Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the quarterly period ended May 31, 2008;2009;

 

OR

 

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

for the transition period from          TO             

 

Golden Oval Eggs,The New Midwest Company, LLC

(Exact name of registrant as specified in its charter)

 

Delaware

20-0422519

(State or other jurisdiction of incorporation or
organization)

(I.R.S. employer identification number)

 

 

P.O. Box 733

 

1800 Park Avenue East209 North Main Street

 

Renville, MN

56284

(Address of principal executive offices)

(Zip code)

 

Telephone: (320) 329-8182329-3363

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

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

Yes o  No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

Yes o No x

 

As of May 31, 2008,November 20, 2009, there were 5,442,5436,430,499 of the Company’s Class A Units issued and outstandingoutstanding.

 

 



Table of Contents

 

TABLE OF CONTENTS

The New Midwest Company, LLC

(formerly Golden Oval Eggs, LLCLLC)

Form 10-Q

For the Quarter Ended May 31, 20082009

 

Description

 

Page

Part I

Financial Information

 

Item 1.

Consolidated Condensed Financial Statements

1

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

8

10

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

13

14

Item 4.

Controls and Procedures

13

14

 

 

 

Part II

Other Information

 

Item 1.

Legal Proceedings

14

15

Item 1A.

Risk Factors

14

15

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

14

15

Item 3.

Defaults Upon Senior Securities

14

15

Item 4.

Submission of Matters to a Vote of Security Holders

14

15

Item 5.

Other Information

14

15

Item 6.

Exhibits

15

 

 

 

Signatures

 

16

 



Table of Contents

 

PART I.     FINANCIAL INFORMATION

Item 1.  Consolidated Condensed Financial Statements

GOLDEN OVAL EGGS,The New Midwest Company, LLC

Consolidated Condensed Balance Sheets

May 31, 2008 and August 31, 2007

(In Thousands)

(unaudited)

 

May 31,

 

August 31,

 

 

2009

 

2008

 

 

May 31,
2008

 

August 31,
2007

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

706

 

$

 

 

$

1,503

 

$

4,289

 

Accounts receivable

 

16,029

 

18,502

 

 

 

15,861

 

Due from Rembrandt

 

2,841

 

 

Inventories

 

20,421

 

18,352

 

 

 

21,783

 

Restricted cash

 

1,449

 

783

 

 

 

2,212

 

Other current assets

 

1,252

 

1,047

 

 

399

 

1,229

 

Total current assets

 

39,857

 

38,684

 

 

4,743

 

45,374

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

 

 

 

 

 

 

 

 

Land and land improvements

 

11,649

 

11,649

 

 

 

11,649

 

Buildings

 

40,222

 

40,684

 

 

 

40,279

 

Leasehold improvements

 

922

 

896

 

 

 

943

 

Equipment

 

72,275

 

71,906

 

 

 

72,275

 

Construction in progress

 

44

 

173

 

 

 

317

 

 

125,112

 

125,308

 

 

 

125,463

 

Accumulated depreciation

 

(65,120

)

(57,103

)

 

 

(67,674

)

Total property, plant and equipment, net

 

59,992

 

68,205

 

 

 

57,789

 

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

 

 

 

Investments

 

1,720

 

1,670

 

 

 

1,733

 

Intangible assets, net

 

14,336

 

18,826

 

Intangibles, net

 

 

13,962

 

Goodwill

 

22,858

 

22,858

 

 

 

22,858

 

Note receivable

 

297

 

135

 

 

 

248

 

Total other assets

 

39,211

 

43,489

 

 

 

38,801

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

139,060

 

$

150,378

 

 

$

4,743

 

$

141,964

 

 

See accompanying notes to consolidated condensed financial statements

 

1



Table of Contents

 

 

May 31,
2008

 

August 31,
2007

 

Liabilities and Members’ Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Revolving line of credit

 

$

13,508

 

$

11,884

 

Accounts payable

 

7,867

 

14,221

 

Accrued interest

 

788

 

2,988

 

Accrued compensation

 

2,606

 

1,824

 

Other current liabilities

 

3,254

 

2,595

 

Current maturities of long-term debt

 

9,522

 

9,522

 

Total current liabilities

 

37,545

 

43,034

 

 

 

 

 

 

 

Long-term debt, less current maturities

 

66,210

 

84,727

 

 

 

 

 

 

 

Members’ equity

 

 

 

 

 

Members’ equity

 

34,129

 

21,612

 

Non-controlling interest in consolidated entities

 

1,176

 

1,005

 

Total members’ equity

 

35,305

 

22,617

 

Total liabilities and members’ equity

 

$

139,060

 

$

150,378

 

 

 

May 31,

 

August 31,

 

 

 

2009

 

2008

 

 

 

(unaudited)

 

 

 

Liabilities and Owners’ Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Revolving line of credit

 

$

 

$

16,261

 

Accounts payable

 

330

 

9,531

 

Accrued interest

 

 

500

 

Accrued compensation

 

 

3,005

 

Other current liabilities

 

785

 

2,720

 

Current maturities of long-term debt

 

 

67,526

 

Total current liabilities

 

1,115

 

99,543

 

 

 

 

 

 

 

Long-term debt, less current maturities

 

 

6,420

 

 

 

 

 

 

 

Owners’ equity

 

 

 

 

 

Members’ equity

 

3,628

 

34,852

 

Noncontrolling interest in consolidated entities

 

 

1,149

 

Total owners’ equity

 

3,628

 

36,001

 

 

 

 

 

 

 

Total liabilities and owners’ equity

 

$

4,743

 

$

141,964

 

 

See accompanying notes to consolidated condensed financial statements.statements

 

2



Table of Contents

 

GOLDEN OVAL EGGS,The New Midwest Company, LLC

Consolidated Condensed Statements of Operations

For the Periods Ended May 31, 2008 and 2007

(In Thousands, Except Per Unit Data)

(Unaudited)

 

 

Three Months Ended

 

Nine Months Ended

 

 

Three Months Ended

 

Nine Months Ended

 

 

May 31,

 

May 31,

 

May 31,

 

May 31,

 

 

May 31,

 

May 31,

 

May 31,

 

May 31,

 

 

2008

 

2007

 

2008

 

2007

 

 

2009

 

2008

 

2009

 

2008

 

Net sales

 

$

56,649

 

$

53,035

 

$

165,187

 

$

147,098

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

47,427

 

47,025

 

148,494

 

134,001

 

Net sales from discontinued operations (See Note 9)

 

$

13,770

 

$

56,649

 

106,482

 

$

165,187

 

 

 

 

 

 

 

 

 

 

Cost of goods sold from discontinued operations (See Note 9)

 

13,724

 

47,427

 

100,578

 

148,494

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

9,222

 

6,010

 

16,693

 

13,097

 

 

46

 

9,222

 

5,904

 

16,693

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

4,785

 

4,750

 

18,104

 

15,822

 

 

6,063

 

4,785

 

13,712

 

18,104

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

4,437

 

1,260

 

(1,411

)

(2,725

)

 

(6,017

)

4,437

 

(7,808

)

(1,411

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(1,901

)

(2,513

)

(7,110

)

(7,477

)

 

(1,668

)

(1,901

)

(4,745

)

(7,110

)

Non-controlling interest in income (loss) of consolidated entities

 

1

 

(22

)

(103

)

(84

)

Noncontrolling interest in income (loss) of consolidated entities

 

30

 

1

 

(113

)

(103

)

Other income

 

