proxy materials from the following group of comparative companies is referenced:
33
·
Actuant Corporation
·
Ameron International Corp.
·
Arctic Cat Inc.
·
Barnes Group Inc.
·
Brady Corporation
·
Donaldson Company, Inc.
·
Gardner Denver, Inc.
·
Graco Inc.
·
Herman Miller, Inc.
·
IDEX Corporation
·
Imperial Sugar Company
|
|
·
Magellan Midstream Partners, L.P.
·
Mine Safety Appliances Co
·
Minn-Dak Farmers Cooperative
·
MSC Industrial Direct Co.
·
OMNOVA Solutions Inc.
·
Packaging Corporation of America
·
Rayonier Inc.
·
Schweitzer-Mauduit International, Inc.
·
The Toro Company
·
Thomas & Betts Corporation
|
This group of companies, together with the survey
sources, represents the market in which we believe we compete for executive
talent.
This
data was provided to the Compensation Committee in September, 2009, when the
Compensation Committee made compensation determinations and was utilized to
establish market based pay practices for each of the Named Executive Officer
positions.
Our
base salary midpoint for our President and Chief Executive Officer is projected
to represent less than the median of the market and total direct compensation
is projected to be near the lower quartile of the market. Currently, we
generally target our other Named Executive Officers base salary midpoint near
the median of the market and total direct compensation near the lower quartile
of our market. After review and
discussion of our compensation objectives and any risks associated with these
objectives, the Compensation Committee determined that total direct
compensation as established was appropriate and reflects the compensation
principles outlined in this report.
While
market based information is important in terms of setting pay practices, it is
not the only factor considered by our Compensation Committee when making
individual executive compensation decisions. Other factors considered when
making individual executive compensation decisions include individual roles and
responsibilities, performance, reporting structure, experience in the
executives particular position and internal pay relationships.
Process
The
Compensation Committee of the Board of Directors is responsible for annually
reviewing and recommending to the Board of Directors the base salary and
performance objectives for the incentive compensation (both short-term and
long-term) of the President and Chief Executive Officer, as well as the
performance objectives for long-term incentive compensation for all Named
Executive Officers. Board action on
recommendations of the Compensation Committee is taken by a vote of all of the
directors, none of whom are members of management. Decisions on executive compensation made by
the Compensation Committee, the Board or the President and Chief Executive
Officer have been guided by our compensation philosophy discussed above.
Our
President and Chief Executive Officer sets base salary and the annual
performance objectives for the short-term incentive compensation for the other
Named Executive Officers. The
prospective base salary and annual performance objectives for the other Named
Executive Officers are reviewed with the Compensation Committee prior to being
finalized by the President and Chief Executive Officer.
34
Elements
of Compensation
The
elements of compensation paid to our Named Executive Officers for 2010 are as
follows:
·
Base salary
·
Short-term cash incentive compensation
·
Long-term incentive compensation
·
Retirement and other benefits
·
Perquisites
·
Severance for our President and Chief
Executive Officer
Each of the above are more completely described below.
Base
Salary
The
objective of the level of base salary paid to our Named Executive Officers is
to reflect individual roles and responsibilities, performance, reporting
structure, experience in the executives particular position, and internal pay
relationships with respect to market competitiveness. All established base salaries for fiscal year
2010 for our Named Executive Officers were in accordance with our compensation
philosophy described earlier in this report.
The
fiscal year 2010 base salary of our President and Chief Executive Officer,
Mr. Berg, was set by the Board of Directors in September, 2009 based on
the comparable market data provided by our Compensation Consultant and the base
salaries for the remaining Named Executive Officers were set by Mr. Berg
using the same comparable market data.
Short-Term
Cash Incentive Compensation
Our
short-term cash incentive compensation is designed to reward the Named
Executive Officers for their individual performance and our financial
performance for the most recently completed fiscal year. Short-term cash incentive compensation is
paid in cash following the close of the fiscal year.
Short-term
cash incentive compensation provides an annual cash incentive opportunity,
expressed as a percent of base salary, for our Named Executive Officers who
meet performance objectives. For fiscal
year 2010, our President and Chief Executive Officer had an opportunity to
receive an additional 45% of his base salary, and the other Named Executive
Officers had an opportunity to receive an additional 35% of their base salary,
by meeting target performance levels.
Actual awards are determined based on the different performance levels
achieved by the Named Executive Officers.
The potential for short-term cash incentive compensation for the
President and Chief Executive Officer ranges from 0% for unsatisfactory
performance to a maximum of 90% for outstanding performance. For our other Named Executive Officers, the
potential for short-term cash incentive compensation ranges from 0% for
unsatisfactory performance to a maximum of 70% for outstanding performance.
35
The
President and Chief Executive Officers performance objectives were weighted
with 50% of the potential award based on our overall financial performance and
50% of the potential award based on the President and Chief Executive Officers
individual performance objectives as established by the Board of Directors at
the beginning of the fiscal year. For
the other Named Executive Officers, annual performance objectives were
determined by the President and Chief Executive Officer with the input and
consult of the Compensation Committee at the beginning of the fiscal year, with
40% based on our overall financial performance and 60% based on the achievement
of individual performance objectives, including personal effectiveness. Our overall financial performance objectives
are based on the final gross beet payment for the fiscal year and total on-farm
profit. Total on-farm profit is equal to
total gross beet payment minus the product of Total Harvested Acres multiplied
by On-Farm Costs per Acre. On-Farm Cost
per Acre is based on the Red River Valley Report from the Minnesota and North
Dakota Farm Business Management Education Program. Both of the targets for these performance
objectives are approved by the Compensation Committee. For fiscal year 2010, the final gross beet
payment and the total on-farm profit were between the target and outstanding
performance level.
The individual performance objectives of our Named
Executive Officers are based primarily on performance measures in the key areas
of cost and revenue management, agronomy best practices, factory performance,
sugar recovery, safety, product quality and financial management. Our Named Executive Officers performance
objectives also include key elements of personal managerial effectiveness such
as leadership, management, honesty/integrity, problem solving, risk taking and
communication.
As indicated above, Mr. Bergs performance
objectives for fiscal year 2010 were set by the Board of Directors. The performance objectives for fiscal year
2010 for our other Named Executive Officers were set by Mr. Berg at the
beginning of fiscal year 2010.
The
Board of Directors rates the President and Chief Executive Officer at the end
of the fiscal year with respect to his achievement of his performance
objectives during that fiscal year, and his short-term cash incentive
compensation for that fiscal year is based on this rating. The President and Chief Executive Officer
rates the other Named Executive Officers with respect to their individual
achievement of their performance objectives and each of them receives a
short-term cash incentive compensation award based on that rating.
Long-Term
Incentive Compensation
Long-term
incentive compensation provides a financial incentive opportunity, expressed as
a percent of base salary, for our Named Executive Officers as a group who meet
performance objectives designed to encourage long-term commitment to our
organization. Our 2005 Long-Term
Incentive Plan, as amended (Plan), sets forth long-term incentive compensation
available to our Named Executive Officers.
For fiscal year 2010, our President and Chief Executive Officer had an
opportunity to receive an additional 40% of his base salary and the other Named
Executive Officers had an opportunity to receive an additional 20% of their
base salary assuming target performance levels.
Actual awards are determined based on the performance level achieved by
the Named Executive Officers as a group.
The potential for long-term incentive compensation ranges from 0% for
unsatisfactory performance to a maximum of 80% for outstanding performance for
the President and Chief Executive Officer.
For our other Named Executive Officers, the potential for long-term
incentive compensation ranges from 0% for unsatisfactory performance to a
maximum of 40% for outstanding performance.
Unlike our short-term cash incentive compensation, long-term incentive
compensation awards are based on the performance level of our Named Executive
Officers as a group. Forty-five percent
(45%) of the performance objectives were based on the fiscal years actual
on-farm profit as compared to historical profit levels
36
while
the other 55% was based on an assessment made by the Board of Directors
regarding achievement of specific long-term performance objectives as
established by the Board of Directors in the areas of international trade and
governmental policy, strategic planning, succession management and reputation
management. For fiscal year 2010, the
total on-farm profit performance level was between the target and outstanding
performance level.
According
to the Plan, a long-term incentive award may be granted to a Named Executive
Officer in the form of contract rights, cash, or in a combination of both cash
and contract rights (incentive awards).
The value of any contract rights granted is determined by our Board of
Directors. To date, all incentive awards
granted have been in the form of contract rights. Incentive awards vest over a three-year
period, with the first vesting occurring one year after the grant. Vested incentive awards may be redeemed at
the discretion of the Named Executive Officer and must be redeemed upon certain
other events causing a termination of employment. Redemptions that are in the form of cash
payments must be deferred by the Named Executive Officer while employed by the
Company. Named Executive Officers
receive a profit per acre payment for vested contract rights based on the
average profit per acre paid to our shareholders. Profit per acre payments are made to the
Named Executive Officers in the same manner as our shareholders receive their
crop payments. Profit per acre payments
can be taken in cash or deferred until a later date. The Board of Directors retains the discretion
to determine the amount of any incentive awards to be made available to the
Named Executive Officers with respect to a given fiscal year.
In the event the Company is required to amend its
financial statements for a given year because of material noncompliance with
financial reporting requirements, the value of the incentive awards for the
current fiscal year and the three immediately preceding fiscal years will be
adjusted to reflect the changes reflected in the amended financial statements
if the amended year is within three (3) years of the current fiscal year.
On September 28, 2010, 210.56 contract rights
were awarded with a grant date of August 31, 2010 to Named Executive
Officers with respect to performance for the fiscal year ended August 31,
2010 at a value of $2,550 per contract right.
Correspondingly, the redemption value of the contract rights previously
granted to the Named Executive Officers was increased from $2,200 to $2,550 per
contract right. Effective as of
August 31, 2010, (and including the contract rights awarded on
September 28, 2010), there were a total of 1,315.28 contract rights issued
and outstanding to the Named Executive Officers, of which 822.59 were vested.
Compensation Policies and Practices and Risk
Management
The Companys short-and long-term success is a
direct result of the value we as a company provide to our shareholder/growers. This value is specifically measured annually
by the amount of the gross beet payment and total on-farm profits. The members of our Compensation Committee and
the Board of Directors, all of whom are shareholders of the Company and none of
whom are members of management, have examined and reviewed all of our
compensation policies and practices in light of the risks that may exist
related to using personal performance standards and the annual gross beet
payment and total on-farm profits as the measurements used for determining
compensation. Both the gross beet
payment and total on-farm profits are amounts and values that are directly paid
to or experienced by our shareholders on an annual basis, with each fiscal years
results for such amounts generally independent from the results from prior or
upcoming fiscal years. The value of the
gross beet payment and total on-farm profits are independently verified
numbers. The other measurements used to
determine either incentive compensation or increases in compensation for our
employees are based on job specific performance standards, none of which are
specifically measured by performance actions by employees
37
that
relate to or affect risk taking by our employees. The incentive awards held by our Named
Executive Officers were designed to align the managements incentive
compensation with the success of the Company such that the financial benefits
to the shareholders and management are balanced and management is not
incentivized to take risks to artificially increase the value of such contract
rights or incentive awards. Therefore,
the Board of Directors and the Compensation Committee reasonably believe, based
on the information provided to them, that any risks that arise from our
compensation policies and practices are not reasonably likely to have a
material adverse effect on our business operations.
Retirement
and Other Benefits
Retirement
benefits are an important tool in achieving overall compensation objectives
because they provide a financial security component and promote retention. Our Named Executive Officers participate in
our retirement plans like any other employee.
In addition, we provide a Supplemental Executive Retirement Plan (SERP)
for our Named Executive Officers, which is a non-qualified defined contribution
and defined benefit plan designed to replace benefits executives would have
received if not for limits imposed by Code Section 401(a)(17) and
402(g). The Named Executive Officers may
elect to defer a portion of base salary by regular payroll deductions, and may
also defer 100% of all short-term incentive compensation and long-term
incentive compensation awards or payments related to any such awards. All long term incentive deferrals are held in
a long term incentive plan trust, all other deferrals are held in a SERP
trust. Both have nine investment options
and are subject to the claims of our creditors.
The pension component of the SERP is unfunded with all amounts to be
paid from our general assets, to the extent available, when due.
Our
Named Executive Officers participate in our fully insured long-term disability
program for all nonunion employees to provide income protection in the event of
permanent disability. The long-term disability
plan is part of the core benefits we provide.
The long-term disability plan provides a benefit equal to 60% of base
pay with a maximum monthly benefit of $10,000.
The Named Executive Officers pay tax on the value of the long-term
disability premium, and as a result if they become disabled their benefit will
not be taxable. Other nonunion employees
are not taxed on the value of their long-term disability premium; therefore if
they become disabled their benefit will be taxable. For the Named Executive Officers, we impute
the value of the premium to provide a tax-free benefit to partially offset the
impact of receiving a disability benefit less than 60% of base pay because of
the $10,000 monthly benefit limitation.
Perquisites
Our
Compensation Committee and the Board of Directors believe perquisites should be
modest, reasonable in terms of cost, aligned with business needs and
comparative to other salaried employees.
Named Executive Officers may receive some or all of the following
perquisites while employed: car allowance, cell phone, minimum of 4 weeks
annual vacation accrual, reimbursement for income tax preparation and executive
physicals. Additionally, the President
and Chief Executive Officer is provided with a country club membership. The above described perquisites cease upon
retirement or separation of service with us.
Severance
If
we terminate Mr. Berg without cause he is entitled to receive a
post-termination severance payment equal to two years of his base salary in
effect on the date of termination. There
are no compensatory plans or arrangements providing for payments to any of the
other Named
38
Executive
Officers in conjunction with any termination of employment with us, including
without limitation resignation, severance, retirement or constructive
termination of employment by the Company.
Furthermore, there are no such plans or arrangements providing for
payments to any of the Named Executive Officers in conjunction with a change of
control or change in such Named Executive Officers responsibilities.
Employment
Agreements
We
entered into an employment agreement with Mr. Berg effective March 21,
2007. The agreement provides that Mr. Berg
shall serve as an at will employee at the pleasure of the Board of
Directors. The agreement also includes a
two-year non-compete/non-solicitation agreement with Mr. Berg. The agreement grants the Board of Directors
the authority to establish Mr. Bergs base salary each year, and also provides
that he may participate in other benefit plans offered to all employees.
Compensation
Committee Report
The
Compensation Committee of the Companys Board of Directors has reviewed and
discussed the Compensation Discussion and Analysis required by Item 402(b) of
Regulation S-K with management and, based on such review and discussion,
the Compensation Committee recommended to the Board of Directors that the
Compensation Discussion and Analysis be included in this Form 10-K.