214

 

255

 

908

 

853

 

 

108

 

214

 

1,682

 

908

 

Forgiveness of debt

 

 

 

17,000

 

 

Preferential payments to preferred shareholder

 

(6,447

)

 

(6,447

)

 

Gain on sale of business, net of transaction costs (Note 9)

 

5,055

 

 

5,055

 

 

Gain on forgiveness of debt

 

 

 

 

17,000

 

Total other income (expense)

 

(1,686

)

(2,280

)

10,695

 

(6,708

)

 

(2,922

)

(1,686

)

(4,568

)

10,695

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

2,751

 

$

(1,020

)

$

9,284

 

$

(9,433

)

 

$

(8,939

)

$

2,751

 

$

(12,376

)

$

9,284

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average Members’ units outstanding

 

5,431

 

5,420

 

5,431

 

5,420

 

Weighted average members’ units outstanding

 

6,421

 

5,431

 

5,791

 

5,431

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per Members’ unit, basic

 

$

0.51

 

$

(0.19

)

$

1.71

 

$

(1.74

)

Net income (loss) per members’ units, basic

 

$

(1.39

)

$

0.51

 

$

(2.14

)

$

1.71

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per Members’ unit, diluted

 

0.44

 

(0.19

)

1.61

 

$

(1.74

)

Net income (loss) per members’ unit, diluted

 

$

(1.39

)

$

0.44

 

$

(2.14

)

$

1.61

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions per unit

 

$

 

$

 

$

 

$

 

Distributions per members’ unit

 

$

3.00

 

$

 

$

3.00

 

$

 

 

See accompanying notes to consolidated condensed financial statements.statements

 

3



Table of Contents

 

GOLDEN OVAL EGGS,The New Midwest Company, LLC

Consolidated Condensed Statements of Cash Flows

For the Periods Ended May 31, 2008 and 2007

(In Thousands)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

May 31,

 

May 31,

 

 

 

2008

 

2007

 

Cash flows from operating activities

 

 

 

 

 

Net income (loss)

 

$

9,284

��

$

(9,433

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities

 

 

 

 

 

Depreciation

 

8,013

 

8,704

 

Amortization

 

1,327

 

1,424

 

Gain on sale of property, plant & equipment

 

2

 

2

 

Asset impairment

 

3,531

 

 

Gain on debt forgiveness

 

(17,000

)

 

Stock vesting unit compensation for vesting awards

 

(9

)

 

Changes in operating assets and liabilities

 

 

 

 

 

Accounts receivable

 

2,473

 

(3,625

)

Inventories

 

(2,069

)

(2,184

)

Other current assets

 

(205

)

565

 

Accounts payable

 

(6,354

)

3,711

 

Accruals and other current liabilities

 

2,483

 

1,738

 

Minority interest

 

171

 

108

 

Net cash provided by operating activities

 

1,647

 

1,010

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Purchases of property, plant and equipment

 

(178

)

(958

)

Proceeds from sale of property, plant and equipment

 

8

 

5

 

Advance of note receivable

 

(162

)

(59

)

Purchases of investment in other cooperatives

 

(50

)

(102

)

Retirement of investment in other cooperatives

 

 

9

 

Net cash used by investing activities

 

(382

)

(1,105

)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Net increase (decrease) in revolving line of credit

 

1,624

 

7,281

 

Payments of long-term debt

 

(1,517

)

(6,359

)

Decrease (increase) in restricted cash

 

(666

)

(697

)

Net cash provided (used) by financing activities

 

(559

)

225

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

706

 

130

 

 

 

 

 

 

 

Cash and cash equivalents - beginning of period

 

 

222

 

 

 

 

 

 

 

Cash and cash equivalents - end of period

 

$

706

 

$

352

 

 

 

 

 

 

 

 

 

Supplementary disclosures of cash flow information

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest, net of capitalized interest of $161 and $129 during 2008 and 2007, respectively

 

$

6,455

 

$

7,682

 

Supplementary disclosures of non-cash transactions

 

 

 

 

 

Debt forgiveness

 

$

17,000

 

$

 

Warrant issued for 880,492 Class A Convertible Preferred Units. Warrant issued for accrued interest payable.

 

3,242

 

 

Members units issued to directors and officers (Note 5)

 

22

 

177

 

 

 

Nine Months Ended

 

 

 

May 31,

 

May 31,

 

 

 

2009

 

2008

 

Cash flows from operating activities

 

 

 

 

 

Net income (loss)

 

$

(12,376

)

$

9,284

 

Adjustments to reconcile net income (loss) to net cash (used) provided by operating activities

 

 

 

 

 

Depreciation

 

5,916

 

8,013

 

Amortization

 

866

 

1,327

 

Asset impairment

 

1,238

 

3,531

 

Stock vested as executive compensation

 

139

 

(9

)

(Gain) loss on sale of assets

 

(5,055

)

2

 

Gain on forgiveness of debt

 

 

(17,000

)

Noncontrolling interest in income (loss) of consolidated entities, net of distributions

 

 

171

 

Changes in operating assets and liabilities, net of effects of adoption of FIN-46R excluding the effects from sale to Rembrandt.

 

 

 

 

 

Accounts receivable

 

5,203

 

2,473

 

Inventories

 

484

 

(2,069

)

Other current assets

 

(151

)

(205

)

Accounts payable

 

(1,852

)

(6,354

)

Accruals and other current liabilities

 

(3,630

)

2,483

 

Net cash (used) provided by operating activities

 

(9,218

)

1,647

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Purchases of property, plant and equipment

 

(2,393

)

(178

)

Proceeds from sale of property, plant and equipment

 

372

 

8

 

Proceeds from sale to Rembrandt (Note 9), net of transaction expenses

 

118,128

 

 

Transaction costs paid on sale

 

(2,480

)

 

Advance of note receivable

 

 

(162

)

Purchases of investments in other cooperatives

 

 

(50

)

Retirement of investments in other cooperatives

 

91

 

 

Net cash (used) provided by investing activities

 

113,718

 

(382

)

 

See accompanying notes to consolidated condensed financial statements.statements

 

4



Table of Contents

The New Midwest Company, LLC

 

GOLDEN OVAL EGGS, LLCConsolidated Condensed Statements of Cash Flows (cont.)

Notes to Consolidated Condensed Financial Statements

May 31, 2008 and August 31, 2007

(In Thousands Except Per Unit Data)Thousands)

(Unaudited)

 

 

 

Nine months Ended

 

 

 

May 31,

 

May 31,

 

 

 

2009

 

2008

 

Cash flows from financing activities

 

 

 

 

 

Net increase (decrease) in revolving line of credit

 

(16,261

)

1,624

 

Payments of long-term debt

 

(73,946

)

(1,517

)

Distributions to unitholders

 

(19,291

)

 

Restricted cash

 

2,212

 

(666

)

Net cash used by financing activities

 

(107,286

)

(559

)

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

(2,786

)

706

 

 

 

 

 

 

 

Cash and cash equivalents - beginning of year

 

4,289

 

 

 

 

 

 

 

 

Cash and cash equivalents - end of year

 

$

1,503

 

$

706

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplementary disclosures of cash flow information

 

 

 

 

 

Cash paid during the year for

 

 

 

 

 

Interest, net of capitalized interest, of $172 and $161 during 2009 and 2008, respectively

 

$

6,418

 

$

6,455

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplementary disclosures of non-cash transactions

 

 

 

 

 

Debt forgiveness

 

$

 

$

17,000

 

Issuance of warrants for accrued interest

 

 

3,242

 

Members units issued to directors and officers

 

 

22

 

Forfeiture of stock compensation by departing employee

 

33

 

 

Class A units issued as payment of accrued officer bonus

 

202

 

 

See accompanying notes to consolidated condensed financial statements

5



(unaudited)Table of Contents

 

1.  Organization.  Golden Oval Eggs, LLC (the “Company”) was organized as a Delaware limited liability company to effect the reorganization of Midwest Investors of Renville, Inc. (the “Cooperative”) effective August 31, 2004.  The Cooperative was incorporated as a cooperative under the laws of the state of Minnesota in March 1994.  The Company operates as the Cooperative’s successor and its operations are a continuance of the operations of the Cooperative.  The accompanying consolidated condensed financial statements for all periods presented are those of the Company.

On March 30, 2009, the Company closed a transaction in which it sold substantially all of its assets and ceased to operate.  All of its employees were terminated and a majority were offered employment by the purchaser.  All production and sales facilities were sold or otherwise transferred to the purchaser or shut down.  As a part of the transaction, the Company was required to change its name.  The new name of the entity is The New Midwest Company LLC.  It maintains an office in Renville, Minnesota.  Subsequent to the sale the Company has made certain distributions to the members.  The board of managers will determine, in its discretion, when to make a subsequent proposal to the Company’s members to liquidate the Company.  The board of managers currently expects to consider liquidation of the Company in late 2009.   See note 9 for a description of the transaction.

 

2.  Basis of PresentationPresentation.  The accompanying consolidated condensed balance sheet as of August 31, 2007,2008, which has been derived from audited consolidated financial statements, and the unaudited interim consolidated condensed financial statements at May 31, 20082009 and for the three-month and nine month periods ended May 31, 20082009 and 20072008 of the Company have been prepared in accordance with generally accepted accounting principles for interim financial reporting and Securities and Exchange Commission rules and regulations.  Certain information normally included in financial statements and related footnotes prepared in accordance with generally accepted accounting principles has been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.  The consolidated condensed financial statements reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods presented.  These consolidated condensed financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended August 31, 2007.2008.  The results of operations for the periods ended May 31, 2008 are not necessarily indicative of results to be expected for any other interim period or for the entire year.year and the board of managers expects to consider liquidation of the Company in late 2009.

 

3.  InventoriesInventories.  Pullet and layer hen inventories are stated at the cost of production, which includes the costs of the chicks, feed, overhead and labor.  Layer hen flock costs are capitalized to the point at which the pullet goes into production and are amortized over the productive lives of the flocks, generally 18 to 24 months.  Feed, supplies and liquid egg and egg products inventories are stated at the lower of cost (first-in, first-out) or market.  Inventories consisted of the following:

 

 

May 31,

 

August 31,

 

 

May 31,
2008

 

August 31,
2007

 

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

Hens and pullets

 

$

13,182

 

$

10,766

 

 

$

 

$

14,024

 

Eggs and egg products

 

4,227

 

4,046

 

 

 

3,987

 

Feed, supplies and other

 

3,012

 

3,540

 

 

 

3,772

 

 

 

 

 

 

Total inventories

 

$

20,421

 

$

18,352

 

 

$

 

$

21,783

 

 

4.  Financing AgreementsAgreements.  Golden Oval Eggs, LLC, Midwest Investors of Iowa Cooperative and GOECA, LP are parties to a Credit Agreement that was originally entered into on September 13, 2004, and subsequently amended.  With the last amendment effective March 11,August 29, 2008, the maturity date of $2,500 of a short term revolving note and all other revolving notesin the amount of $2,500 was extended from March 1, 2008 to July 31, 2008 to March 1, 2009 and the commencement date of certain financial covenants was also extended to July 31, 2008.March 1, 2009.  We have historically financed our working capital needs through the Credit Agreement and, to the extent of our cash flow, from operations.  The Credit Agreement, as amended, requires the Company, among other things, to

5



generate monthly EBITDA of at least $1,000 for the term of the Credit Agreement.  PrincipalIn addition, the amendment requires payments for Tranche Ainto an escrow account to fund improvements to wastewater processing facilities at the Thompson, Iowa location.  The amounts required and Tranche B loans continue to be deferred until July 31, 2008.  To the extent that monthly EBITDA exceeds $1,000, up tomade are $200 per month will be transferred into an interest bearing escrow account to provide funds for the upgrade of the Thompson, Iowa wastewater facility. As has been reported in previous filingsSeptember, October and disclosed in the Risk Factors discussion of the Company’s report on Form 10-KNovember, and $100 for the fiscal year ended August 31, 2007, the Company is continuing to seek alternative sources of capital to strengthen its balance sheet.December.  The Company was in compliance with all

6



Table of Contents

covenants under the Credit Agreement for each month tested in the quarter ended May 31, 2008February 28, 2009 and as of May 31,February 29, 2008.

On February 15, 2008,  Included in the amendment is a requirement that any funds from a sale of the Company be utilized to repay all indebtedness on or before March 1, 2009.  The requirement was extended until April 15, 2009 at which point and Land O’ Lakes executed an agreement whereby the purchase price of the Egg Products Division of MoArk was reduced by $17,000 and an equal amount of the subordinated note used to finance the acquisition was reduced.  Additionally,time the Company issued a Warrant forrepaid the purchase of up to 880,492 newly authorized convertible preferred unitsindebtedness in exchange for the forgiveness of accrued interest on the subordinated note. The 697,350 Class B units held by Land O’ Lakes were converted to Class A units per the agreement.

The subordinated note to Land O’Lakes of $17,000 was treated as debt forgiveness and was classified as income in the other income (expense) section of the Statement of Operations.  In exchange for the accrued interest of $3,242 on the $17,000 note that was forgiven, the Company issued Land O’Lakes a Warrant valued at $3,242.full.  See Note 9.

 

5.  Stock Based CompensationCompensation.  The Company has bonus and compensation plans in place for management.  Under these agreements management may receive up to 50% of certain performance bonuses in the form of Class A Units.  The Company accrues for management bonuses during the year based upon the estimated amount that will be earned by year end.  Upon approval by the Board of Managers, the bonuses are paid to management.  The number of units to be issued is based upon the higher of the book or marketestimated value of the Class A Units at the time the bonus is awarded.  For the three months ended May 31, 20072008 and May 31, 2008,2009, no Class A Units were issued to management.

 

The Class A Units are nontransferable and subject to forfeiture ratably over the following three years.  The employee must be employed on the anniversary date of issuance to avoid forfeiture.  In the event that termination of the employee occurs, the Company will record any forfeiture of units as a reduction to compensation expense in the period in which the forfeiture occurs.  There were no forfeitures for the three months ended May 31, 2008 nor2009 or for the quarter ended May 31, 2007.2008.  In the event of a change of control, the vesting period accelerates.  Effective with the sale to Rembrandt all remaining units vested resulting in approximately $304 of expense.

 

The members of the Board of Managers are granted 2,000 Class A Units for each year served on the board following each year of service.  The Company recognizes compensation expense for these awards based upon the fair value on the last three recorded trade prices prior to the issuance of the members’ units.date they are granted.  The unit value was calculated at $1.87 per unit and 11,666 units were issued on May 29, 2008 for a total expense of $21,815.  For the three months ended May 31, 2009, no units were awarded to the Board of Managers.