Members
of the Compensation Committee as of the date of the report, all of whom are
members of the Board of Directors and none of whom are members of management
are:
Steve
Williams, Chairman
John
Brainard
Brian
R. Erickson
John
F. Gudajtes
Dale
Kuehl
William Baldwin
Summary Compensation Table
The following table
summarizes the compensation of the Named Executive Officers for the fiscal
years ended August 31, 2010, 2009 and 2008. The Named Executive Officers are the Companys
Chief Executive Officer, Chief Financial Officer and the two other most highly
compensated executive officers of the Company.
39
2010 SUMMARY COMPENSATION
TABLE
Name and
Principal Position
|
|
Year
|
|
Salary (1)
|
|
Non-Equity Short-
Term Incentive
Plan
Compensation (1)
|
|
Non-Equity Long-
Term Incentive
Plan
Compensation
(1),(2)
|
|
Non-Equity Long-
Term Incentive
Plan
Compensation
(1),(3)
|
|
Non-Equity Long-
Term Incentive
Plan
Compensation
(1),(4)
|
|
Change in Pension
Value and
Nonqualified
Deferred
Compensation
(NQDC) Earnings
(5)
|
|
All Other
Compensation (6)
|
|
Total
|
|
David
A. Berg - President
|
|
2010
|
|
$
|
554,077
|
|
$
|
340,808
|
|
$
|
297,560
|
|
$
|
170,380
|
|
$
|
64,523
|
|
$
|
502,639
|
|
$
|
45,501
|
|
$
|
1,975,488
|
|
and
Chief Executive
|
|
2009
|
|
$
|
508,108
|
|
$
|
316,575
|
|
$
|
343,354
|
|
$
|
148,829
|
|
$
|
87,469
|
|
$
|
154,366
|
|
$
|
41,311
|
|
$
|
1,600,012
|
|
Officer
|
|
2008
|
|
$
|
401,169
|
|
$
|
256,662
|
|
$
|
244,493
|
|
$
|
(93,112
|
)
|
$
|
59,076
|
|
$
|
52,415
|
|
$
|
26,052
|
|
$
|
946,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
S. Astrup - Vice
|
|
2010
|
|
$
|
277,579
|
|
$
|
107,163
|
|
$
|
74,486
|
|
$
|
95,102
|
|
$
|
61,000
|
|
$
|
103,213
|
|
$
|
17,596
|
|
$
|
736,139
|
|
President-Finance
and
|
|
2009
|
|
$
|
259,902
|
|
$
|
135,638
|
|
$
|
86,218
|
|
$
|
113,639
|
|
$
|
67,348
|
|
$
|
37,373
|
|
$
|
16,043
|
|
$
|
716,160
|
|
Chief
Financial Officer
|
|
2008
|
|
$
|
239,400
|
|
$
|
114,792
|
|
$
|
78,453
|
|
$
|
(72,697
|
)
|
$
|
44,693
|
|
$
|
6,513
|
|
$
|
15,463
|
|
$
|
426,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph
J. Talley - Chief
|
|
2010
|
|
$
|
361,652
|
|
$
|
176,708
|
|
$
|
97,028
|
|
$
|
42,924
|
|
$
|
23,418
|
|
$
|
176,124
|
|
$
|
30,732
|
|
$
|
908,586
|
|
Operating
Officer
|
|
2009
|
|
$
|
337,662
|
|
$
|
151,704
|
|
$
|
112,486
|
|
$
|
59,972
|
|
$
|
13,225
|
|
$
|
74,408
|
|
$
|
30,582
|
|
$
|
780,039
|
|
|
|
2008
|
|
$
|
302,800
|
|
$
|
173,970
|
|
$
|
99,243
|
|
$
|
(26,797
|
)
|
$
|
27,814
|
|
$
|
34,002
|
|
$
|
26,957
|
|
$
|
637,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian
F. Ingulsrud - Vice
|
|
2010
|
|
$
|
252,876
|
|
$
|
105,150
|
|
$
|
67,856
|
|
$
|
58,657
|
|
$
|
27,139
|
|
$
|
172,772
|
|
$
|
15,521
|
|
$
|
699,971
|
|
President-Administration
|
|
2009
|
|
$
|
236,948
|
|
$
|
102,617
|
|
$
|
78,562
|
|
$
|
59,342
|
|
$
|
23,140
|
|
$
|
61,841
|
|
$
|
16,344
|
|
$
|
578,794
|
|
|
|
2008
|
|
$
|
218,400
|
|
$
|
104,723
|
|
$
|
71,575
|
|
$
|
(31,837
|
)
|
$
|
10,665
|
|
$
|
11,963
|
|
$
|
14,445
|
|
$
|
399,934
|
|
(1)
Amounts shown are not
reduced to reflect the Named Executive Officers elections, if any, to defer
compensation into the Supplemental Executive Retirement Plan (SERP).
(2)
Represents the stated value
of contract rights that were earned in the fiscal year, which was the year
performance targets were achieved. Contract rights vest equally over a three
year period. For further information
regarding the Long-Term Incentive Plan, see Compensation Discussion and
Analysis within this Form 10-K.
(3)
Represents the change in
value of the outstanding contract rights granted to the executives in prior
years of $350 per contract right in 2010, $450 per contract right in 2009 and
($350) per contract right in 2008.
Contract rights vest equally over a three year period. For further information regarding the
Long-Term Incentive Plan, see Compensation Discussion and Analysis within
this Form 10-K.
(4)
Represents the
Profit-Per-Acre payments that were earned in the fiscal year on vested contract
rights.
(5)
Components of Change in
Pension Value and NQDC Earnings. See table below for details:
Change in Pension Value and Nonqualified Deferred
Compensation Earnings
Name and Principal Position
|
|
Pension (A)
|
|
SERP-(Pension)
(A)
|
|
Preferential
Interest on Non-
Qualified
Deferred
Compensation (B)
|
|
Total
|
|
David A. Berg - President and Chief Executive
Officer
|
|
$
|
203,170
|
|
$
|
299,469
|
|
$
|
0
|
|
$
|
502,639
|
|
|
|
|
|
|
|
|
|
|
|
Thomas S. Astrup - Vice President-Finance and
Chief Financial Officer
|
|
$
|
75,802
|
|
$
|
27,411
|
|
$
|
0
|
|
$
|
103,213
|
|
|
|
|
|
|
|
|
|
|
|
Joseph J. Talley - Chief Operating Officer
|
|
$
|
121,178
|
|
$
|
54,946
|
|
$
|
0
|
|
$
|
176,124
|
|
|
|
|
|
|
|
|
|
|
|
Brian F. Ingulsrud - Vice President-Administration
|
|
$
|
130,492
|
|
$
|
42,280
|
|
$
|
0
|
|
$
|
172,772
|
|
(A) Represents
the change in the present value of the accumulated benefits provided by the
plan or agreement including the efffect of the decrease in the discount rate
from 6.55% to 5.00%.
(B)
Interest is considered to be preferential if the rate paid to the executive
exceeds 120% of the applicable long-term federal rate under the Interal Revenue
Code. Amounts reported reflect only the
interest that exceeds 120% of the applicable long-term federal rate.
(6)
Includes the imputed value
of Company provided life insurance and long-term disability insurance, car
allowance, reimbursement of health club dues, costs of tax return preparation,
costs of medical physicals, Company 401(k) matching contributions, Company
matching SERP contributions, flexible spending taxable cash and flexible
spending dollars into 401(k).
40
Grants of Plan-Based Awards
The following table
discloses the grants of plan-based awards to each of the Companys Named
Executive Officers for the current year related to the Long-Term Incentive Plan
(LTIP). The amounts of these awards that
were expensed are shown in the Summary Compensation Table. The table below also discloses the estimated
future payouts related to contract rights under the LTIP, Short-Term Incentive
Plan (STIP) and the Profit-Per-Acre (PPA) payment under the LTIP.
Grants of Plan-Based
Awards Table
Name and Principal
|
|
|
|
|
|
Units
|
|
Estimated Future Payouts Under Non-
Equity Incentive Plan Awards - LTIP -
Contract Rights (1)
|
|
Estimated Future Payouts Under Non-
Equity Incentive Plan - STIP (2)
|
|
Estimated Future Payouts Under Non-
Equity Incentive Plan Awards - PPA (3)
|
|
Position
|
|
Grant Date
|
|
Action Date
|
|
Granted
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
David
A. Berg - President and Chief Executive Officer
|
|
8/31/2010
|
|
9/28/2010
|
|
116.69
|
|
|
|
$
|
297,560
|
|
|
|
$
|
0
|
|
$
|
252,450
|
|
$
|
504,900
|
|
|
|
$
|
36,835
|
|
|
|
Thomas
S. Astrup - Vice President-Finance and Chief Financial Officer
|
|
8/31/2010
|
|
9/28/2010
|
|
29.21
|
|
|
|
$
|
74,486
|
|
|
|
$
|
0
|
|
$
|
98,315
|
|
$
|
196,630
|
|
|
|
$
|
9,221
|
|
|
|
Joseph
J. Talley - Chief Operating Officer
|
|
8/31/2010
|
|
9/28/2010
|
|
38.05
|
|
|
|
$
|
97,028
|
|
|
|
$
|
0
|
|
$
|
128,049
|
|
$
|
256,099
|
|
|
|
$
|
12,011
|
|
|
|
Brian
F. Ingulsrud - Vice President-Administration
|
|
8/31/2010
|
|
9/28/2010
|
|
26.61
|
|
|
|
$
|
67,856
|
|
|
|
$
|
0
|
|
$
|
89,553
|
|
$
|
179,106
|
|
|
|
$
|
8,400
|
|
|
|
(1)
The Target amounts represent
contract rights at the 8/31/2010 stated value of $2,550 per contract
right. These rights vest to the
executive equally over three years.
Theoretically, the minimum received for these contract rights could be
$0 and there is no maximum.
(2)
The amounts indicated
represent future potential payments under the Short-Term Incentive Plan (STIP)
based on the executives salary as of August 31, 2010.
(3)
The Target amount
represents future Profit Per Acre (PPA) annual payments that will be paid to
executives upon vesting and assuming a similar beet payment and on-farm costs
to that experienced in fiscal year 2010.
PPA payments are only paid on vested contract rights. Theoretically the minimum payment could be $0
and there is no maximum.
41
Pension Benefits
The table below reflects
information for the Named Executive Officers pertaining to the Companys
Pension Plan and the Supplemental Executive Retirement Plan.
Name and Principal Position
|
|
Plan Name
|
|
Number of
Years Credited
Service
|
|
Present Value of
Accumulated Benefit (1)
|
|
Payments During Last
Fiscal Year
|
|
David A. Berg - President and Chief Executive
Officer
|
|
Retirement Plan A For Employees of ACSC (2)
|
|
23
|
|
$
|
566,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Executive Retirement Plan (2)
|
|
23
|
|
$
|
576,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas S. Astrup - Vice President-Finance and
Chief Financial Officer
|
|
Retirement Plan A For Employees of ACSC (2)
|
|
16
|
|
$
|
166,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Executive Retirement Plan (2)
|
|
16
|
|
$
|
63,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph J. Talley - Chief Operating Officer
|
|
Retirement Plan A For Employees of ACSC (2)
|
|
16
|
|
$
|
289,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Executive Retirement Plan (2)
|
|
16
|
|
$
|
179,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian F. Ingulsrud - Vice President-Administration
|
|
Retirement Plan A For Employees of ACSC (2)
|
|
19
|
|
$
|
291,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Executive Retirement Plan (2)
|
|
19
|
|
$
|
68,406
|
|
|
|
(1)
Footnote (10), Employee
Benefit Plans, of the Companys Notes to the Consolidated Financial Statements
discloses the significant assumptions used in calculating this benefit.
(2)
Refer to the Compensation,
Discussion and Analysis (CD&A) section within this Form 10-K for a
description of this benefit plan.
42
Non-Qualified Deferred Compensation
The table below reflects information for the Named
Executive Officers pertaining to non-qualified deferred compensation. All non-qualified deferred compensation
listed below is subject to claims of the Companys creditors.
Name and
Principal Position
|
|
Executive
Contributions in
Last Fiscal Year (1)
|
|
Registrant
Contributions in
Last Fiscal Year (2)
|
|
Aggregate Earnings
in Last Fiscal Year
(3)
|
|
Aggregate
Withdrawals/
Distributions (4)
|
|
Aggregate Balance
at Last Fiscal Year
End
|
|
David A. Berg - President and Chief Executive
Oficer
|
|
$
|
31,658
|
|
$
|
25,026
|
|
$
|
21,306
|
|
|
|
$
|
586,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas S. Astrup - Vice President-Finance and
Chief Financial Officer
|
|
|
|
$
|
6,277
|
|
$
|
3,793
|
|
|
|
$
|
72,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph J. Talley - Chief Operating Officer
|
|
$
|
140,401
|
|
$
|
10,163
|
|
$
|
43,938
|
|
|
|
$
|
1,075,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian F. Ingulsrud - Vice President-Administration
|
|
$
|
3,346
|
|
$
|
4,013
|
|
$
|
331
|
|
|
|
$
|
20,664
|
|
(1)
Executives may defer from 2%
to 20% of eligible earnings above the limit for a qualified plan and up to 100%
of incentive compensation (which includes short-term incentive comp, profit per
acre payments and proceeds from the sale of contract rights). These amounts are included in the Summary
Compensation Table.
(2)
Represents Company 401k
matching above the IRS limit for a qualified plan. These amounts are included in the All Other
Compensation column of the Summary Compensation Table.
(3)
Preferential interest is
included here as well as in the NQDC column of the Summary Compensation Table.
There was no preferential interest for the executives during fiscal year
2010. Executives have the option of
investing funds in an S&P 500 index fund or in a money market fund guaranteeing
interest at prime as of January 2 of each calendar year. The 2010, 2009 and 2008 calendar year rates
were 3.25%, 3.25%, and 7.25%, respectively.
(4)
Distributions occur upon
termination of employment and can be in a lump sum or in equal installments
over a period not to exceed ten years.
Potential Payments upon Termination or Change-In-Control
On
March 21, 2007, the Company and Mr. Berg entered into an agreement
regarding Mr. Bergs employment by the Company. The agreement provides that Mr. Berg
shall serve as an at will employee at the pleasure of the Board of
Directors. The agreement also contains
the provision of a two-year non-compete/non-solicitation agreement with
Mr. Berg, grants the Board of Directors the authority to establish Mr. Bergs
base compensation each year, and also provides that he may participate in other
incentive compensation and benefit programs available to the Companys
executive officers.
If
Mr. Berg is terminated without cause, he will be eligible for severance
pay equal to two times his then current base salary. The present value of Mr. Bergs
Supplemental Executive Retirement Plan was approximately $576,000 as of August 31,
2010.
Compensation of Directors
The
Board of Directors meets monthly. For
fiscal year 2010, the Company provided its directors with compensation
consisting of (i) a payment of $625 per month, (ii) a per diem
payment of $300 for each day spent on Company activities, including board
meetings and other Company functions, and (iii) reimbursement of expenses
associated with director responsibilities.