6



 

6.  Earnings per UnitUnit.  Basic net income (loss) per unit was calculated by dividing net income (loss) by the weighted averageweighted-average number of Class A common units outstanding during the period.  Diluted net income (loss) per unit was calculated by dividing net income (loss) by the weighted averageweighted-average number of Class A common units outstanding during the period plus the dilutive effects of the Warrant.  On March 2, 2009, the holder of the Warrant exercised its rights to purchase 880,492 units of newly created Convertible Class A Preferred Units.  Convertible Class A Preferred units representing 340,628 units were included in the calculation of diluted net income per members’ unit.unit for three months end May 31, 2008.

 

 

 

May 31,
2008

 

May 31,
2007

 

Numerator

 

 

 

 

 

Net income (loss)

 

$

9,284

 

$

(9,433

)

Denominator

 

 

 

 

 

Weighted average units outstanding

 

5,431

 

5,420

 

 

 

 

 

 

 

Diluted weighted average units outstanding

 

5,772

 

5,420

 

 

 

 

 

 

 

Basic profit (loss) per unit

 

$

1.71

 

$

(1.74

)

 

 

 

 

 

 

Diluted profit (loss) per unit

 

$

1.61

 

$

(1.74

)

As previously disclosed by the Company, on May 23, 2006, the Company entered into an Asset Purchase and Sale Agreement (the “Purchase Agreement”) with Land O’ Lakes, Inc. (“LOL”) and certain other parties. On February 15, 2008, the Agreement was amended (the “Purchase Agreement Amendment”) to reduce the purchase price under the Purchase Agreement. In connection with the Purchase Agreement Amendment, the Company issued LOL a warrant (the “2008 Warrant”) to purchase 880,492 of its newly-created Class A Preferred units. The Board of Managers of the Company adopted the Certificate of Designation of Class A Convertible Preferred Units (as amended, the “Certificate) on February 15, 2008 to provide for the rights and preferences of the Class A Preferred Units.

On March 2, 2009, the members approved an amendment to the Certificate (the “Certificate Amendment”) whereby if there is a purchase agreement executed by the Company for a sale of all or substantially all of the assets of the Company and the 2008 Warrant has been exercised, then the Class A Convertible Preferred Units shall be converted to the same number of Class A Common Units and following the conversion the holder shall be entitled to receive a payment of $6,447 from the Company (the “Conversion Payment”), with the amount to be paid by the Company to the holder within 30 days after closing of the sale of all or substantially all of the Company’s assets.  On March 2, 2009, Land O Lakes exercised their warrant and received the payment noted above.  Effective upon such a conversion of the Class A Convertible Preferred units to Class A Common units, the rights and preferences related to the Class A Convertible Preferred units shall cease.  The preferential payment was recognized as expense by the Company during the three months ended May 31, 2009.

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Table of Contents

 

 

Nine months ended

 

 

 

May 31,

 

May 31,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

Net income (loss)

 

$

 (12,376

)

$

 9,284

 

 

 

 

 

 

 

Denominator

 

5,791

 

5,431

 

Weighted average units outstanding

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average units outstanding

 

5,791

 

5,772

 

 

 

 

 

 

 

Basic net income (loss) per share

 

$

 (2.14

)

$

 1.71

 

 

 

 

 

 

 

Diluted net income (loss) per share

 

$

 (2.14

)

$

 1.61

 

 

7.  Use of Estimates Estimates.  The preparation of consolidated condensed 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 and the disclosure of contingent assets and liabilities at the date of the consolidated condensed financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

 

8.  Capital Resources and LiquidityLiquidity. The Company iswas a party to an Amended and Restated Credit Agreement, as amended, with Metropolitan Life Insurance Company as lender and CoBank, ACB as lender and administrative agent (the “Credit Agreement”).  The Company has had limited access to capital under the Credit Agreement and the lenders under the Credit Agreement have modified certain financial covenantsCommencing in order to allow compliance with these covenants by the Company.  As part of its efforts to obtain a refinancing of the Credit Agreement, the Company has completed the following steps:

On March 11, 2008, the Company entered into an extensionhad undertaken the pursuit of strategic alternatives as required under its credit agreements.  On March 30, 2009, the Company concluded the transaction to sell substantially all of its assets to Rembrandt Enterprises, Inc. for $120,969 and amendment agreementthe assumption of certain liabilities, with a subsequent adjustment to be made for working capital and other matters as agreed by the parties.  The Company used the proceeds of the sale to satisfy all of its obligations to lenders under the Credit Agreement that extends the termination date of a $2,500 short-term revolving note issued under our Restatedits credit agreements.  The transaction is more fully described on Form 8-K dated March 30, 2009, and Amended Credit Agreement from February 29, 2008 to July 31, 2008.  The commencement of the effective date of financial covenants under the Credit Agreement has also been delayed from March 1, 2008 to July 31, 2008.in Note 9 below.

 

9.  Legal ProceedingsSale to Rembrandt

The Attorney Generalassets sold included approximately 6 million laying hens in modern, in-line facilities, egg processing plants, and delivery trucks.  As part of Iowathe acquisition, Rembrandt acquired the Company’s 68% interest in AEI, LLC “AEI” and its 33.3% interest in United Mills “United Mills”.  AEI’s and United Mill’s results from operations have been included in the consolidated statement of operations through the date of the sale.  Additionally, Rembrandt assumed certain trade liabilities and accrued expenses in conjunction with the sales transaction.

The following is a summary of the proceeds from the sale to Rembrandt:

Cash received from buyer

 

$

118,128

 

 

 

 

 

Cash due form buyer

 

2,841

 

 

 

 

 

Total sales price

 

$

120,969

 

The final sales price and the subsequent gain on the sale of the assets are subject to a working capital adjustment.   Originally $4.25 million was held back by Rembrandt as part of the working capital adjustment.  This amount has filed suit in relationsubsequently been adjusted to $2.84 million as part of the working capital adjustment.  The Company and Rembrandt continue to negotiate the final working capital adjustment.  Management believes the amount currently due from Rembrandt is fully collectible pursuant to the Thompson, Iowa wastewater facility.terms of the sale contract.

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Table of Contents

As previously discussed, the Company used the proceeds from the sale of the assets to repay substantially all of its indebtedness.  Additionally, distributions were made to unit holders in the amount of $3 per unit (approximately $19,291) on April 20, 2009.

Certain executives and managers of the Company were paid severance as a result of the proposed transaction and also had unit awards as a result of incentive plans that vested upon the closing of the transaction.   For the three months ended May 31, 2009, the Company recognized $2,530 of expense related to severance payments and $304 of expense related to the accelerated vesting of the unit awards.

10.  Legal Proceedings.  Please refer to Item 1. Legal Proceedings under Part II.pages 61 and 62 of this filingSchedule 14A Definitive Proxy Statement dated March 10, 2009 for a more detailedfull description of this and other legal mattersmatters.

 

711.  Subsequent Events.  Management has evaluated subsequent events through November 20, 2009.  The Company made an additional distribution to its unit holders of $0.40 per unit in the amount of $2,572 on September 24, 2009.

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Table of Contents

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward-Looking Statements

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains, in addition to historical information, forward-looking statements that are based on current expectations, beliefs, intentions or future strategies of the management of the New Midwest Company, formerly known as Golden Oval Eggs, LLC (“we”, “us”, “our”, or the “Company”). When used in this Management’s Discussion and Analysis of Financial Condition and Results of Operations or elsewhere in this Quarterly Report on Form 10-Q, the words “believe,” “expect,” “anticipate,” “will,” “estimate” and similar verbs or expressions are intended to identify such forward-looking statements.  If our management’s assumptions prove incorrect or should unanticipated circumstances arise, our actual results could differ materially from those anticipated. These differences could be caused by a number of factors or combination of factors including, but not limited to, those factors described in Part I, Item 1A. “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended August 31, 2007,2008, as well as those identified in other filings with the Securities and Exchange Commission.  Readers are strongly urged to consider such factors when evaluating any forward-looking statement. The Company undertakes no obligation to update any forward-looking statements to reflect future events or developments.

 

The following is a discussion and analysis of our financial condition and results of operations as of and for the three month and nine months periods ended May 31, 20082009 and 2007.2008. This section should be read in conjunction with the condensed financial statements and related notes in Item 1 of this Quarterly Report and our Annual Report on Form 10-K for the year ended August 31, 2007.2008.

 

Summary

 

Golden Oval Eggs, LLCOn March 30, 2009, the Company closed a transaction in which it sold substantially all of its assets and ceased to operate.  All of its employees were terminated and a majority were offered employment by the purchaser.  All production and sales facilities were sold or otherwise transferred to the purchaser or shut down.  As a part of the transaction, the Company was required to change its name.  The new name of the entity is a Delaware limited liability company primarily engaged in the business of producing, processing, marketing and distributing egg products. The New Midwest Company operates seven production and/or distribution facilities in the United States.LLC.  It maintains its headquartersan office in Renville, Minnesota andMinnesota.   Subsequent to the sale the Company has made certain distributions to the members.  The board of managers will determine, in its discretion, when to make a sales officesubsequent proposal to the Company’s members to liquidate the Company.  The board of managers currently expects to consider liquidation of the Company in Plymouth, Minnesota.late 2009.   See note 9 for a description of the transaction.

 

ThePrior to the sale, the Company producesproduced a wide range of egg products, from unpasteurized liquid eggs, further processed egg products for other food manufacturers, and finished goods for sale to retailers and food service customers.  Products arewere sold to other food manufacturers, restaurants, supermarkets and foodservice distributors.

The Company produces approximately two-thirds of its annual needs from eggs produced at layer barns at the Company’s Renville, Minnesota and Thompson, Iowa facilities.  The remainder is satisfied from purchases of eggs or liquid product under a variety of pricing arrangements with third parties.

The Company’s operating income or loss iswas materially affected by wholesale liquid egg prices, and pricing of further processed products which can fluctuate widely and are outside of the Company’s control.  Liquid eggs are a commodity product and prices fluctuate in response to supply/demand factors.  The Company also sellssold a portion of its products under contracts at non-market prices.  Depending upon market circumstances, the prices generated by the Company’s non-marketnonmarket volume tend to be less or more than what the prevailing open market prices would generate.

 

The Company’s cost of production is materially affected by feed, purchased egg and liquid egg costs, which averaged approximately 50% of the Company’s total production costs in the third quarter of fiscal 2008.

810



Table of Contents

 

Results of Operations

 

Results of Operations — Third Quarter Fiscal Year 20082009 Compared to Third Quarter Fiscal Year 20072008

 

Net SalesGeneral     NetThe Company conducted operations through March 30, 2009, with no sales or other operating activities for the period from March 31 to May 31, 2009, the end of its third fiscal quarter.  As a result, all comparison are affected by comparing one month of operations against three in the third fiscal quarter of fiscal 2008 were $56.6 million, an increase of $3.6 million, or 6.8% over the third quarter in the prior fiscal year. Pounds soldyear, resulting in skewed comparisons.  Accordingly, most of the narrative has been omitted.  The sale of substantially all of the Company’s assets is reflected in the third quarter were 66.5 million, a decrease of 27.5 million, or 41.4%, less than the same period year ago.  The decrease is due to a significant reduction of the Millersburg, Ohio facility egg supply (15.9 million pounds) which resulted in an impairment charge in the fiscal year ended August 31, 2007.  Additional causes of the decline include a decrease in pounds available to sell from production at the Renville and Thompson facilities as a result of reductions in flock sizes associated with an increase in the amount of space allotted to each bird in compliance with animal care guidelines promulgated by industry groups (2.0 million pounds), and a decrease in pounds available to sell as a result of us exiting certain low margin businesses (9.6 million pounds).  The average selling price per pound sold increased from $0.541 to $0.779, an increase of $0.238, or 44.0%, as a result of higher selling prices executed in an environment of sharply increased liquid egg markets.current reporting period.

 

CostOther Income(Expense)     Interest expense declined from $(1.9) million to $(1.7) million due largely to the fact that all debt was paid in full at closing, reflecting only one month of goods sold. Costexpense compared to three months in the prior period.  However, since the debt was repaid, the company expensed the remaining balance of goods solddeferred financing costs and included this in interest expense for the third quarterquarter.  Preferential payments to preferred shareholder of fiscal 2008 was $47.4 million,$(6,447) were made under the terms of the agreement modifying the subordinated note held by Land O’ Lakes and disclosed in an increase8-K filing dated March 2, 2009 and became due and payable upon the change of $0.4 million,control or 0.9%, as compared tosale of substantially all of the third quarterassets of fiscal 2007.the Company.  The increase is primarilycompany recorded a resultgain on the assets sold and liabilities assumed of increases$5,055.  Transaction costs of $2,175 are included in the costcalculation of feed, purchased eggsthe gain and purchased liquid eggs exceeding$304 of expense related to accelerated vesting of unit awards that occurred with the reductionchange in purchased pounds needed for production.

control.  Severance costs triggered by a change of control or termination under various employment contracts and agreements were expensed and recorded in Operating expenses. Operating expensesCosts for the third quarter of fiscal 2008quarter.  These costs were $4.8 million, an increase of $.04 million, or .7%,not previously accrued as compared to the third quarter of fiscal 2007.they were contingent upon a future event.  The slight increase was due to increased discretionary spending.

Total other income(expense). Total other income(expense) for the third quarter of fiscal 2008 was $(1.7) million, an improvement of $.6 million from the prior year period. Interest expense decreased $0.6 million primarily as a result of the elimination of interest on the $17.0 million subordinated debt that was forgivenamounts paid were in accordance with amounts disclosed in the second quarter of fiscal 2008.Proxy statement and approved by unit holders.

 

Income Taxes.       As a limited liability company, the Company expects to be treated as a partnership for federal income tax purposes. Therefore, the Company will pay no federal income tax and instead, the Company’s members will include their pro-rata share of the Company’s net income or loss as an item of income for the purposes of their own federal income tax returns.

 

Net Income(Loss).     Operations for the third quarter ended May 31, 20082009 resulted in a profitloss of $2.8$(8.9) million, or a profitloss of $.51$(1.39) per basic members’ unit and $.44$(1.39) per diluted members’ unit, as compared to a lossincome of $(1.0)$2.75 million, or $(0.19)$0.51 per basic and $0.44 per diluted members’ unit for the quarter ended May 31, 2007.2008.

 

The Company’s financial performance inDistributions.       During the currentthird quarter may not be indicativeending May 31, 2009 we made distributions of future quarters due to seasonal factors and volatility in both selling prices and cost of materials purchased, as well as industry factors in an intensely competitive industry.$3.00 per unit holder from the sale proceeds.