The Chairman of the Board of
43
Directors
received payments of $2,125 per month and a per diem in the amount of $300 for
each day spent on Company activities.
The monthly compensation paid to directors and the Chairman increases by
$25 per month each fiscal year.
Under the terms of the Board
of Directors Deferred Compensation Plan, members of the Board of Directors can
elect to defer receipt of their monthly and per diem compensation. This is an annual irrevocable election made
prior to January 1 of each calendar year the fees are to be paid. The amounts are deferred until the earliest
of the board members withdrawal from the Board of Directors, the board members
death or attainment of age 65. Two
payment options are available at the election of the participant. Payments can be received in a single lump sum
or in equal installments over a period of up to ten years. The Board of Directors, at its discretion,
can elect to distribute the remaining balance at any time. Interest is earned on the amounts deferred
based on the Companys weighted average cost of short-term and long-term
borrowing. Currently, there is one
former Board member who has elected to participate in this plan. The amount deferred, as of August 31,
2010, was approximately $96,000.
The table below reflects
director compensation for the year ended August 31, 2010.
44
Name
|
|
Fees Earned (1)
|
|
Non-Equity
Incentive Plan
Compensation
|
|
Change in Pension
Value and NQDC
Earnings
|
|
All Other
Compensation
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neil Widner, Director, Chairman of the Board
|
|
$
|
44,500
|
|
N/A
|
|
N/A
|
|
N/A
|
|
$
|
44,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtis Haugen, Director, Vice-Chairman of the
Board
|
|
$
|
29,050
|
|
N/A
|
|
N/A
|
|
N/A
|
|
$
|
29,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald S. Andringa, Director
|
|
$
|
25,750
|
|
N/A
|
|
N/A
|
|
N/A
|
|
$
|
25,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Baldwin, Director
|
|
$
|
32,050
|
|
N/A
|
|
N/A
|
|
N/A
|
|
$
|
32,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard Borgen, Director (2)
|
|
$
|
12,850
|
|
N/A
|
|
N/A
|
|
N/A
|
|
$
|
12,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Brainard, Director
|
|
$
|
26,200
|
|
N/A
|
|
N/A
|
|
N/A
|
|
$
|
26,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian Erickson, Director
|
|
$
|
30,550
|
|
N/A
|
|
N/A
|
|
N/A
|
|
$
|
30,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Green, Director
|
|
$
|
30,250
|
|
N/A
|
|
N/A
|
|
N/A
|
|
$
|
30,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Gudajtes, Director
|
|
$
|
20,350
|
|
N/A
|
|
N/A
|
|
N/A
|
|
$
|
20,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Hejl, Director
|
|
$
|
26,650
|
|
N/A
|
|
N/A
|
|
N/A
|
|
$
|
26,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtis Knutson, Director
|
|
$
|
18,250
|
|
N/A
|
|
N/A
|
|
N/A
|
|
$
|
18,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Francis L. Kritzberger, Director and Chairman of
the Board (2)
|
|
$
|
21,100
|
|
N/A
|
|
N/A
|
|
N/A
|
|
$
|
21,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dale Kuehl, Director
|
|
$
|
23,350
|
|
N/A
|
|
N/A
|
|
N/A
|
|
$
|
23,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeff McInnes, Director
|
|
$
|
22,300
|
|
N/A
|
|
N/A
|
|
N/A
|
|
$
|
22,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Mueller, Director (3)
|
|
$
|
14,275
|
|
N/A
|
|
N/A
|
|
N/A
|
|
$
|
14,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wayne Tang, Director (3)
|
|
$
|
18,625
|
|
N/A
|
|
N/A
|
|
N/A
|
|
$
|
18,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steve Williams, Director
|
|
$
|
32,050
|
|
N/A
|
|
N/A
|
|
N/A
|
|
$
|
32,050
|
|
(1)
Consists of fees of $625 per
month to Directors and $2,125 to the Chairman of the Board. The Chairman and Directors also receive a per
diem fee of $300 for each day spent on Company activities.
(2)
Term expired in December of
2009.
(3)
Term began in December of
2009.
Item 12.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Under
state law and the Companys Bylaws, each member of the cooperative is entitled
to one vote, regardless of the number of shares the member holds. The Common Stock of the Company is voting
stock and each member of the Company holds one share of Common Stock. The Preferred Stock of the Company is
non-voting stock. The Companys stock
can only be held by individuals who are sugarbeet growers. None of the officers or executives of the
Company hold stock of the Company. As
members of the cooperative, each director owns one share of Common Stock and is
entitled to one vote. As a group, the
directors own approximately 2 to 3 percent of the outstanding Preferred Stock.
45
Item 13.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
In
accordance with the Companys Bylaws, only people who are members of the
Company or representatives of members can serve on our Board of Directors. As members of the Company (or representatives
of members), all of our Directors have a contractual patronage relationship
with the Company that obligates them to deliver sugarbeets to the Company for
processing. As a result of this patronage
relationship, our Directors, like all other members of the Company, receive
beet payments from the Company.
The
Company has developed its own definition of Independent Director that takes
into account the patronage relationship that exists between the company and the
Director. Under the Companys
definition, the patronage relationship is not considered for purposes of
determining independence. However,
other relevant relationships between the Company and the Directors, and certain
family members, are considered in assessing independence. Except with respect to the patronage
relationship that exists, the Companys definition is consistent with the
definition of an independent director found in Section 303A.02 of the New
York Stock Exchange Listed Company Manual.
The
Companys definition of Director Independence is provided below:
A
director of the Company shall be considered an Independent Director unless:
(a)The
director has a material financial relationship with the Company (either
directly or as a partner, shareholder or officer of an organization that has a
relationship with the Company) other than the patronage relationship that
exists between the Company and each of its members.
(b)The
director is, or has been within the last 3 years, an employee of the Company;
or immediate family member is, or has been within the last 3 years, an
employee, of the Company.
(c)The
director has received, or an immediate family member has received, during any
12-month period within the last 3 years, more than $120,000 in direct
compensation from the Company, other than director or committee fees and
pension or other forms of deferred compensation for prior service (provided
such compensation is not contingent in any way on continued service).
(d)
(i)the
director is a current partner or employee of a firm that is the Companys
internal or external auditor;
(ii)the
director has an immediate family member who is a current partner of such firm;
(iii)the
director has an immediate family member who is a current employee of such a
firm and personally works on the Companys audits; or
(iv)the
director or an immediate family member was, within the last 3 years, a partner
or employee of such a firm and personally worked on the Companys audit within
that timeframe.
(e)The
Director or an immediate family member is, or has been within the last 3 years,
employed as an executive officer of another company, or any of the Companys
present executive officers, at the same time serves or served on that Companys
compensation committee.
46
(f)The
Director is a current employee, or an immediate family member is a current
executive officer, of a company that has made payments to, or received payments
from, the Company for property or services in an amount which, in any of the
last 3 fiscal years, exceeds the greater of $1,000,000 or 2% of such companys
consolidated gross revenues, other than as a result of such persons patronage
relationship with the Company.
References
to company include any parent or subsidiary in a consolidated group with such
other company.
Based
on the above definition, all of our Directors are independent of management and
of the Company.
Item 14.
PRINCIPAL
ACCOUNTING FEES AND SERVICES
The
following table presents fees for professional audit services rendered by Eide
Bailly LLP for the audits of the Companys and consolidated companies annual
financial statements for the years ended August 31, 2010 and 2009 and fees
for other services rendered by Eide Bailly LLP during those periods.
(In Thousands)
|
|
2010
|
|
2009
|
|
Audit Fees
|
|
$
|
129
|
|
$
|
129
|
|
Audit-Related Fees
|
|
33
|
|
36
|
|
Tax Fees
|
|
34
|
|
32
|
|
All Other Fees
|
|
8
|
|
16
|
|
Total
|
|
$
|
204
|
|
$
|
213
|
|
Audit Fees.
The Audit Fees set forth above include the
aggregate fees billed by Eide Bailly LLP to the Company for audit services
related to the audit of the Companys and consolidated companies annual
financial statements and review of the statements included in the Companys
quarterly reports on Form 10-Q for fiscal 2010 and fiscal 2009.
Audit-Related Fees.
The Audit-Related Fees set forth above
include the aggregate fees billed by Eide Bailly LLP to the Company and
consolidated companies for assurance and related services provided by Eide
Bailly LLP related to the performance of the audit or review of the Companys
financial statements for fiscal 2010 and fiscal 2009. These services included benefit plan audits.
Tax Fees.
The Tax Fees set forth above include the
aggregate fees billed by Eide Bailly LLP to the Company and consolidated
companies for professional services rendered by Eide Bailly for tax compliance,
tax advice and tax planning for fiscal 2010 and fiscal 2009. These services include tax return
preparation, tax planning and tax research.
All Other Fees.
All Other Fees set forth above include the
aggregate fees billed by Eide Bailly LLP to the Company and consolidated
companies for professional services provided by Eide Bailly LLP to the Company
and consolidated companies for fiscal 2010 and fiscal 2009.
The
Companys Audit Committee pre-approves all professional services provided by
Eide Bailly LLP to the Company. The
Audit Committee approved all
of the services and the fees billed
for such services to the Company. The
Audit Committee makes its decisions on the approval of services with due
consideration given to maintaining the independence of the principal
accountant. None of the hours expended on the audit of the 2010 financial statements were
attributed to work performed by persons who were not employed full time on a
permanent basis by Eide Bailly LLP.
47
PART III
Item 15.
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this
report
1.
|
Consolidated Financial Statements
|
|
Report of Independent Registered Public Accounting
Firm
|
|
Consolidated Statements of Operations for the
Years Ended August 31, 2010, 2009 and 2008
|
|
Consolidated Balance Sheets as of August 31,
2010 and 2009
|
|
Consolidated Statements of Changes in Members
Investments and Comprehensive Income for the Years Ended August 31,
2010, 2009 and 2008
|
|
Consolidated Statements of Cash Flows for the
Years Ended August 31, 2010, 2009 and 2008
|
|
Notes to the Consolidated Financial Statements
|
|
|
2.
|
Financial Statement Schedules
|
|
None
|
|
|
3.
|
The exhibits to this Annual Report on
Form 10-K are listed in the Exhibit Index on pages E-1 to E-4
of this report
|
(b) Exhibits
The
response to this portion of Item 15 is included as a separate section of this
Annual Report on Form 10-K.
48
SIGNATURES
Pursuant
to the requirements of Section 13 or 15 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, on November 3, 2010.
|
AMERICAN
CRYSTAL SUGAR COMPANY
|
|
By:
|
/s/
DAVID A. BERG
|
|
|
President
and Chief Executive Officer
|
|
|
|
|
Dated:
November 3, 2010
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been signed by the following persons on behalf of the registrant in the
capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
DAVID A. BERG
|
|
President
and Chief Executive Officer (Principal Executive Officer)
|
|
November 3,
2010
|
|
|
|
|
|
/s/
THOMAS S. ASTRUP
|
|
Vice
President-Finance and Chief Financial Officer (Principal Financial
|
|
November 3,
2010
|
|
|
Officer)
|
|
|
|
|
|
|
|
/s/
TERESA A. WARNE
|
|
Corporate
Controller (Principal Accounting Officer)
|
|
November 3,
2010
|
|
|
|
|
|
/s/
NEIL C. WIDNER
|
|
Director
(Chairman)
|
|
November 3,
2010
|
|
|
|
|
|
/s/
CURTIS E. HAUGEN
|
|
Director
(Vice-Chairman)
|
|
November 3,
2010
|
|
|
|
|
|
/s/
DONALD S. ANDRINGA
|
|
Director
|
|
November 3,
2010
|
|
|
|
|
|
/s/
WILLIAM BALDWIN
|
|
Director
|
|
November 3,
2010
|
|
|
|
|
|
/s/
JOHN BRAINARD
|
|
Director
|
|
November 3,
2010
|
|
|
|
|
|
/s/
ROBERT M. GREEN
|
|
Director
|
|
November 3,
2010
|
|
|
|
|
|
/s/
JOHN F. GUDAJTES
|
|
Director
|
|
November 3,
2010
|
|
|
|
|
|
/s/
WILLIAM A. HEJL
|
|
Director
|
|
November 3,
2010
|
|
|
|
|
|
/s/
CURTIS KNUTSON
|
|
Director
|
|
November 3,
2010
|
|
|
|
|
|
/s/
DALE KUEHL
|
|
Director
|
|
November 3,
2010
|
|
|
|
|
|
/s/
JEFF D. MCINNES
|
|
Director
|
|
November 3,
2010
|
|
|
|
|
|
/s/
DAVID MUELLER
|
|
Director
|
|
November 3,
2010
|
|
|
|
|
|
/s/
WAYNE TANG
|
|
Director
|
|
November 3,
2010
|
|
|
|
|
|
/s/
STEVE WILLIAMS
|
|
Director
|
|
November 3,
2010
|
49
APPENDIX A
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
A-1
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To
the Audit Committee of
American Crystal Sugar
Company
Moorhead,
Minnesota
We
have audited the accompanying consolidated balance sheets of
American Crystal Sugar Company
and
Subsidiaries
as of August 31, 2010 and 2009, and the related
consolidated statements of operations, changes in members investments and
comprehensive income, and cash flows for the years ended August 31, 2010,
2009, and 2008. These consolidated
financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our
audits included consideration of internal controls over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such an
opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of
American Crystal Sugar Company and Subsidiaries
as of
August 31, 2010 and 2009, and the results of their operations and their
cash flows for the years ended August 31, 2010, 2009, and 2008, in
conformity with accounting principles generally accepted in the United States
of America.
As
described in Note 1, in accordance with authoritative guidance issued by the
Financial Accounting Standards Board (FASB), the Company has modified the basis
of presentation policy related to the presentation of noncontrolling interests.
On a retrospective basis for all periods presented in this report, the Company
has included the net proceeds attributable to noncontrolling interests, which
was previously referred to as minority interest, as a component of consolidated
net proceeds reflected on the Consolidated Statements of Operations. In
addition, noncontrolling interest on the Consolidated Balance Sheets are now
reflected as a component of Total Members Investments.
/s/
EIDE BAILLY LLP
Minneapolis,
Minnesota
November 3,
2010
A-2
American Crystal Sugar Company
Consolidated
Statements of Operations
For the Years Ended August 31
(In Thousands)
|
|
2010
|
|
2009
|
|
2008
|
|
Net Revenue
|
|
$
|
1,203,897
|
|
$
|
1,200,229
|
|
$
|
1,232,832
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
420,842
|
|
405,714
|
|
402,928
|
|
|
|
|
|
|
|
|
|
Gross Proceeds
|
|
783,055
|
|
794,515
|
|
829,904
|
|
|
|
|
|
|
|
|
|
Selling, General and
Administrative Expenses
|
|
238,905
|
|
244,174
|
|
267,539
|
|
|
|
|
|
|
|
|
|
Operating Proceeds
|
|
544,150
|
|
550,341
|
|
562,365
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
Interest Income
|
|
150
|
|
209
|
|
740
|
|
Interest Expense, Net
|
|
(9,012
|
)
|
(10,058
|
)
|
(14,750
|
)
|
Other, Net
|
|
(435
|
)
|
3,943
|
|
(165
|
)
|
|
|
|
|
|
|
|
|
Total Other Expense
|
|
(9,297
|
)
|
(5,906
|
)
|
(14,175
|
)
|
|
|
|
|
|
|
|
|
Proceeds Before Income Tax
|
|
534,853
|
|
544,435
|
|
548,190
|
|
|
|
|
|
|
|
|
|
Income Tax (Expense)/Benefit
|
|
(2,309
|
)
|
(2,181
|
)
|
1,399
|
|
|
|
|
|
|
|
|
|
Consolidated Net Proceeds
|
|
532,544
|
|
542,254
|
|
549,589
|
|
|
|
|
|
|
|
|
|
Less: Net Proceeds Attributable
to Noncontrolling Interests
|
|
(6,432
|
)
|
(6,103
|
)
|
(6,896
|
)
|
|
|
|
|
|
|
|
|
Net Proceeds Attributable to
American Crystal Sugar Company
|
|
$
|
526,112
|
|
$
|
536,151
|
|
$
|
542,693
|
|
|
|
|
|
|
|
|
|
Distributions of Net Proceeds
Attributable to American Crystal Sugar Company:
|
|
|
|
|
|
|
|
Credited (Charged) to American Crystal Sugar
Companys Members Investments:
|
|
|
|
|
|
|
|
Non-Member Business Income/(Loss)
|
|
$
|
5,426
|
|
$
|
2,309
|
|
$
|
(4,787
|
)
|
Unit Retains Declared to Members
|
|
29,531
|
|
31,024
|
|
23,260
|
|
Net Credit to American Crystal Sugar Companys
Members Investments
|
|
34,957
|
|
33,333
|
|
18,473
|
|
Payments to Members for Sugarbeets, Net of Unit
Retains Declared
|
|
491,155
|
|
502,818
|
|
524,220
|
|
Total
|
|
$
|
526,112
|
|
$
|
536,151
|
|
$
|
542,693
|
|
The
Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
A-3
American Crystal Sugar Company
Consolidated
Balance Sheets
August 31
(In Thousands)
Assets
|
|
2010
|
|
2009
|
|
Current Assets:
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
128
|
|
$
|
127
|
|
Receivables:
|
|
|
|
|
|
Trade
|
|
52,608
|
|
61,665
|
|
Members
|
|
5,195
|
|
4,480
|
|
Other
|
|
4,080
|
|
2,565
|
|
Advances to Related Parties
|
|
15,243
|
|
22,744
|
|
Inventories
|
|
204,117
|
|
181,311
|
|
Prepaid Expenses
|
|
815
|
|
864
|
|
|
|
|
|
|
|
Total Current Assets
|
|
282,186
|
|
273,756
|
|
|
|
|
|
|
|
Property and Equipment:
|
|
|
|
|
|
Land and Land Improvements
|
|
73,804
|
|
67,011
|
|
Buildings
|
|
124,533
|
|
116,907
|
|
Equipment
|
|
942,346
|
|
892,678
|
|
Construction in Progress
|
|
16,737
|
|
14,522
|
|
Less Accumulated Depreciation
|
|
(775,904
|
)
|
(737,182
|
)
|
|
|
|
|
|
|
Net Property and Equipment
|
|
381,516
|
|
353,936
|
|
|
|
|
|
|
|
Net Property and Equipment Held for
Lease
|
|
102,333
|
|
111,015
|
|
|
|
|
|
|
|
Other Assets:
|
|
|
|
|
|
Investments in CoBank, ACB
|
|
8,771
|
|
10,111
|
|
Investments in Marketing Cooperatives
|
|
1,094
|
|
135
|
|
Other Assets
|
|
11,778
|
|
12,305
|
|
|
|
|
|
|
|
Total Other Assets
|
|
21,643
|
|
22,551
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
787,678
|
|
$
|
761,258
|
|
The
Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
A-4
American Crystal Sugar Company
Consolidated Balance Sheets
August 31
(In Thousands)
Liabilities and Members Investments
|
|
2010
|
|
2009
|
|
Current Liabilities:
|
|
|
|
|
|
Short-Term Debt
|
|
$
|
5,000
|
|
$
|
45,989
|
|
Current Maturities of Long-Term Debt
|
|
375
|
|
18,789
|
|
Accounts Payable
|
|
37,298
|
|
35,381
|
|
Advances Due to Related Parties
|
|
5,697
|
|
1,863
|
|
Other Current Liabilities
|
|
42,626
|
|
34,034
|
|
Amounts Due Growers
|
|
137,133
|
|
87,218
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
228,129
|
|
223,274
|
|
|
|
|
|
|
|
Long-Term Debt, Net of Current
Maturities
|
|
140,698
|
|
143,073
|
|
|
|
|
|
|
|
Accrued Employee Benefits
|
|
77,584
|
|
46,458
|
|
|
|
|
|
|
|
Other Liabilities
|
|
10,657
|
|
8,925
|
|
|
|
|
|
|
|
Total Liabilities
|
|
457,068
|
|
421,730
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
Members Investments:
|
|
|
|
|
|
Preferred Stock
|
|
38,275
|
|
38,275
|
|
Common Stock
|
|
28
|
|
28
|
|
Additional Paid-In Capital
|
|
152,261
|
|
152,261
|
|
Unit Retains
|
|
193,779
|
|
181,601
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
(85,986
|
)
|
(63,705
|
)
|
Retained Earnings (Accumulated Deficit)
|
|
(18,456
|
)
|
(23,882
|
)
|
|
|
|
|
|
|
Total American Crystal Sugar Company Members
Investments
|
|
279,901
|
|
284,578
|
|
|
|
|
|
|
|
Noncontrolling Interests
|
|
50,709
|
|
54,950
|
|
|
|
|
|
|
|
Total Members Investments
|
|
330,610
|
|
339,528
|
|
|
|
|
|
|
|
Total Liabilities and Members
Investments
|
|
$
|
787,678
|
|
$
|
761,258
|
|
The
Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
A-5
American Crystal Sugar Company
Consolidated
Statements of Changes in Members Investments and Comprehensive Income
For the Years Ended August 31
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
Retained
|
|
American
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
Earnings
|
|
Crystal Sugar
|
|
|
|
|
|
Annual
|
|
|
|
Preferred
|
|
Common
|
|
Paid-In
|
|
Unit
|
|
Equity
|
|
Comprehensive
|
|
(Accumulated
|
|
Company
|
|
Noncontrolling
|
|
|
|
Comprehensive
|
|
|
|
Stock
|
|
Stock
|
|
Capital
|
|
Retains
|
|
Retention
|
|
Income (Loss)
|
|
Deficit)
|
|
Total
|
|
Interests
|
|
Total
|
|
Income (Loss)
|
|
Balance, August 31, 2007
|
|
$
|
38,275
|
|
$
|
29
|
|
$
|
152,261
|
|
$
|
170,363
|
|
$
|
2,687
|
|
$
|
(8,552
|
)
|
$
|
(21,178
|
)
|
$
|
333,885
|
|
$
|
61,735
|
|
$
|
395,620
|
|
|
|
Non-Member Business Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,787
|
)
|
(4,787
|
)
|
|
|
(4,787
|
)
|
$
|
(4,787
|
)
|
Net Proceeds Noncontrolling Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,896
|
|
6,896
|
|
|
|
Distributions to Noncontrolling Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,792
|
)
|
(8,792
|
)
|
|
|
SFAS 158 Unrecognized Prior Service Costs
|
|
|
|
|
|
|
|
|
|
|
|
1,317
|
|
|
|
1,317
|
|
|
|
1,317
|
|
1,317
|
|
SFAS 158 Unrecognized Gain/(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
(224
|
)
|
|
|
(224
|
)
|
|
|
(224
|
)
|
(224
|
)
|
OCI of Equity Method Investees
|
|
|
|
|
|
|
|
|
|
|
|
(1,491
|
)
|
|
|
(1,491
|
)
|
|
|
(1,491
|
)
|
(1,491
|
)
|
Forward Contract Foreign Currency Loss
|
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
(34
|
)
|
|
|
(34
|
)
|
(34
|
)
|
Unit Retains Withheld from Members
|
|
|
|
|
|
|
|
23,260
|
|
|
|
|
|
|
|
23,260
|
|
|
|
23,260
|
|
|
|
Payments of Unit Retains and Equity Retention to
Members
|
|
|
|
|
|
|
|
(19,117
|
)
|
(1,532
|
)
|
|
|
|
|
(20,649
|
)
|
|
|
(20,649
|
)
|
|
|
Stock Issued, Net
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2008
|
|
38,275
|
|
28
|
|
152,261
|
|
174,506
|
|
1,155
|
|
(8,984
|
)
|
(25,965
|
)
|
331,276
|
|
59,839
|
|
391,115
|
|
$
|
(5,219
|
)
|
Non-Member Business Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,309
|
|
2,309
|
|
|
|
2,309
|
|
$
|
2,309
|
|
Net Proceeds Noncontrolling Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,103
|
|
6,103
|
|
|
|
Distributions to Noncontrolling Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,992
|
)
|
(10,992
|
)
|
|
|
SFAS 158 Unrecognized Prior Service Costs
|
|
|
|
|
|
|
|
|
|
|
|
1,644
|
|
|
|
1,644
|
|
|
|
1,644
|
|
1,644
|
|
SFAS 158 Unrecognized Gain/(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
(51,624
|
)
|
|
|
(51,624
|
)
|
|
|
(51,624
|
)
|
(51,624
|
)
|
SFAS 158 Measurement Date Adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(226
|
)
|
(226
|
)
|
|
|
(226
|
)
|
(226
|
)
|
OCI of Equity Method Investees
|
|
|
|
|
|
|
|
|
|
|
|
(4,755
|
)
|
|
|
(4,755
|
)
|
|
|
(4,755
|
)
|
(4,755
|
)
|
Forward Contract Foreign Currency Gain
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
14
|
|
|
|
14
|
|
14
|
|
Unit Retains Withheld from Members
|
|
|
|
|
|
|
|
31,024
|
|
|
|
|
|
|
|
31,024
|
|
|
|
31,024
|
|
|
|
Payments of Unit Retains and Equity Retention to
Members
|
|
|
|
|
|
|
|
(23,929
|
)
|
(1,155
|
)
|
|
|
|
|
(25,084
|
)
|
|
|
(25,084
|
)
|
|
|
Stock Issued, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2009
|
|
38,275
|
|
28
|
|
152,261
|
|
181,601
|
|
|
|
(63,705
|
)
|
(23,882
|
)
|
284,578
|
|
54,950
|
|
339,528
|
|
$
|
(52,638
|
)
|
Non-Member Business Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,426
|
|
5,426
|
|
|
|
5,426
|
|
$
|
5,426
|
|
Net Proceeds Noncontrolling Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,432
|
|
6,432
|
|
|
|
Distributions to Noncontrolling Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,673
|
)
|
(10,673
|
)
|
|
|
SFAS 158 Unrecognized Prior Service Costs
|
|
|
|
|
|
|
|
|
|
|
|
1,316
|
|
|
|
1,316
|
|
|
|
1,316
|
|
1,316
|
|
SFAS 158 Unrecognized Gain/(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
(23,054
|
)
|
|
|
(23,054
|
)
|
|
|
(23,054
|
)
|
(23,054
|
)
|
OCI of Equity Method Investees
|
|
|
|
|
|
|
|
|
|
|
|
1,262
|
|
|
|
1,262
|
|
|
|
1,262
|
|
1,262
|
|
Forward Contract Foreign Currency Loss
|
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
(34
|
)
|
|
|
(34
|
)
|
(34
|
)
|
Interest Rate Contract
|
|
|
|
|
|
|
|
|
|
|
|
(1,771
|
)
|
|
|
(1,771
|
)
|
|
|
(1,771
|
)
|
(1,771
|
)
|
Unit Retains Withheld from Members
|
|
|
|
|
|
|
|
29,531
|
|
|
|
|
|
|
|
29,531
|
|
|
|
29,531
|
|
|
|
Payments of Unit Retains to Members
|
|
|
|
|
|
|
|
(17,353
|
)
|
|
|
|
|
|
|
(17,353
|
)
|
|
|
(17,353
|
)
|
|
|
Stock Issued, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2010
|
|
$
|
38,275
|
|
$
|
28
|
|
$
|
152,261
|
|
$
|
193,779
|
|
$
|
|
|
$
|
(85,986
|
)
|
$
|
(18,456
|
)
|
$
|
279,901
|
|
$
|
50,709
|
|
$
|
330,610
|
|
$
|
(16,855
|
)
|
The
Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
A-6
American Crystal Sugar Company
Consolidated
Statements of Cash Flows
For the Years Ended August 31
(In Thousands)
|
|
2010
|
|
2009
|
|
2008
|
|
Cash Provided By (Used In)
Operating Activities:
|
|
|
|
|
|
|
|
Net Proceeds Attributable to American Crystal
Sugar Company
|
|
$
|
526,112
|
|
$
|
536,151
|
|
$
|
542,693
|
|
Payments To/Due Members for Sugarbeets, Net of
Unit Retains Declared
|
|
(491,155
|
)
|
(502,818
|
)
|
(524,220
|
)
|
Add (Deduct) Non-Cash Items:
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
55,580
|
|
55,046
|
|
58,197
|
|
Impairment Loss
|
|
|
|
|
|
11,867
|
|
(Income)/Loss from Equity Method Investees
|
|
521
|
|
(636
|
)
|
221
|
|
Loss on the Disposition of Property and Equipment
|
|
535
|
|
1,049
|
|
504
|
|
Non-Cash Portion of Patronage Dividend from
CoBank, ACB
|
|
(147
|
)
|
(165
|
)
|
(121
|
)
|
Deferred Gain Recognition
|
|
(63
|
)
|
(108
|
)
|
(197
|
)
|
Noncontrolling Interests
|
|
6,432
|
|
6,103
|
|
6,896
|
|
Changes in Assets and Liabilities:
|
|
|
|
|
|
|
|
Receivables
|
|
6,827
|
|
2,741
|
|
13,837
|
|
Inventories
|
|
(22,806
|
)
|
7,017
|
|
28,235
|
|
Prepaid Expenses
|
|
38
|
|
312
|
|
7
|
|
Non-Current Pension Asset/Liability
|
|
5,413
|
|
634
|
|
(113
|
)
|
Advances To/Due to Related Parties
|
|
11,335
|
|
(3,833
|
)
|
(12,126
|
)
|
Accounts Payable
|
|
(1,681
|
)
|
(1,399
|
)
|
(173
|
)
|
Other Liabilities
|
|
12,505
|
|
5,697
|
|
(8,894
|
)
|
Amounts Due Growers
|
|
49,915
|
|
(33,715
|
)
|
(22,327
|
)
|
Net Cash Provided By Operating
Activities
|
|
159,361
|
|
72,076
|
|
94,286
|
|
|
|
|
|
|
|
|
|
Cash Provided By (Used In)
Investing Activities:
|
|
|
|
|
|
|
|
Purchases of Property and Equipment
|
|
(67,828
|
)
|
(45,479
|
)
|
(47,380
|
)
|
Purchases of Property and Equipment Held for Lease
|
|
(2,648
|
)
|
(2,331
|
)
|
(1,358
|
)
|
Proceeds from the Sale of Property and Equipment
|
|
26
|
|
18
|
|
57
|
|
Equity Distribution from CoBank, ACB
|
|
1,487
|
|
|
|
1,802
|
|
Investments in Marketing Cooperatives
|
|
(154
|
)
|
6
|
|
(8
|
)
|
Changes in Other Assets
|
|
(439
|
)
|
(1,978
|
)
|
2,041
|
|
Net Cash (Used In) Investing
Activities
|
|
(69,556
|
)
|
(49,764
|
)
|
(44,846
|
)
|
|
|
|
|
|
|
|
|
Cash Provided By (Used In)
Financing Activities:
|
|
|
|
|
|
|
|
Net Proceeds from (Payments on) Short-Term Debt
|
|
(40,989
|
)
|
30,692
|
|
(9,683
|
)
|
Proceeds from Issuance of Long-Term Debt
|
|
|
|
100,092
|
|
25,818
|
|
Long-Term Debt Repayment
|
|
(20,789
|
)
|
(117,021
|
)
|
(36,227
|
)
|
Distributions to Noncontrolling Interests
|
|
(10,673
|
)
|
(10,992
|
)
|
(8,792
|
)
|
Changes in Common Stock
|
|
|
|
|
|
(1
|
)
|
Payment of Unit Retains and Equity Retention
|
|
(17,353
|
)
|
(25,084
|
)
|
(20,649
|
)
|
Net Cash (Used In) Financing
Activities
|
|
(89,804
|
)
|
(22,313
|
)
|
(49,534
|
)
|
Increase (Decrease) In Cash and
Cash Equivalents
|
|
1
|
|
(1
|
)
|
(94
|
)
|
Cash and Cash Equivalents,
Beginning of Year
|
|
127
|
|
128
|
|
222
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of
Year
|
|
$
|
128
|
|
$
|
127
|
|
$
|
128
|
|
Non-Cash Investing Activities:
Purchases of
Property and Equipment include the changes in accounts payable related to these
purchases of $3,597,000; $944,000 and ($2,989,000) for the years ended August 31,
2010, 2009 and 2008, respectively.