 

Results of Operations — Nine Months ended May 31, 20082009 Compared to Nine Months ended May 31, 20072008

 

Net Sales.General.  NetThe Company conducted operations through March 30, 2009, with no sales or other operating activities for the firstperiod from March 31 to May 31, 2009, the end of its third fiscal quarter.  As a result, all comparison are affected by comparing seven month of operations against nine months of fiscal 2007 were $165.2 million, an increase of $18.1 million, or 12.3% over the first nine months ofin the prior fiscal year. The average selling price per pound increased from $0.478 to $0.729, an increase of $0.251, or 52.5% over the prior year, same period. Total pounds shipped to customers for the first nine months of fiscal 2008 were 214.8 million, a decrease of 77.8 million pounds or 26.6%. The increaseresulting in average selling price was enough to offset the sales pounds decrease caused by the reduction in supply from the Millersburg facility (47.7 million pounds), compliance with animal care guidelines promulgated by industry groups (6 million pounds), and a decrease in pounds

9



available to sell as a result of us exiting certain low margin business lines and the seasonalityskewed comparisons.  Accordingly, most of the business (24.1 million pounds).

Costnarrative has been omitted.  The sale of Goods Sold.  Cost of goods sold for the first three quarters of fiscal 2008 was $148.5 million, an increase of $14.5 million or 10.8%substantially all of the figure for same period of fiscal 2007 and less than the percentage increase in sales dollars, resulting in an increase of $3.6 million in gross profit. Significant unfavorable cost pressures were experienced in the period.  Feed prices have risen substantially, driven by higher corn and soybean meal costs, resulting in $7.6 million of additional feed expense at the Renville and Thompson facilities.  The cost of purchased liquid and eggs increased by $11.0 million, or 21.9%, driven by the same pricing environmentCompany’s assets is reflected in the increase in selling prices.  Improvements in operations resulted in reductions in direct and indirect operating costs of $4.1 million.

Operating Expenses.Operating expenses for the first three quarters of fiscal 2008 were $18.1 million, an increase of $2.3 million, or 14.4%, from the same period of fiscal 2007. The increase is primarily due to impairment of the Land O’ Lakes trademark of $3.2 million recorded in the second quarter of the current fiscal year with additional impairment expense and reserves relating to the termination of the Land O’ Lakes license and withdrawal from certain unprofitable market segments of $.5 million.   Other operating expenses, primarily marketing, were reduced by $1.4 million.

Total Other Income (Expense).reporting period.Total other income increased from $(6.7) million to $10.7 million, an increase of $17.4 million for the period.  The increase is due almost exclusively to the forgiveness of the $17.0 subordinated note.  Interest expense decreased $0.4 million, primarily reflecting the elimination of interest on the forgiven note for the fiscal third quarter.

 

Income Taxes.       As a limited liability company, the Company expects to be treated as a partnership for federal income tax purposes.  Therefore, the Company will pay no federal income tax and instead, the Company’s members will include their pro-rata share of the Company’s net income as an item of income for the purposes of their own federal income tax returns.

 

Net Income (loss).        Net income for the nine months ended May 31, 20082009 resulted in a profitloss of $9.3$(12.4) million, or $1.71$(2.14) per weighted average units and diluted members’ unit of $1.61,$(2.14), as compared to a lossnet income of $(9.4)$9.3 million, or $(1.74)$1.71 per basic members’ unit weighted average and $1.61 per diluted unit for the same period a year ago.

11



Table of Contents

 

Liquidity and Capital Resources

 

On March 30, 2009, the Company sold substantially all of its assets in a transaction with Rembrandt.  The proceeds were used to satisfy all outstanding indebtedness in full, including accrued interest, including facilities under its amended and restated credit agreements with CoBank ACB and MetLife, the series 1999 and 2001 bonds, and miscellaneous smaller borrowings related to its Thompson, Iowa facility.  The Company’s working capital at May 31, 20082009, was $2.3$3.6 million compared to $(4.3)$(54.2) million at August 31, 2007.2008.  The Company distributed $3.00 per Class A Common Unit for a total of $19.3 million.  The Company’s current ratio was 1.06 at May 31, 2008 comparedremaining assets consist of $1.5 million of cash, prepaid insurance of $0.4 million and a receivable of $2.8 million due from the purchaser relating to 0.90 at August 31, 2007. On March 11, 2008,post closing adjustments.  Management expects the Company entered into an Extension and Amendment Agreement with its lenders that extended the termination date of all revolving loans from March 1, 2008 to July 31, 2008.  Additionally, the principal payments for the Tranche A and Tranche B term loans were deferred for the months of March, April, May, June and July of 2008 until the maturity date of the applicable loan.  The Company is current on all interest and principal payments as required for the quarter ending May 31, 2008 and complied with its minimum monthly EBITDA requirement for all three months of the third quarter of fiscal 2008. The amended and restated credit agreement provides for a $95.5 line of credit, consisting of a $15.0 million revolving note that terminates on March 1, 2008, a short term revolving note of $2.5 million that also terminates on March 1, 2008 and $78.0 million in term notes with principal repayment schedules resulting in retirement beginning in 2014.  Certain financial benchmarks and ratios contained in the credit agreements have had their effective dates extended until July 31, 2008.  In the interim period, the Company must produce a minimum EBITDA of $1.0 million per month.  To the extent that EBITDA exceeds $1.0 million in any month, up to $0.2 million is to be placed in an interest bearing escrow account to be used for the Thompson wastewater project.  The Company has agreed to explore strategic alternatives on terms, conditions and time frames mutually agreed between the Company and its lenders.

The Company may require significant additional capital resources in order to proceed with potential future expansions or to otherwise respond to competitive pressures in the industry.   In addition, the Company may seek additional capital from an offering of our equity securities or by incurring additional

10



indebtedness, or both.  No assurance can be given that additional working capitalreceivable will be obtained in an amount that is sufficient for the Company’s needs, in a timely manner or on terms and conditions acceptable to the Company or its members.  The Company’s financing needs are based upon management estimates as to future revenue and expense. Our business plan and our financing needs are also subject to change based upon, among other factors, market and industry conditions, our ability to increase cash flow from operations and our ability to control costs and expenses.  Our efforts to raise additional funds from the sale of equity may be hampered by the fact that our securities are illiquid and are subject to restrictions on transfer. Our efforts to raise additional funds from incurring additional indebtedness may be hampered by the fact that the Company has significant outstanding indebtedness and all of the Company’s assets are pledged to its lenders to secure existing debt.

The Company’s long-term debt at May 31, 2008, including current maturities, was $75.7 million compared to $94.2 million at August 31, 2007. As of May 31, 2008, $13.5 million has been drawn against the $17.5 revolving line of credit including the $2.5 million short term revolving note, compared to $11.9 million as of August 31, 2007. Substantially all trade receivables and inventories collateralize the Company’s line of credit and property, plant and equipment collateralize the Company’s long-term debt under its credit agreement.

With respect the improvements that will be required to the Thompson, Iowa wastewater system (see Part II, Item 1 “Legal Proceedings”), the Company is currently securing bids to establish the cost of these improvements.

On February 15, 2008, the Company and Land O’ Lakes executed an agreement whereby the purchase price of the Egg Products Division of MoArk was reduced by $17.0 million and an equal amount of the subordinated note used to finance the acquisition was reduced.  Additionally, the Company issued a Warrant for the purchase of up to 880,492 newly authorized convertible preferred units in exchange for the forgiveness of accrued interest on the subordinated note of $3.2 million. The 697,350 Class B units held by Land O’ Lakes were converted to Class A units per the agreement.

Net cash flow from operations was $1.6 million for the first three quarters of fiscal 2008 compared to $1.0 million in the first three quarters of fiscal 2007. Principal payments on long-term debt were $1.5 million and additions to fixed assets were $0.2 million.  There were no distributions to unit holders during the first two quarters of fiscal 2008.  An additional $0.6 million was added to restricted cash to provide for the principal and interest payments on the 1999 and 2001 bonds due in July 2008.fully collected.

 

Critical Accounting Policies and Estimates

 

The above discussion and analysis of our results of operations and financial condition are based upon our consolidated condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances.  However, future events may change and even the best estimates and judgments may require adjustment.  For a complete description of the Company’s significant accounting policies, please see Note 1 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended August 31, 2007.2008.  There have been no changes to critical accounting policies identified in our Annual Report on Form 10-K for the year ended August 31, 2007.2008.

 

Tangible Assets

 

We continually evaluate the carrying value of our tangible assets for events or changes in circumstances that indicate that the carrying value may not be recoverable.  As part of this reevaluation, if impairment

11



indicators are present, we estimate the future cash flows expected to result from the use of this asset and its eventual disposal.  During the third quarter of fiscal year 2008,2009, the company sold substantially all of its assets to Rembrandt Foods and has no triggering events were identified that would have resulted in the carrying value of any asset to be deemed unrecoverable. As a result, no impairment tested was initiated.

 Recorded impairment ofmaterial tangible assets for the nine months ending May 31, 2008 is $.5 million.assets.

 

Intangible Assets

 

As a result of the MoArk Acquisition that was completed June 30, 2006, we acquired intangible assets consisting of licenses to use certain brand names and trademarks, licenses of certain product technology and certain patents and patent applications.  We have recorded the excess of consideration paid over assets acquired.  Financial Accounting Standard No. 141 “Business Combinations” dictates that values be assigned to certain intangible assets.  We have accordingly made estimates of the values to be carried on our books for intangible assets acquired, including registered and unregistered trade names and trademarks, licensing agreements, and patents and patent applications.  The values of these assets are determined by forecasting future cash flows and assessing the risk of achieving the forecast.  Those intangible assets with finite lives will be amortized over a period matching the life of the underlying intellectual property, for example, the term of the license agreement or the remaining life of the patent. With the termination of the retail test market and the cancelling of Land O’Lakes licensing agreements (Form 8K filed 2/20/2008), impairment was recognized for the intangible Land O’Lakes license agreement of $3.2 million. This was recorded in the operations section of the Statement of Operations. ForDuring the third quarter endingof fiscal year 2009, the company sold substantially all of its intangible assets to Rembrandt Foods and has no intangible assets at May 31, 2008, no triggering events were identified that would have resulted in the carrying value of any intangible asset to be deemed unrecoverable. As a result, no impairment testing was initiated.2009.

 

Those intangibles with indefinite lives have been recorded as goodwill, and will not be amortized over a fixed time period.  Rather, they will be tested for impairment when impairment indicators are deemed present.  As12



Table of February 29, 2008 we tested for impairment under the provisions of SFAS No. 142. The results of the impairment test indicated that the fair value of the single entity reporting unit exceeded the carrying value of the reporting unit. As a result, no provision for impairment was required for the first two quarters of fiscal 2008. No impairment testing was done in the third quarter ending May 31, 2008 due to no triggering events being present.Contents

 

Impact of Recently Issued Accounting Pronouncements

 

Please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”,Operations,” in our Annual Report form 10-K for the year ended August 31, 20072008 for a discussion of the impact of recently issued accounting pronouncementspronouncements.

 

In September 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 157, Fair Value Measurements (“FAS 157”).  FAS 157 establishes a single authoritative definition of fair value, sets out a framework for measuring fair value, and expands on required disclosures about fair value measurement.  The effective date of FAS 157 has been deferred one year which means the company effective date will be September 1, 2009.  The provisions of FAS 157 are not expected to have a material impact on our consolidated financial statements.

In FebruaryDecember 2007, the FASB issued SFAS No. 159, “Establishing the Fair Value Option for Financial Assets and Liabilities,” to permit all entities to choose to elect to measure eligible financial instruments at fair value.  SFAS No. 159 applies to fiscal years beginning after November 15, 2007 with early adoption permitted for an entity that has also elected to apply the provisions of SFAS No. 157, “Fair Value Measurements.”  An entity is prohibited from retrospectively applying SFAS No. 159, unless it chooses early adoption.  Management is currently evaluating the impact of SFAS No. 159 on its consolidated financial statements.

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In December 2007, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 160, Noncontrolling“Noncontrolling Interests in Consolidated Financial StatementsStatements- An amendment of Accounting Research Bulletin (“FAS 160”ARB”). FAS”  SFAS No. 160 establishesamends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.  The effective dateIt clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements.  Among other requirements, this statement requires consolidated net income or loss to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest.  It also requires disclosure, on the face of FASthe consolidated statements of operations, of the amounts of consolidated net income or loss attributable to the parent and to the noncontrolling interest.  SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.  Golden OvalAccordingly, we adopted this statement effective May 31, 2009.  This statement is reviewing FAS 160  to determine what impact it mayapplied prospectively as of the beginning of the fiscal year in which this statement is initially adopted, except for the presentation and disclosure requirements.  The presentation and disclosure requirements are applied retrospectively for all periods presented.  Accordingly, we have toreclassified amounts in the consolidated financial statements.statements for all prior periods presented.

 

In MarchApril 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Statementposted FSP SFAS No. 161, Disclosures142-3, “Determination of the Useful Life of Intangible Assets,” which applies to recognized intangible assets that are accounted for pursuant to SFAS No. 142, “Goodwill and Other Intangible Assets.”  FSP SFAS No. 142-3 amends the factors an entity must consider when developing renewal or extension assumptions used in determining the useful life of a recognized intangible asset.  It also requires entities to provide certain disclosures about Derivative Instruments and Hedging Activities, an Amendment to FASB Statementits assumptions.  FSP SFAS No. 133. FAS 161 establishes the disclosure requirements for derivative instruments and hedging activities and expands the disclosure requirements of statement 133. The142-3 is effective date for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods beginning after November 15, 2008. Golden Oval is reviewing FASB 161 but anticipates very littlewithin those fiscal years.  Accordingly, we adopted this statement effective May 31, 2009.  There was no material impact toon the Company.Company’s results of operations or financial condition upon adoption of the new statement.

 

The FASB issued two new statements in May 2008, FASB StatementSFAS No. 162, The“The Hierarchy of Generally Accepted Accounting Principles, and FASB StatementsSFAS No. 163, Accounting“Accounting for Financial Guaranty Insurance Contract, an interpretation of FASBSFAS No. 60. FASB”  SFAS No. 162 identifies sources of accounting principles and establishes a hierarchy of accounting principles to be used in preparation of financial statements in conformity with GAAPgenerally accepted accounting principles for non governmental entities.  FASBSFAS No. 162 is effective 60 days following SECSecurities and Exchange Commission (“SEC”) approval of Public Company Accounting Oversight Board (PCAOB)(“PCAOB”) amendments to AU sectionSection 411.  The Company does not anticipate any impact with the enactment of FASBSFAS No. 162.  FASBSFAS No. 163 clarifies the recognition and measurement of claim liabilities in an insured financial obligation by insurance enterprises.  FASBSFAS No. 163 is not applicable to the Company.