The
Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
A-7
American Crystal Sugar Company
Notes to the Consolidated
Financial Statements
(1) PRINCIPAL
ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES:
Organization
American
Crystal Sugar Company (Company) is a Minnesota agricultural cooperative
corporation which processes and markets sugar as well as sugarbeet pulp,
molasses, concentrated separated by-product (CSB), betaine (collectively,
agri-products) and sugarbeet seed.
Business done with its shareholders (members) constitutes patronage
business as defined by the Internal Revenue Code, and the net proceeds
therefrom are credited to members investments in the form of unit retains or
distributed to members in the form of payments for sugarbeets. Members are paid the net amounts realized
from the current years production less member operating costs determined in
conformity with accounting principles generally accepted in the United States
of America.
Basis
of Presentation
The
Companys 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.
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.
All
material inter-company transactions have been eliminated.
Revenue
Recognition
Revenue
from the sale of sugar, agri-products and seed is recorded when the product is
delivered to the customer. Operating
lease revenue is recognized as earned ratably over the term of the lease.
Operating
Lease
ProGold
owns a corn wet milling facility which it leases under an operating lease. On November 6, 2007, ProGold entered
into an amended operating lease agreement with Cargill, Incorporated that
superseded and replaced the previous ten year lease agreement. Payments are to be received monthly under the
lease, which runs through December 31, 2017. The operating lease revenue is recognized as
earned ratably over the term of the lease and to the extent that amounts
received exceed amounts earned, deferred revenue is recorded. Expenses (including depreciation and
interest) are charged against such revenue as incurred. The lease contains provisions for extension
or modification of the lease terms at the end of the lease period. The lease also contains provisions for
increased payments to be received during the lease period related to the plants
capital additions.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents.
The Company places its temporary cash investments with high
A-8
credit
quality financial institutions. At
times, such investments may be in excess of the applicable insurance limit.
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 customers 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 Companys best estimate of
the amounts that will not be collected.
Inventories
Sugar,
pulp, molasses and other agri-products inventories are valued at estimated net
realizable value. Maintenance parts and
supplies and sugarbeet seed inventories are valued at the lower of average cost
or market. Sugarbeets are valued at the
projected gross per-ton beet payment related to that years crop.
Net
Property and Equipment
Property
and equipment are recorded at cost less impairment. See Note 4 to the consolidated financial
statements. Indirect costs and
construction period interest are capitalized as a component of the cost of
qualified assets. Property and equipment
are depreciated for financial reporting purposes principally using
straight-line methods with estimated useful lives ranging from 3 to 33 years.
Net
Property and Equipment Held for Lease
Net
property and equipment held for lease are stated at cost. Depreciation on assets placed in service is
provided using the straight-line method with estimated useful lives ranging
from 5 to 40 years.
Impairment
of Long Lived Assets
The
Company reviews its long lived assets for impairment whenever events indicate
that the carrying amount of the asset may not be recoverable. An impairment loss is recorded when the sum
of the future cash flows is less than the carrying amount of the asset. An impairment loss is measured as the amount
by which the carrying amount of the asset exceeds its fair value. An impairment
loss of approximately $11.9 million was recognized in 2008. No additional impairment was recognized in
2010 or 2009. See Note 4 to the
consolidated financial statements. The
fair value of assets is a significant estimate and it is at least reasonably
possible that a change in the estimate could occur in the near term.
Related
Parties
The
following organizations are considered related parties for financial reporting
purposes: United Sugars Corporation (United), Midwest Agri-Commodities Company
(Midwest) and West Coast Beet Seed Company.
A-9
Investments
Investments
in CoBank, ACB are stated at cost plus unredeemed patronage refunds received in
the form of capital stock. Investments
in marketing cooperatives are accounted for using the equity method.
Members
Investments
Preferred
and Common Stock - The ownership of common and preferred stock is restricted to
a farm operator as defined by the bylaws of the Company. Each shareholder may own only one share of
common stock and is entitled to one vote in the affairs of the Company. Each shareholder is required to grow a
specified number of acres of sugarbeets in proportion to the shares of
preferred stock owned. The preferred
shares are non-voting. All transfers of
stock must be approved by the Companys Board of Directors and any shareholder
desiring to sell stock must first offer it to the Company for repurchase at its
par value. The Company has never exercised
this repurchase option for preferred stock.
The Companys articles of incorporation do not allow dividends to be
paid on either the common or preferred stock.
Unit
Retains - The bylaws authorize the Companys Board of Directors to require
additional direct capital investments by members in the form of a variable unit
retain per ton of up to a maximum of 10 percent of the weighted average gross
per ton beet payment. All refunds and
retirements of unit retains must be approved by the Board of Directors.
Equity
Retention The Payment-In-Kind (PIK) Certificate Purchase Agreement authorizes
the Company to require additional direct capital investments by members
participating in the PIK program. The amount of the equity contribution is
calculated per hundredweight of PIK certificates and is approximately
equivalent (on a Company-wide average basis) to the unit retain declared by the
Company on the corresponding years sugarbeet crop. All refunds and retirements of equity retains
must be approved by the Board of Directors. All remaining Equity Retentions
were refunded during 2009.
Accumulated
Other Comprehensive Income (Loss) - Accumulated Other Comprehensive Income
(Loss) represents the cumulative net increase (decrease) in equity related to
the recording of the over-funded or under-funded status of defined benefit
postretirement plans, the Companys portion of the other comprehensive
income(loss) of equity method investees and the gain or loss related to foreign
currency forward contracts and interest rate swap contracts. Consistent with the Companys treatment of
income taxes related to member-source income and expenses, accumulated other
comprehensive income (loss) does not include any adjustment for income
taxes. For years prior to August 31,
2007, Accumulated Other Comprehensive Income (Loss) represented the cumulative
net increase (decrease) in equity related to the recording of the minimum
pension liability adjustment.
Retained
Earnings (Accumulated Deficit) - Retained earnings represents the cumulative
net income (loss) resulting from non-member business, the 2009 pension
measurement date adjustment and, for years prior to 1996, the difference
between member income as determined for financial reporting purposes and for
federal income tax reporting purposes.
Interest
Expense, Net
The
Company earns patronage dividends from CoBank, ACB based on the Companys share
of the net income earned by CoBank, ACB.
These patronage dividends are applied against interest expense.
A-10
Income
Taxes
The
Company is a non-exempt cooperative for federal income tax purposes. As such, the Company is subject to corporate
income taxes on its net income from non-member sources. The provision for income taxes relates to the
results of operations from non-member business, state income taxes and certain
other permanent differences between financial and income tax reporting. The
Company also has various temporary differences between financial and income tax
reporting, most notable of which is depreciation.
Deferred
tax assets, less any applicable valuation allowance, and deferred tax
liabilities are included in the financial statements at currently enacted
income tax rates applicable to the period in which the deferred tax assets and
liabilities are expected to be realized or settled.
Accounting
Estimates
The
preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
Fair
Value Measurements
Fair
value is defined as the price that would be received from selling an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date. When determining the fair value
measurements for assets and liabilities required to be recorded at fair value,
the Company considers the principal or most advantageous market in which it
would transact and considers assumptions that market participants would use
when pricing the asset or liability, such as inherent risk, transfer
restrictions, and risk of nonperformance.
The
fair value hierarchy requires the Company to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. A
financial instruments categorization within the fair value hierarchy is based
upon the lowest level of input that is significant to the fair value
measurement. Three levels of inputs may be used to measure fair value:
Level
1: Quoted prices in active markets for identical assets or liabilities.
Level
2: Includes the following inputs:
·
quoted prices in active markets for similar
assets or liabilities,
·
quoted prices for identical or similar assets
or liabilities in markets that are not active,
·
or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the
assets or liabilities.
Level 3: Unobservable inputs that are supported by
little or no market activity and that are
significant to the fair value of the assets or liabilities.
Derivative
Instruments and Hedging Activities
The
Company recognizes all derivatives in its Consolidated Balance Sheet at fair
value. On the date the derivative instrument is entered into, the Company
designates the derivative as either (1) a hedge of the fair value of a
recognized asset or liability, or of an unrecognized firm commitment (fair
value hedge) or (2) a hedge of a forecasted transaction or of the
variability of cash flows to be received or paid related to a recognized asset
or liability (cash flow hedge). The Company has entered into foreign currency
forward contracts and an interest rate swap, each of which have been designated
as a
A-11
cash
flow hedge. Changes in the fair value of a derivative designated as a cash flow
hedge are recorded in accumulated other comprehensive income (loss) and are
reclassified into earnings as the underlying hedged item affects earnings.
Business
Risk
The
financial results of the Companys operations may be directly and materially
affected by many factors, including prevailing prices of sugar and
agri-products, the Companys ability to market its sugar competitively, the
weather, government programs and regulations, and operating costs.
Concentration
and Sources of Labor
Substantially
all of the hourly employees at the Companys factories, including full-time and
seasonal employees, are represented by the Bakery, Confectionery, Tobacco
Workers and Grain Millers (BCTGM) AFL-CIO, and are covered by collective
bargaining agreements expiring July 31, 2011 for the Red River Valley
factory employees and April 30, 2012 for the Sidney, Montana, factory
employees. 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.
Shipping
and Handling Costs
The
costs incurred for the shipping and handling of products sold are classified in
the consolidated financial statements as a selling expense on the Consolidated
Statements of Operations. Shipping and handling costs were $153.7 million,
$159.7 million and $185.8 million for the years ended August 31, 2010,
2009 and 2008, respectively.
Deferred
Costs and Product Values
All
costs incurred prior to the end of the Companys fiscal year that relate to
receiving and processing the subsequent years sugarbeet crop are
deferred. Similarly, the net realizable
values of products produced prior to the end of the Companys fiscal year that
relate to the subsequent years sugarbeet crop are deferred. The net result of these deferred costs and
product values are recorded in the Companys consolidated balance sheet in Other
Current Liabilities. Deferred costs and
product values were $3.3 million as of August 31, 2010. There were no
deferred costs and product values as of August 31, 2009 or 2008.
Recently
Issued Accounting Pronouncements
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 transferors continuing involvement in transferred financial
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 Companys 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 Companys financial
statements.
A-12
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 Companys
financial statements.
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 became effective and were adopted by 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 Companys financial statements.
In July 2010, the FASB
issued an update to the authoritative guidance to provide financial statement
users with greater transparency about an entitys allowance for credit losses
and the credit quality of its financing receivables. The guidance provided by this update becomes
effective for the Company in the second quarter of fiscal 2011. The Company
does not expect that the adoption of this guidance will have a material effect
on the Companys financial statements.
(2) RECEIVABLES:
There
was no single customer attributable to the Company that accounted for 10
percent or more of the Companys total receivables as of August 31, 2010
or 2009 or that accounted for 10 percent or more of the revenues of the Company
for the years ended August 31, 2010, 2009 or 2008.
(3) INVENTORIES:
The
major components of inventories as of August 31, 2010 and 2009 are as
follows:
(In Thousands)
|
|
2010
|
|
2009
|
|
Refined Sugar, Pulp, Molasses, Other Agri-Products
and Sugarbeet Seed
|
|
$
|
154,602
|
|
$
|
138,039
|
|
Unprocessed Sugarbeets
|
|
4,396
|
|
|
|
Maintenance Parts and Operating Supplies
|
|
45,119
|
|
43,272
|
|
Total Inventories
|
|
$
|
204,117
|
|
$
|
181,311
|
|
(4) NET
PROPERTY AND EQUIPMENT:
Indirect
costs capitalized were $1.4 million, $1.1 million and $1.1 million in 2010,
2009 and 2008, respectively.
Construction period interest capitalized was $ .6 million, $ .4 million
and $ .9 million in 2010, 2009 and 2008, respectively. Depreciation expense was
$43.4 million, $43.1 million and $44.4 million in 2010, 2009 and 2008,
respectively. The Company had outstanding commitments totaling $23.2 million as
of August 31, 2010, for equipment and construction contracts related to
various capital projects.
In
2008, an impairment loss of $11.9 million related to property and equipment at
the Sidney, Montana facility was recognized.
Sidney Sugars contracts with sugarbeet growers in the Sidney, Montana
area. The sugarbeet growers are not
owners of Sidney Sugars and therefore have no requirement to grow sugarbeets on
an annual basis. Due to the high
alternative crop prices compared to contracted sugarbeet prices in 2008, many
growers chose to grow alternative crops.
Total harvested
A-13
acres
declined from approximately 35,000 acres for the 2007 crop (fiscal 2008) to
approximately 15,000 acres for the 2008 crop (fiscal 2009). The impairment loss is reflected in the Cost
of Sales on the Consolidated Statements of Operations. The acres harvested from the 2009 crop
(fiscal 2010) increased to approximately 25,000 acres resulting in no
additional impairment in 2009. The
property and equipment at the Sidney, Montana facility is used in the sugar
segment.
As
of August 31, 2010, the fair value of the property and equipment to be
held and used at the Sidney, Montana facility was again determined based on
numerous scenarios which were weighted according to their respective
probability of occurring. The harvested
acres for the 2010 crop (fiscal 2011) have increased to approximately 31,500
acres and sugar net selling prices are higher than historical averages. These scenarios are based on judgments
regarding anticipated cash flows, future expected income/loss experience,
current economic conditions and other factors.
Based on this analysis, no additional impairment of the fair value of
the property and equipment was indicated.
The fair value of assets is a significant estimate and it is at least
reasonably possible that a change in the estimate could occur in the near term.
(5) NET PROPERTY AND EQUIPMENT HELD FOR LEASE:
ProGold
owns a corn wet-milling facility that it leases under an operating lease which
runs through December 31, 2017.
Under the terms of the operating lease, the lessee manages all aspects
of the operations of the ProGold corn wet-milling facility.
Net
Property and Equipment Held for Lease are stated at cost, net of accumulated
depreciation. Depreciation expense was $11.2 million, $11.2 million and $11.1
million in 2010, 2009 and 2008, respectively.
The components of Net Property and Equipment Held for Lease as of August 31,
2010 and 2009 are shown below:
(In Thousands)
|
|
2010
|
|
2009
|
|
Land and Land Improvements
|
|
$
|
8,022
|
|
$
|
7,937
|
|
Buildings
|
|
41,345
|
|
41,242
|
|
Equipment
|
|
204,881
|
|
202,962
|
|
Construction in Progress
|
|
1,952
|
|
1,649
|
|
Less Accumulated Depreciation
|
|
(153,867
|
)
|
(142,775
|
)
|
|
|
|
|
|
|
Net Property and Equipment Held for Lease
|
|
$
|
102,333
|
|
$
|
111,015
|
|
Future
minimum payments to be received under the lease are as follows:
Fiscal year ending August 31, (In Thousands)
|
|
|
|
2011
|
|
$
|
21,500
|
|
2012
|
|
21,500
|
|
2013
|
|
21,500
|
|
2014
|
|
21,500
|
|
2015
|
|
21,500
|
|
Thereafter
|
|
50,167
|
|
|
|
|
|
Total
|
|
$
|
157,667
|
|
A-14
(6) INVESTMENTS
IN MARKETING COOPERATIVES:
The
Company has a 64 percent ownership interest and a 33 1/3 percent voting
interest in United. The investment is
accounted for using the equity method.
Substantially all sugar products produced are sold by United as an agent
for the Company. The amount of sales and
related costs to be recognized by each owner of United is allocated based on
its pro rata share of sugar production for the year. The owners provide United with cash advances
on an ongoing basis for operating and marketing expenses incurred by
United. The Company had outstanding
advances to United of $14.6 million and $21.6 million as of August 31,
2010 and 2009, respectively. The Company
provides administrative services for United and is reimbursed for costs
incurred. The Company was reimbursed
$1.0 million, $ .9 million and $1.0 million for services provided during 2010,
2009 and 2008, respectively.
The
Company has a 56 percent ownership interest and a 25 percent voting interest in
Midwest. The investment is accounted for
using the equity method. Substantially
all sugarbeet pulp, molasses and other agri-products produced are sold by
Midwest as an agent for the Company. The
amount of sales and related costs to be recognized by each owner of Midwest is
allocated based on its pro rata share of production for each product for the
year. The owners provide Midwest with
cash advances on an ongoing basis for operating and marketing expenses incurred
by Midwest. The Company had outstanding
advances due to Midwest of $5.7 million and $1.9 million as of August 31,
2010 and 2009, respectively. The Company
provides administrative services for Midwest and is reimbursed for costs
incurred. The Company was reimbursed
$122,000, $133,000 and $141,000 for services provided during 2010, 2009 and
2008, respectively. The owners of
Midwest are guarantors of the short-term line of credit Midwest has with
CoBank, ACB. As of August 31, 2010,
Midwest had outstanding short-term debt with CoBank, ACB of $4.9 million, of
which $2.3 million was guaranteed by the Company.
The
Company has performed a complete analysis and has determined that its
investments in United and Midwest do not meet the criteria of Variable Interest
Entities and therefore such entities are not consolidated in the Companys
Consolidated Financial Statements.
(7) LONG-TERM
AND SHORT-TERM DEBT:
The
long-term debt outstanding as of August 31, 2010 and 2009 is summarized
below:
(In Thousands)
|
|
2010
|
|
2009
|
|
Term Loans from CoBank, ACB, due in varying
amounts through fiscal 2016, interest at fixed rates of 3.66% to 5.50%, with
senior lien on substantially all non-current assets
|
|
$
|
21,293
|
|
$
|
40,293
|
|
Term Loans from Insurance Companies, due in
varying amounts through fiscal 2028, interest at fixed rates of 4.78% to
7.42%, with senior lien on substantially all non-current assets
|
|
50,000
|
|
51,429
|
|
Pollution Control and Industrial Development
Revenue Bonds, due in varying amounts through fiscal 2022, interest at fixed
rates of 5.41% to 5.94% and varying rates of .27% to .52% as of
August 31, 2010, substantially secured by letters of credit
|
|
69,780
|
|
70,140
|
|
Total Long-Term Debt
|
|
141,073
|
|
161,862
|
|
Less Current Maturities
|
|
(375
|
)
|
(18,789
|
)
|
Long-Term Debt, Net of Current Maturities
|
|
$
|
140,698
|
|
$
|
143,073
|
|
A-15
Minimum
annual principal payments for the next five years are as follows:
(In Thousands)
|
|
|
|
2011
|
|
$
|
375
|
|
2012
|
|
$
|
5,765
|
|
2013
|
|
$
|
280
|
|
2014
|
|
$
|
7,300
|
|
2015
|
|
$
|
7,315
|
|
The
Company has a long-term debt line of credit through July 30, 2015, with
CoBank, ACB of $132.1 million, of which $21.3 million in loans and $69.9
million in long-term letters of credit were outstanding as of August 31,
2010. The unused long-term line of
credit as of August 31, 2010 was $40.9 million.
The
short-term debt outstanding as of August 31, 2010 and 2009 is summarized
below:
(In Thousands)
|
|
2010
|
|
2009
|
|
Commercial Paper, at a fixed interest rate of
.46%, due 9/1/10
|
|
$
|
5,000
|
|
$
|
45,989
|
|
|
|
|
|
|
|
|
|
During
the year ended August 31, 2010, the Company borrowed from CoBank, ACB and
issued commercial paper to meet its short-term borrowing requirements. 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 August 31,
2010 and a line of credit with Wells Fargo Bank for $1.0 million, against
which there was no outstanding balance as of August 31, 2010. The Companys commercial paper program
provides short-term borrowings up to $320 million of which approximately $5.0
million was outstanding as of August 31, 2010. The Company had $3.0 million in short-term
letters of credit outstanding as of August 31, 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 August 31, 2010, was $313.0 million.
The
Company can borrow funds on a non-recourse basis from the Commodity Credit
Corporation (CCC), with repayment of such funds secured by sugar. The Company did not utilize the CCC during
fiscal 2010. The limitations on such
borrowings are based on the amount of the Companys sugar inventory and certain
loan covenant restrictions by CoBank, ACB.
As of August 31, 2010, the Company had the capacity to obtain
non-recourse loans from the CCC of approximately $66.9 million.
During
the year ended August 31, 2009, the Company borrowed from CoBank, ACB and
the CCC and issued commercial paper to meet its short-term borrowing
requirements. The Company had 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 August 31, 2009 and a line of credit with Wells Fargo Bank
for $1.0 million, against which there was no outstanding balance as of August 31,
2009. The Companys commercial paper
program provides short-term borrowings up to $320 million of which
approximately $46.0 million was outstanding as of August 31, 2009. The Company had $2.7 million in short-term
letters of credit outstanding as of August 31, 2009. Any borrowings under the commercial paper
program along with outstanding short-term letters of credit will act to reduce
the available credit under the CoBank, ACB seasonal line of credit by a
commensurate amount. The unused
short-term line of credit as of August 31, 2009, was $272.3 million.
A-16
Maximum
borrowings, average borrowing levels and average interest rates for short-term
debt for the years ended August 31, 2010 and 2009, follow:
(In Thousands, Except Interest Rates)
|
|
2010
|
|
2009
|
|
Maximum Borrowings
|
|
$
|
221,372
|
|
$
|
261,004
|
|
Average Borrowing Levels
|
|
$
|
104,389
|
|
$
|
134,945
|
|
Average Interest Rates
|
|
.83
|
%
|
1.98
|
%
|
The
terms of the loan agreements contain prepayment penalties along with certain
covenants related to, among other matters, the: level of working capital; ratio
of term liabilities to members investments; current ratio; level of term debt
to net funds generated; and investment in CoBank, ACB stock in amounts
prescribed by the bank. Substantially
all non-current assets are pledged to the senior lenders to provide security to
support the Companys seasonal and long-term financing. As of August 31, 2010, the Company was
in compliance with the terms of the loan agreements.
Interest
paid, net of amounts capitalized, was $9.1 million, $10.7 million and $14.9
million for the years ended August 31, 2010, 2009 and 2008, respectively.
(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 August 31,
2010, the Company had cash flow hedges for approximately 219,000 Euros with
maturity dates of September 30 to October 29, 2010. At August 31, 2010, the fair value of
the open contracts reflected a loss of approximately $24,000 recorded in
accumulated other comprehensive income/(loss) in members equity. At August 31, 2009, the Company had cash
flow hedges for approximately 526,000 Euros with maturity dates of September 10,
2009 to October 15, 2010. At August 31,
2009, the fair value of the open contracts reflected a gain of approximately
$10,000 recorded in accumulated other comprehensive income/(loss) in members
equity. Amounts deferred to accumulated
other comprehensive income/(loss) are 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 .279 % as of August 31, 2010 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 August 31, 2010, the fair value of the cash flow hedge reflected a loss
of approximately $1.8 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 August 31, 2010. The current
period loss of $172,000 is classified as interest expense on the statements of
operations. As of
A-17
August 31, 2010, $644,000 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.
|
|
Asset Derivatives as of August 31
|
|
|
|
|
|
Fair Value (In Thousands)
|
|
|
|
Balance Sheet Location
|
|
2010
|
|
2009
|
|
Derivatives Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
Foreign Currency Forward Contracts
|
|
Prepaid
Expenses
|
|
$
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
Total Asset Derivatives
|
|
|
|
$
|
|
|
$
|
10
|
|
|
|
Liability Derivatives as of August 31
|
|
|
|
|
|
Fair Value (In Thousands)
|
|
|
|
Balance Sheet Location
|
|
2010
|
|
2009
|
|
Derivatives Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
Foreign Currency Forward Contracts
|
|
Other
Current Liabilities
|
|
$
|
24
|
|
$
|
|
|
Interest Rate Contracts
|
|
Other
Current Liabilities
|
|
644
|
|
|
|
Interest Rate Contracts
|
|
Other
Long-Term Liabilities
|
|
1,127
|
|
|
|
|
|
|
|
|
|
|
|
Total Liability Derivatives
|
|
|
|
$
|
1,795
|
|
$
|
|
|
(9) OPERATING
LEASES
:
The
Company is party to operating leases for such items as rail cars, computer
hardware and vehicles. Cargill, Incorporated
has assumed responsibility for the payments on a rail car lease for the
duration of that lease and accordingly, the lease payments are not included in
the table below. Operating lease expense
was $ 1.8 million, $ 2.0 million and $ .9 million for years ended August 31,
2010, 2009 and 2008, respectively.
Future minimum payments under these obligations are as follows:
Fiscal year ending August 31, (In Thousands)
|
|
|
|
2011
|
|
$
|
1,598
|
|
2012
|
|
1,561
|
|
2013
|
|
1,427
|
|
2014
|
|
1,155
|
|
2015
|
|
1,089
|
|
Thereafter
|
|
6,142
|
|
Total
|
|
$
|
12,972
|
|
(10) EMPLOYEE
BENEFIT PLANS:
Company-Sponsored
Defined Benefit Pension and Other Post-Retirement Benefit Plans
Substantially
all employees who meet eligibility requirements of age, date of hire and length
of service are covered by a Company-sponsored retirement plan. As of August 31, 2010, the pension plans
were funded as required by the funding standards set forth by the Employee
Retirement Income Security Act (ERISA).
The Company also has non-qualified supplemental executive retirement plans
for certain employees.
A-18
Employees
of the Company who are not members of a collective bargaining unit and who are
newly hired, or rehired, and employees who transfer from a union position to a
nonunion position on or after September 1, 2007 are not eligible for
participation in the defined benefit pension plan. These employees participate in a defined
contribution plan as described later in this note.
The
Companys Investment Committee has the responsibility of managing the
operations and administration of the Companys retirement plans and trust.
Investment
allocation decisions are made by the Investment Committee, pursuant to an
Investment Policy (Policy) that includes a target strategic asset allocation. The
Investment Committee is committed to diversification to reduce the risk of
large losses. The Policy allows some flexibility within the target asset
allocation in recognition that market fluctuations may cause the allocation to
a specific asset class to move up or down within a range. The Policy is
reviewed periodically by the Investment Committee. The asset allocation targets within the Plan,
include four areas; Domestic Equity, International Equity, Fixed Income
and Cash. Domestic and International
Equity consists primarily of publicly traded U.S. and Non-U.S. equities,
respectively. The Fixed Income allocation consists of two components, a core
bond mutual fund and a long duration investment grade mutual fund. As of October 1,
2010, the core bond component transitioned fully to the long-duration
component, and 100% of the fixed income mandate will be invested in
long-duration government bonds. The cash allocation is allowed only as
necessary for impending benefit payments, lump sum contributions made by the
company, or as authorized by the Investment Committee. The Policy does not allow direct use of
derivatives, however, the Plan invests entirely in commingled or mutual funds,
which may allow investment in derivatives. The
stated goal is for each component of the plan to earn a rate of return greater
than its corresponding benchmark.
Progress of the plan against its return objectives will be measured over
a full market cycle.