In April 2009, the FASB issued FSP SFAS No. 107-1 and Accounting Principles Board (“APB”) Opinion No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” which amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” and APB Opinion No. 28, “Interim Financial Reporting,” to require an entity to provide interim disclosures about the fair value of all financial instruments within the scope of SFAS No. 107 and to include disclosures related to the methods and significant assumptions used in estimating those instruments.  This FSP is effective for interim and annual periods ending after June 15, 2009 and, accordingly, the Company adopted it during the first quarter of fiscal 2010.  Adoption of this FSP had no material impact on the Company’s financial statements.  See Note 7 for these disclosures.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events.”  SFAS No. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued.  This statement does not apply to subsequent events or transactions that are within the scope of other applicable generally accepted accounting principles that provide different guidance on the accounting treatment for subsequent events or transactions. SFAS No. 165 applies to both interim financial statements and annual financial statements and should not result in significant changes in the subsequent events that are reported.  SFAS No. 165 introduces the concept of financial statements being available to be issued.  It requires the disclosure of the date through which a Company has evaluated subsequent events and the basis for that date, whether that represents the

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date the financial statements were issued or were available to be issued.  SFAS No. 165 should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented.  This statement is effective for interim or annual reporting periods ending after June 15, 2009.  The Company adopted this statement during the first quarter of fiscal 2010.

In October 2009, the FASB issued new U.S. GAAP guidance that requires an entity to allocate revenue arrangement consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices (the relative-selling-price method).  The guidance eliminates the use of the residual method of allocation, in which the undelivered element is measured at its estimated selling price and the delivered element is measured as the residual of the arrangement consideration, and requires the relative-selling-price method in all circumstances in which an entity recognizes revenue for an arrangement with multiple deliverables.  The new guidance must be adopted no later than the beginning of the first fiscal year beginning on or after June 15, 2010, with early adoption permitted through either prospective application for revenue arrangements entered into, or materially modified, after the effective date or through retrospective application to all revenue arrangements for all periods presented.  The Company does not expect the adoption of this guidance to have an effect on its consolidated financial statements.

 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

 

There have been no material changes in the market risk reported in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2007.2008.

 

Item 4.  Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

The Company’s Chief Executive Officer, Dana Persson, and Chief Financial Officer, Thomas A. Powell, have reviewed the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon this review, they have concluded that as of the date of the sale there iswas a continuing deficiency in the Company’s disclosure controls and procedures as described in Part II, Item 9A “Controls and Procedures” of the Company’s Annual Report on Form 10-K for the year ended August 31, 2007.  During the first quarter, the Company secured additional personnel resources to assist2008.  Effective with the consolidation and financial reporting process, which resulted in significant progress toward addressing the deficiency in our disclosure controls and procedures.  The Company continues, however, to evaluate other possible remedial actions to improve our disclosure controls and procedures.sale, all employees were terminated with former accounting department being utilized on an as need basis.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes inEffective with the sale, all employees, including those with responsibility for internal control over financial reporting that occurred duringwere terminated.  Reporting after the fiscal quarter covereddate is performed by this report that have materially affected, or are reasonably likely to materially affect,prior employees on a contracted basis and supervised by the Company’s internal control over financial reporting.Chief Financial Officer and Chief Executive Officer who continue in their respective roles.

 

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PART II.     OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

Our Thompson, Iowa facility has an industrial wastewater treatment facility designed to treat wastewater from egg breaking.  The Thompson facility also has an associated National Pollution Discharge and Elimination System (“NPDES”) permit fromEnvironmental Proceedings

Beginning in 2001, the Iowa Department of Natural Resources (“IDNR”) that governs the quality(IDNR) issued several Notices of Violation against GOE regarding alleged violations of the wastewater influent topermit discharge limits for biochemical oxygen demand, total suspended solids, and effluent fromammonia nitrogen at the treatmentThompson, Iowa facility.

On March 29, 2007, the Iowa Attorney General’s office filed suit against us requesting civil penalties for and injunctive relief against alleged NPDESfurther permit violations.  To address the violations, for exceeding discharge limits for biochemical oxygen demand, total suspended solids, and ammonia nitrogen.we decided to make certain capital infrastructure improvements to the wastewater treatment facility totaling approximately $2.5 million.  The improvements were designed to ensure full compliance with the wastewater permit.

 

We have been negotiating the terms ofOn July 14, 2008, a Consent Order, Judgment and Decree was filed in Iowa District Court for Winnebago County.  The Order was a settlement with the Iowa Attorney General’s office.  We expect the terms of the Consent Decree to enjoin us from further violations, include an obligation byGeneral and obligated us to makepay a $200,000 civil penalty to the State of Iowa for the alleged violations, and to complete the improvements to the Thompson wastewater treatment system to prevent further permit violations on an agreed-upon timeline, and make payment of afacility.  We paid the $200,000 civil penalty.

In Februarypenalty in July 2008 we received from IDNR a permit for construction of permanent improvements to the Thompson wastewater treatment system, and we are in the process of preparing forhave since completed construction of the wastewater improvements which we anticipate will be completed no later than April 30, 2009.  In addition, operational changes have been made atand satisfied all of our obligations under the wastewater facility that have achieved significant improvement in compliance with the NPDES permit requirements.

At this time, the cost associated with the permanent improvement to the wastewater treatment facility is estimated to be approximately $2.5 million. The Company is securing bids to determine final costs for the project.Consent Order.

 

On March 27, 2008,July 8, 2009, an Acknowledgement of Satisfaction of Consent Order, Judgment and Decree was filed by the Iowa Attorney General in Iowa District Court for Winnebago County that stated that we received a subpoena fromhad fully satisfied all aspects of the U.S. Department of Justice, through the U.S. Attorney for the Eastern District of Pennsylvania, requesting documents for the period of January 1, 2002 through March 27, 2008 relating primarily to the pricing, marketing, and sales of our egg products. We intend to fully cooperate with the Department of Justice request. We cannot predict what, if any, impact this inquiry and any results from this inquiry could have on our current or future operations or results of operations.Consent Order.

 

Item 1A.  Risk Factors

 

Not applicable.

 

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

 

None.

 

Item 3.  Defaults Upon Senior Securities

 

None.

 

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

 

None.On March 10, 2009 a Proxy was submitted to all Class A Common unit holders to approve the sale of substantially all of the Company’s assets, to change the name of the Company, and to grant authority to adjourn the special meeting wherein the votes were to be tabulated.  At a special meeting held on March 23, 2009 all three matters were overwhelmingly approved.

 

Item 5.  Other Information

 

None.

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Item 6.  Exhibits

 

Exhibit
No.

 

Description

 

 

 

31.1

 

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.

 

 

 

31.2

 

Certification of the Chief Financial Officer pursuant to pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.

 

 

 

3232.1

 

Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 13501350.

 

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SIGNATURES

 

Pursuant to the requirements 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.

 

 

GOLDEN OVAL EGGS,The New Midwest Company, LLC

 

 

 

 

 

By:

/s/ Dana Persson

 

President and Chief Executive Officer

 

(Principal Executive Officer)

 

 

 

By:

/s/ Thomas A. Powell

 

Vice President and Chief Financial

 

Officer

 

(Principal Financial and Accounting

 

Officer)

 

 

 

 

Date: July 1, 2008November 24, 2009

 

 

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