The following schedule reflects the percentage of
pension plan assets by asset class as of the latest measurement date, August 31,
2010:
Percentage of Pension Plan Assets by Asset Class as
of August 31, 2010
Asset Class
|
|
Target Range
|
|
Actual Allocation
|
|
Domestic Equity
|
|
40.0%-60.0%
|
|
45.6
|
%
|
International Equity
|
|
15.0%-25.0%
|
|
19.5
|
%
|
Fixed Income
|
|
20.0%-40.0%
|
|
34.8
|
%
|
Cash
|
|
0.0%-5.0%
|
|
0.1
|
%
|
There
have been no changes in the valuation methodologies used at August 31,
2010 and 2009. The Plans investment in
the common/collective trust consists of investments in the Wachovia Equity
Index Trust Fund (the Fund) managed by Wells Fargo Institutional Retirement and
Trust (formerly Wachovia Bank National Association). The Fund is a medium for collective
investment of certain qualified employee benefit plans in common stocks designed
to approximate the performance of the S&P 500 Index. Substantially all of the Funds assets are in
common stocks that make up the S&P 500 Index, however the fund may also
invest in S&P 500 Index Futures, common funds or investment companies, cash
or cash equivalents or other securities.
The net asset value of the Fund is determined daily. All earnings, gains and losses of the Fund
are reflected in the computation of the daily unit value and are realized by
the plan upon withdrawal from the Fund.
Registered investment companies are valued at the net asset value of
shares held by the Plan at year end based on quoted market prices. The money market fund is valued at quoted
market price, which is cost plus accrued interest.
The
methods described above may produce a fair value calculation that may not be
indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its
valuation methods are appropriate and consistent with other market
participants, the use of different methodologies or assumptions to determine
the fair value of certain financial instruments could result in
A-19
a
different fair value measurement at the reporting date. To develop the expected long-term rate of return on assets assumption,
the Company considered the historical returns and the future expectations for
returns for each asset class, as well as, the target asset allocation of the
pension portfolio. This resulted in the
selection of the 7.5% long-term rate of return on assets assumption.
The following schedules reflect the fair values of the
pension plan assets by major category as of August 31, 2010 and 2009:
|
|
Plan Assets at Fair Value August 31, 2010
|
|
(In Thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Common/collective trusts
|
|
$
|
|
|
$
|
34,293
|
|
$
|
|
|
$
|
34,293
|
|
Registered investment company
|
|
|
|
|
|
|
|
|
|
Fixed income
|
|
47,924
|
|
|
|
|
|
47,924
|
|
Equity
|
|
28,828
|
|
|
|
|
|
28,828
|
|
International equity
|
|
27,062
|
|
|
|
|
|
27,062
|
|
Money market fund
|
|
371
|
|
|
|
|
|
371
|
|
Total Plan Assets at Fair Value
|
|
$
|
104,185
|
|
$
|
34,293
|
|
$
|
|
|
$
|
138,478
|
|
|
|
Plan Assets at Fair Value August 31, 2009
|
|
(In Thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Common/collective trusts
|
|
$
|
|
|
$
|
32,352
|
|
$
|
|
|
$
|
32,352
|
|
Registered investment company
|
|
|
|
|
|
|
|
|
|
Fixed income
|
|
32,825
|
|
|
|
|
|
32,825
|
|
Equity
|
|
28,605
|
|
|
|
|
|
28,605
|
|
International equity
|
|
29,655
|
|
|
|
|
|
29,655
|
|
Money market fund
|
|
536
|
|
|
|
|
|
536
|
|
Total Plan Assets at Fair Value
|
|
$
|
91,621
|
|
$
|
32,352
|
|
$
|
|
|
$
|
123,973
|
|
The development of the discount rate was based on a bond
matching model whereby a hypothetical portfolio of bonds with an AA or better
rating by a nationally recognized debt rating agency was constructed to match
the expected benefit payments under the Companys pension plans through the
year 2039. The reinvestment rate for
benefit cash flow occurring after 2039 was discounted back to the year 2039 at
a rate consistent with the yields on long-term zero-coupon bonds. The resulting
present value was treated as additional benefit cash flow for the year 2039 and
consistently applied as any other benefit cash flow during the bond matching
process.
The
Company has a medical plan and a Medicare supplement plan which are available
to union retirees and certain non-union retirees. The costs of these plans are shared by the
Company and plan participants. The
Companys post-retirement plan for certain non-union employees currently
coordinates with Medicares medical coverage and provides tiered prescription
drug coverage. The Company has
determined that this plan is actuarially equivalent to Medicare Part D and
therefore qualifies for the Federal subsidy provision in the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003. This provision allows the Company to receive
a subsidy of 28 percent of the dollars spent providing prescription drug
coverage.
A-20
The assumptions used in the measurement of the Companys
benefit obligations are shown below:
Weighted Average Assumptions as of August 31,
|
|
Pension
|
|
Post-Retirement
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Discount Rate
|
|
5.00
|
%
|
6.55
|
%
|
5.00
|
%
|
6.55
|
%
|
Expected Return on Plan
Assets
|
|
7.50
|
%
|
8.00
|
%
|
N/A
|
|
N/A
|
|
Rate of Compensation
Increase
(Non-Union Plan Only)
|
|
3.5
|
%
|
3.5
|
%
|
N/A
|
|
N/A
|
|
The following schedule reflects the expected pension and
post-retirement benefit payments during each of the next five years and the
aggregate for the following five years:
|
|
Expected Benefit Payments
|
|
(In Thousands)
|
|
Pension
|
|
Post-Retirement
|
|
2011
|
|
$
|
6,290
|
|
$
|
1,004
|
|
2012
|
|
6,535
|
|
1,233
|
|
2013
|
|
7,146
|
|
1,634
|
|
2014
|
|
7,773
|
|
2,074
|
|
2015
|
|
8,369
|
|
2,578
|
|
2016-2020
|
|
53,042
|
|
17,903
|
|
Total
|
|
$
|
89,155
|
|
$
|
26,426
|
|
The
Company expects to make contributions of approximately $10.0 million to the
defined benefit pension plans during the next fiscal year. The Company expects to make contributions in
the next fiscal year of approximately $99,000 related to Supplemental Executive
Retirement Plans. The Company also expects to contribute
approximately $1.0 million to the post-retirement plans during the next fiscal
year.
The following schedules provide the components of the
Net Periodic Pension and Post-Retirement Costs for the years ended August 31,
2010, 2009 and 2008:
Components of Net Periodic Pension
Cost
(In Thousands)
|
|
2010
|
|
2009
|
|
2008
|
|
Service Cost
|
|
$
|
3,632
|
|
$
|
4,197
|
|
$
|
3,763
|
|
Interest Cost
|
|
9,126
|
|
10,673
|
|
8,154
|
|
Expected Return on Plan
Assets
|
|
(9,924
|
)
|
(15,456
|
)
|
(12,965
|
)
|
Settlement Loss
|
|
|
|
|
|
242
|
|
Retained Earnings
Measurement Date Adjustment
|
|
|
|
(226
|
)
|
|
|
Amortization of Prior
Service Costs
|
|
1,316
|
|
1,644
|
|
1,317
|
|
Amortization of Net (Gain)
Loss
|
|
6,940
|
|
70
|
|
(199
|
)
|
Net Periodic Pension Cost
|
|
$
|
11,090
|
|
$
|
902
|
|
$
|
312
|
|
Components of Net Periodic
Post-Retirement Cost
(In Thousands)
|
|
2010
|
|
2009
|
|
2008
|
|
Service Cost
|
|
$
|
968
|
|
$
|
968
|
|
$
|
1,076
|
|
Interest Cost
|
|
1,854
|
|
1,887
|
|
1,864
|
|
Settlement Gain
|
|
|
|
|
|
(5
|
)
|
Amortization of Net (Gain)
Loss
|
|
(687
|
)
|
(675
|
)
|
(225
|
)
|
Net Periodic Post-Retirement
Cost
|
|
$
|
2,135
|
|
$
|
2,180
|
|
$
|
2,710
|
|
A-21
Prior
service costs are amortized over the lesser of seven years or the length of the
union contract that included the benefit change.
For
measurement purposes, an 8.5 percent annual rate of increase in the per capita cost
of covered healthcare benefits for participants under age 65 was assumed for
2010. The rate is assumed to decline to
6.5 percent over the next five years.
For participants age 65 and older, a 9.5 percent annual rate of increase
in the per capita cost of covered healthcare benefits was assumed for
2010. The rate is assumed to decline to
7.5 percent over the next five years.
Assumed
healthcare trends can have a significant effect on the amounts reported for
healthcare plans. A one percent change
in the assumed healthcare trend rates would have the following effects:
(In Thousands)
|
|
1% Increase
|
|
1% Decrease
|
|
Effect on total service and interest cost
components of net periodic post-retirement benefit costs
|
|
$
|
527
|
|
$
|
(427
|
)
|
Effect on the accumulated post-retirement benefit
obligation
|
|
$
|
4,564
|
|
$
|
(3,763
|
)
|
The
following schedules set forth a reconciliation of the changes in the plans
benefit obligation and fair value of assets for the years ending August 31,
2010 and 2009 and a statement of the funded status and amounts recognized in
the Balance Sheets and Accumulated Other Comprehensive Income as of August 31,
2010 and 2009:
|
|
Pension
|
|
Post-Retirement
|
|
(In Thousands)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Change in Benefit
Obligation
|
|
|
|
|
|
|
|
|
|
Obligation at the Beginning
of the Year
|
|
$
|
142,377
|
|
$
|
123,703
|
|
$
|
28,728
|
|
$
|
27,193
|
|
Retained Earnings Adjustment
|
|
|
|
2,974
|
|
|
|
|
|
Service Cost
|
|
3,632
|
|
3,358
|
|
968
|
|
968
|
|
Interest Cost
|
|
9,126
|
|
8,538
|
|
1,854
|
|
1,887
|
|
Plan Participant
Contributions
|
|
|
|
|
|
377
|
|
448
|
|
Medicare Part D Subsidy
|
|
|
|
|
|
72
|
|
82
|
|
Actuarial (Gain) Loss
|
|
34,644
|
|
10,094
|
|
331
|
|
(917
|
)
|
Benefits Paid
|
|
(5,487
|
)
|
(6,290
|
)
|
(1,100
|
)
|
(933
|
)
|
Obligation at the End of the
Year
|
|
$
|
184,292
|
|
$
|
142,377
|
|
$
|
31,230
|
|
$
|
28,728
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
|
Fair Value at the Beginning
of the Year
|
|
$
|
123,973
|
|
$
|
156,525
|
|
$
|
|
|
$
|
|
|
Retained Earnings Adjustment
|
|
|
|
3,091
|
|
|
|
|
|
Actual Return on Plan Assets
|
|
15,593
|
|
(29,477
|
)
|
|
|
|
|
Plan Participant
Contributions
|
|
|
|
|
|
377
|
|
448
|
|
Medicare Part D Subsidy
|
|
|
|
|
|
72
|
|
82
|
|
Employer Contributions
|
|
4,399
|
|
124
|
|
651
|
|
403
|
|
Benefits Paid
|
|
(5,487
|
)
|
(6,290
|
)
|
(1,100
|
)
|
(933
|
)
|
Fair Value at the End of the
Year
|
|
$
|
138,478
|
|
$
|
123,973
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status
|
|
|
|
|
|
|
|
|
|
Funded Status as of
August 31,
|
|
$
|
(45,814
|
)
|
$
|
(18,404
|
)
|
$
|
(31,230
|
)
|
$
|
(28,728
|
)
|
Net Amount Recognized
|
|
$
|
(45,814
|
)
|
$
|
(18,404
|
)
|
$
|
(31,230
|
)
|
$
|
(28,728
|
)
|
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in
the Balance Sheets
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
$
|
(6,290
|
)
|
$
|
(5,257
|
)
|
$
|
(1,004
|
)
|
$
|
(785
|
)
|
Noncurrent Liabilities
|
|
(39,524
|
)
|
(13,147
|
)
|
(30,226
|
)
|
(27,943
|
)
|
Net Amount Recognized
|
|
$
|
(45,814
|
)
|
$
|
(18,404
|
)
|
$
|
(31,230
|
)
|
$
|
(28,728
|
)
|
|
|
|
|
|
|
|
|
|
|
Prior Service Cost
Recognized in Accumulated Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
Prior Service Cost Beginning
of the Year
|
|
$
|
(2,305
|
)
|
$
|
(3,949
|
)
|
$
|
|
|
$
|
|
|
Recognized in Periodic Cost
|
|
1,316
|
|
1,644
|
|
|
|
|
|
Amount Arising During the
Year
|
|
|
|
|
|
|
|
|
|
Prior Service Cost End of
the Year
|
|
$
|
(989
|
)
|
$
|
(2,305
|
)
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Gain (Loss)
Recognized in Accumulated Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
Accumulated Gain (Loss)
Beginning of the Year
|
|
$
|
(62,816
|
)
|
$
|
(10,950
|
)
|
$
|
7,651
|
|
$
|
7,409
|
|
Recognized in Periodic Cost
|
|
6,940
|
|
70
|
|
(687
|
)
|
(675
|
)
|
Amount Arising During the
Year
|
|
(28,976
|
)
|
(51,936
|
)
|
(331
|
)
|
917
|
|
Accumulated Gain (Loss) End
of the Year
|
|
$
|
(84,852
|
)
|
$
|
(62,816
|
)
|
$
|
6,633
|
|
$
|
7,651
|
|
A-22
The
estimated amounts that will be amortized from Accumulated Other Comprehensive
Income at August 31, 2010 into net periodic benefit cost in fiscal 2011
are as follows:
(In Thousands)
|
|
Pension
|
|
Post-
Retirement
|
|
Prior Service (Cost)
|
|
$
|
(989
|
)
|
$
|
|
|
Accumulated Gain (Loss)
|
|
(9,489
|
)
|
809
|
|
Total
|
|
$
|
(10,478
|
)
|
$
|
809
|
|
The
accumulated pension benefit obligation was $174.9 million and $134.1 million as
of August 31, 2010 and 2009, respectively.
Long-Term
Incentive Plan
The Companys Long-Term Incentive Plan provides
deferred compensation to certain key executives of the Company. The plan creates financial incentives that
are based upon contract rights which are available to the executive under the
terms of the plan, the value of which is determined by the Board of
Directors. During 2010, 191.52 vested
contract rights were exercised. In 2010,
210.56 contract rights were granted at a stated value of $2,550 per contract
right. At August 31, 2010, the
Board of Directors increased the value of the 1,104.72 contract rights
previously granted from $2,200 to $2,550 per contract right. As of August 31, 2010, there were
1,315.28 contract rights issued and outstanding at a stated value of $2,550 per
contract right, of which 882.59 were vested.
Defined
Contribution Plans
The Company has qualified 401(k) plans for all
eligible employees. The plans provide
for immediate vesting of benefits.
Participants may contribute a percentage of their gross earnings each
pay period as provided in the participation agreement. The Company matches the non-union and
eligible union year-round participants contributions up to 4 percent and 2
percent, respectively, of their gross earnings.
The Companys contributions to these plans totaled $1.8 million, $1.8
million and $1.9 million for the years ended August 31, 2010, 2009 and
2008, respectively.
A-23
Employees of the Company who are not members of a
collective bargaining unit and who are newly hired, or rehired, and employees
who transfer from a union position to a nonunion position on or after September 1,
2007 are no longer eligible for participation in the defined benefit pension
plan but receive a 4% non-elective Company Contribution to a defined
contribution plan. The Company
Contribution has a six year vesting schedule.
The Companys Contributions to this plan totaled $115,000, $87,000 and
$29,000 for the years ended August 31, 2010, 2009 and 2008, respectively.
(11)
MEMBERS INVESTMENTS:
The
following schedule details the Preferred Stock and Common Stock as of August 31,
2010, 2009 and 2008:
|
|
Par
|
|
Shares
|
|
Shares Issued
|
|
|
|
Value
|
|
Authorized
|
|
& Outstanding
|
|
Preferred Stock:
|
|
|
|
|
|
|
|
August 31, 2010
|
|
$
|
76.77
|
|
600,000
|
|
498,570
|
|
August 31, 2009
|
|
$
|
76.77
|
|
600,000
|
|
498,570
|
|
August 31, 2008
|
|
$
|
76.77
|
|
600,000
|
|
498,570
|
|
|
|
|
|
|
|
|
|
Common Stock:
|
|
|
|
|
|
|
|
August 31, 2010
|
|
$
|
10.00
|
|
4,000
|
|
2,768
|
|
August 31, 2009
|
|
$
|
10.00
|
|
4,000
|
|
2,812
|
|
August 31, 2008
|
|
$
|
10.00
|
|
4,000
|
|
2,839
|
|
(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. The segments are managed
separately. There are no inter-segment
sales. The leasing segment has a major
customer that accounts for all of that segments revenue.
Summarized
financial information concerning the Companys reportable segments is shown
below:
|
|
For the Year Ended August 31, 2010
|
|
(In Thousands)
|
|
Sugar
|
|
Leasing
|
|
Consolidated
|
|
Net Revenue from External Customers
|
|
$
|
1,179,349
|
|
$
|
24,548
|
|
$
|
1,203,897
|
|
Gross Proceeds
|
|
$
|
769,747
|
|
$
|
13,308
|
|
$
|
783,055
|
|
Depreciation and Amortization
|
|
$
|
44,340
|
|
$
|
11,240
|
|
$
|
55,580
|
|
Interest Income
|
|
$
|
150
|
|
$
|
|
|
$
|
150
|
|
Interest Expense
|
|
$
|
9,011
|
|
$
|
1
|
|
$
|
9,012
|
|
Loss from Equity Method Investees
|
|
$
|
(521
|
)
|
$
|
|
|
$
|
(521
|
)
|
Other Income/(Expense), Net
|
|
$
|
(345
|
)
|
$
|
(90
|
)
|
$
|
(435
|
)
|
Consolidated Net Proceeds
|
|
$
|
519,418
|
|
$
|
13,126
|
|
$
|
532,544
|
|
|
|
|
|
|
|
|
|
Capital Additions
|
|
$
|
71,425
|
|
$
|
2,648
|
|
$
|
74,073
|
|
A-24
|
|
For the Year Ended August 31, 2009
|
|
(In Thousands)
|
|
Sugar
|
|
Leasing
|
|
Consolidated
|
|
Net Revenue from External Customers
|
|
$
|
1,176,289
|
|
$
|
23,940
|
|
$
|
1,200,229
|
|
Gross Proceeds
|
|
$
|
781,753
|
|
$
|
12,762
|
|
$
|
794,515
|
|
Depreciation and Amortization
|
|
$
|
43,869
|
|
$
|
11,177
|
|
$
|
55,046
|
|
Interest Income
|
|
$
|
207
|
|
$
|
2
|
|
$
|
209
|
|
Interest Expense
|
|
$
|
10,058
|
|
$
|
|
|
$
|
10,058
|
|
Income from Equity Method Investees
|
|
$
|
636
|
|
$
|
|
|
$
|
636
|
|
Other Income/(Expense), Net
|
|
$
|
4,070
|
|
$
|
(140
|
)
|
$
|
3,930
|
|
Consolidated Net Proceeds
|
|
$
|
529,799
|
|
$
|
12,455
|
|
$
|
542,254
|
|
|
|
|
|
|
|
|
|
Capital Additions
|
|
$
|
46,423
|
|
$
|
2,331
|
|
$
|
48,754
|
|
|
|
For the Year Ended August 31, 2008
|
|
(In Thousands)
|
|
Sugar
|
|
Leasing
|
|
Consolidated
|
|
Net Revenue from External Customers
|
|
$
|
1,208,634
|
|
$
|
24,198
|
|
$
|
1,232,832
|
|
Gross Proceeds
|
|
$
|
815,570
|
|
$
|
14,334
|
|
$
|
829,904
|
|
Depreciation and Amortization
|
|
$
|
47,071
|
|
$
|
11,126
|
|
$
|
58,197
|
|
Impairment Loss
|
|
$
|
11,867
|
|
$
|
|
|
$
|
11,867
|
|
Interest Income
|
|
$
|
702
|
|
$
|
38
|
|
$
|
740
|
|
Interest Expense
|
|
$
|
14,591
|
|
$
|
159
|
|
$
|
14,750
|
|
Loss from Equity Method Investees
|
|
$
|
(221
|
)
|
$
|
|
|
$
|
(221
|
)
|
Other Income/(Expense), Net
|
|
$
|
(158
|
)
|
$
|
(27
|
)
|
$
|
(185
|
)
|
Consolidated Net Proceeds
|
|
$
|
535,516
|
|
$
|
14,073
|
|
$
|
549,589
|
|
|
|
|
|
|
|
|
|
Capital Additions
|
|
$
|
44,391
|
|
$
|
1,358
|
|
$
|
45,749
|
|
|
|
As of August 31, 2010
|
|
(In Thousands)
|
|
Sugar
|
|
Leasing
|
|
Consolidated
|
|
Property and Equipment, Net
|
|
$
|
381,516
|
|
$
|
|
|
$
|
381,516
|
|
Assets Held for Lease, Net
|
|
$
|
|
|
$
|
102,333
|
|
$
|
102,333
|
|
Segment Assets
|
|
$
|
681,246
|
|
$
|
106,432
|
|
$
|
787,678
|
|
|
|
As of August 31, 2009
|
|
(In Thousands)
|
|
Sugar
|
|
Leasing
|
|
Consolidated
|
|
Property and Equipment, Net
|
|
$
|
353,936
|
|
$
|
|
|
$
|
353,936
|
|
Assets Held for Lease, Net
|
|
$
|
|
|
$
|
111,015
|
|
$
|
111,015
|
|
Segment Assets
|
|
$
|
645,770
|
|
$
|
115,488
|
|
$
|
761,258
|
|
(13)
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 Companys 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.
A-25
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 August 31, 2010 was approximately
$141.8 million in comparison to the carrying value of $141.1 million. The fair
value of the long-term debt as of August 31, 2009 was approximately $162.6
million in comparison to the carrying value of $161.9 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 August 31, 2010 was a liability of approximately $24,000. The fair
value of the open contracts as of August 31, 2009 was an asset of
approximately $10,000. 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.
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 August 31, 2010 was a
liability of approximately $1.8 million. There were no interest rate contracts
as of August 31, 2009. 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 August 31, 2010 and 2009.
|
|
Fair Value of Liabilities as of August 31, 2010
|
|
(In Thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Foreign Currency Forward Contracts
|
|
$
|
24
|
|
$
|
|
|
$
|
|
|
$
|
24
|
|
Interest Rate Contracts
|
|
|
|
1,771
|
|
|
|
1,771
|
|
Total
|
|
$
|
24
|
|
$
|
1,771
|
|
$
|
|
|
$
|
1,795
|
|
|
|
Fair Value of Assets as of August 31, 2009
|
|
(In Thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Foreign Currency Forward Contracts
|
|
$
|
10
|
|
$
|
|
|
$
|
|
|
$
|
10
|
|
Total
|
|
$
|
10
|
|
$
|
|
|
$
|
|
|
$
|
10
|
|
(14)
INCOME TAXES:
As of August 31, 2010 and 2009, the Company had no unrecognized
tax benefits. Any future accrued interest or penalties related to unrecognized
tax benefits will be recognized in income tax expense if incurred. The Company is no longer subject to U.S.
Federal income tax examinations by tax authorities for fiscal years 2006 and
earlier. The Company is no longer
subject to state income tax examinations by tax authorities for fiscal years
2006 and earlier.
Total
income tax payments (refunds) were $170,000, $1.8 million and ($33,000) for the
years ended August 31, 2010, 2009 and 2008, respectively.
A-26
The
Companys net deferred tax liability included in Other Liabilities on the
Companys Balance Sheets as of August 31, 2010 and 2009 is reflected
below:
(In Thousands)
|
|
2010
|
|
2009
|
|
|
|
|
Deferred Tax Assets related to non- patronage
source temporary differences
|
|
$
|
8,299
|
|
$
|
11,096
|
|
|
|
|
Deferred Tax Liability related to non- patronage
source temporary differences
|
|
14,951
|
|
16,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Liability
|
|
$
|
6,652
|
|
$
|
5,439
|
|
|
|
|
|
Income
tax expense/(benefit) for the years ended August 31, 2010, 2009 and 2008
is as follows:
|
|
(In Thousands)
|
|
2010
|
|
2009
|
|
2008
|
|
Current Income Taxes
|
|
$
|
1,096
|
|
$
|
713
|
|
$
|
653
|
|
Deferred Income Taxes
|
|
1,213
|
|
1,468
|
|
(2,052
|
)
|
|
|
|
|
|
|
|
|
Total Income Tax Expense/(Benefit)
|
|
$
|
2,309
|
|
$
|
2,181
|
|
$
|
(1,399
|
)
|
|
A
reconciliation of the Companys effective tax rates for the years ended
August 31, 2010, 2009 and 2008 is shown below:
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Federal tax expense at statutory rate
|
|
35.0
|
%
|
35.0
|
%
|
35.0
|
%
|
State tax expense at statutory rate
|
|
6.0
|
%
|
6.0
|
%
|
6.0
|
%
|
Payments to members
|
|
(40.4
|
)%
|
(40.6
|
)%
|
(41.7
|
)%
|
Other, net
|
|
(0.2
|
)%
|
|
|
(0.2
|
)%
|
Effective tax rate
|
|
0.4
|
%
|
0.4
|
%
|
(0.9
|
)%
|
(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
Companys 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 Companys 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 Companys beet payment to
shareholders if the Company is not able to pass the increased costs on to the
Companys customers.
A-27
On June 26, 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 Courts
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 EPAs effort to use existing legal authority to
regulate GHGs. As an emitter of GHGs covered by ACES, the Company is watching
legislative and regulatory developments carefully yet cannot predict whether
new proposed laws or 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.
On
September 7, 2010, the Company entered into an Administrative Consent
Agreement with the North Dakota Department of Health related to pulp dryer
emissions at the Hillsboro, North Dakota factory. As part of the Administrative
Consent Agreement, the Company agreed to pay a penalty of $103,181, which was
recognized in fiscal 2010.
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 Companys factory locations of approximately $18.5 million.
(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 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.
Following
the August 13, 2010 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. In addition, the
District Court immediately 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 is prohibited until further action is taken by USDA in accordance with
applicable law to allow planting of Roundup Ready® sugarbeet seed. It is impractical to speculate on the
likelihood of the USDA taking action prior to the planting of the 2011
sugarbeet crop. Given the recent ruling,
and the uncertain timing of USDA action, it is possible that the Companys
shareholders may not be able to plant Roundup Ready® sugarbeets in 2011. The ability of shareholders to plant Roundup
Ready® sugarbeets in subsequent years will be determined as a final matter
based on the outcome of the EIS and further decision by USDA. The number of years required to complete the
EIS is uncertain.
A-28
(17)
SUBSEQUENT EVENTS:
The
Company has evaluated events through the date that the financial statements
were issued, for potential recognition or disclosure in the August 31,
2010 financial statements.
A-29
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-K
FOR FISCAL YEAR ENDED AUGUST 31, 2010
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 Companys 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 Companys 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 Companys Registration
Statement on Form S-1 (File No. 33-83868), declared effective
November 23, 1994.
|
|
|
|
|
|
10.2
|
|
Registrants Senior Note Purchase Agreement
|
|
Incorporated
by reference to Exhibit 10.24 from the Companys Annual Report on
Form 10-K for the year ended August 31, 1999
|
|
|
|
|
|
10.3
|
|
Registrants Senior Note Inter-creditor and Collateral
Agency Agreement
|
|
Incorporated
by reference to Exhibit 10.25 from the Companys Annual Report on
Form 10-K for the year ended August 31, 1999
|
|
|
|
|
|
10.4
|
|
Registrants Senior Note Restated Mortgage and
Security Agreement
|
|
Incorporated
by reference to Exhibit 10.26 from the Companys Annual Report on
Form 10-K for the year ended August 31, 1999
|
E-1
++10.5
|
|
Long
Term Incentive Plan, dated June 23, 1999
|
|
Incorporated
by reference to Exhibit 10.31 from the Companys Annual Report on
Form 10-K for the year ended August 31, 2000
|
|
|
|
|
|
10.6
|
|
Registrants Senior Note Purchase Agreement dated
January 15, 2003
|
|
Incorporated
by reference to Exhibit 10.29 from the Companys 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 Companys Annual Report on
Form 10-K for the year ended August 31, 2005
|
|
|
|
|
|
++10.8
|
|
Employment Agreement dated March 21, 2007
between the Registrant and David A. Berg.
|
|
Incorporated
by reference to Exhibit 10.26 from the Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys Form 10-Q for the
quarter ended November 30, 2008
|
E-2
++10.14
|
|
First
Amendment to 2005 Long-Term Incentive Plan, dated December 20, 2006.
|
|
Incorporated
by reference to Exhibit 10.22 from the Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys Annual Report on
Form 10-K for the year ended August 31, 2009
|
|
|
|
|
|
10.20
|
|
First
Amendment to Amended and Restated Credit Agreement between the Registrant and CoBank, ACB dated July 30, 2010.
|
|
Filed
herewith electronically
|
|
|
|
|
|
++10.21
|
|
Fourth
Amendment to 2005 Long-Term Incentive Plan, dated August 1, 2010.
|
|
Filed
herewith electronically
|
|
|
|
|
|
10.22
|
|
Administrative
Consent Agreement between the Registrant and the North Dakota Department of
Health dated September 7, 2010.
|
|
Filed
herewith electronically
|
|
|
|
|
|
21.1
|
|
List
of Subsidiaries of the Registrant
|
|
Filed
herewith electronically
|
E-3
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
|
++ A management contract or compensatory
plan required to be filed with this report.
E-4
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