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 November 30, 2008;** |
|                                                        |       |                                                                                                     |
| **OR**                                                      |
|                                                        |       |                                                                                                     |
| **o**                                                       | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |

 

**for thetransition period from         TO        **

 

**Golden Oval Eggs, LLC**

(Exact name of registrant as specified in itscharter)

 

| **Delaware**                                                     | ** ** | **20-0422519**                            |
|------------------------------------------------------------------|------------|-------------------------------------------|
| (State or other  jurisdiction of incorporation or  organization) |       | (I.R.S. employer  identification  number) |
|                                                             |       |                                      |
| **1800 Park  Avenue East**                                       |       |                                      |
| **Renville,  MN**                                                | ** ** | **56284**                                 |
| (Address of principal  executive offices)                        |       | (Zip code)                                |

 

Telephone: **(320)329-8182**

(Registrant’s telephone number, includingarea code)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes x No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer or a smaller reporting company. Seedefinition of “accelerated filer” and “large accelerated filer” in Rule 12b-2of the Exchange Act.

 
| Large  Accelerated Filer o |   | Accelerated  Filer  o   |
|----------------------------|--------|------------------------------|
| Non-Accelerated  Filer x   |   | Smaller  Reporting Company o |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act.) Yes o  No x

 

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

Yeso  No x

 

Asof January 13, 2009, there were 5,493,131 of the Company’s Class AUnits issued and outstanding.

 

 

 

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**TABLE OF CONTENTS**

 

Golden Oval Eggs, LLC

Form 10-Q

For The Quarter Ended November 30, 2008

 
| **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          |
| Item 3.          | Quantitative and Qualitative Disclosures about  Market Risk                                 | 12         |
| Item 4.          | Controls and Procedures                                                                     | 12         |
|             |                                                                                        |       |
| **Part II** | **Other Information**                                                                       |       |
| Item 1.          | Legal Proceedings                                                                           | 12         |
| Item 1A.         | Risk Factors                                                                                | 12         |
| Item 2.          | Unregistered Sales of Equity Securities and  Use of Proceeds                                | 12         |
| Item 3.          | Defaults Upon Senior Securities                                                             | 12         |
| Item 4.          | Submission of Matters to a Vote of Security  Holders                                        | 13         |
| Item 5.          | Other Information                                                                           | 13         |
| Item 6.          | Exhibits                                                                                    | 13         |
|             |                                                                                        |       |
| **Signatures**   |                                                                                        | 13         |

 

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**PART I.   FINANCIAL INFORMATION**

 

**Item 1.Condensed Financial Statements**

 

**GOLDEN OVALEGGS, LLC**

 

**ConsolidatedCondensed Balance Sheets**

 

**November 30,2008 and August 31, 2008**

 

**(InThousands)**

 
| ** **                               | ** ** | **November 30,  2008** | ** ** | **August 31,  2008** | ** ** |
|------------------------------------------|------------|-----------------------------|------------|---------------------------|------------|
| ** **                               | ** ** | **(unaudited)**             | ** ** | ** **                | ** ** |
| **Assets**                               |       |                        |       |                      |       |
| Current assets                           |       |                        |       |                      |       |
| Cash and cash equivalents                |       | $                           | 1,316      |                      | $          | 4,289 |   |
| Accounts receivable                      |       | 14,831                      |       | 15,861                    |       |
| Inventories                              |       | 21,901                      |       | 21,783                    |       |
| Restricted cash                          |       | 1,554                       |       | 2,212                     |       |
| Other current assets                     |       | 1,277                       |       | 1,229                     |       |
| Total current assets                     |       | 40,879                      |       | 45,374                    |       |
|                                     |       |                        |       |                      |       |
| Property, plant and equipment            |       |                        |       |                      |       |
| Land and land improvements               |       | 11,649                      |       | 11,649                    |       |
| Buildings                                |       | 40,734                      |       | 40,279                    |       |
| Leasehold Improvements                   |       | 990                         |       | 943                       |       |
| Equipment                                |       | 71,920                      |       | 72,275                    |       |
| Construction in progress                 |       | 1,455                       |       | 317                       |       |
|                                     |       | 126,748                     |       | 125,463                   |       |
| Accumulated depreciation                 |       | (70,253                     | )          | (67,674                   | )          |
| Total property, plant and equipment, net |       | 56,495                      |       | 57,789                    |       |
|                                     |       |                        |       |                      |       |
| Other assets                             |       |                        |       |                      |       |
| Investments                              |       | 1,732                       |       | 1,733                     |       |
| Intangible assets, net                   |       | 13,591                      |       | 13,962                    |       |
| Goodwill                                 |       | 22,858                      |       | 22,858                    |       |
| Note receivable                          |       | 248                         |       | 248                       |       |
| Total other assets                       |       | 38,429                      |       | 38,801                    |       |
|                                     |       |                        |       |                      |       |
| Total assets                             |       | $                           | 135,803    |                      | $          | 141,964 |   |

 

Seeaccompanying notes to consolidated condensed financial statements

 

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| ** **                                         | ** ** | **November 30,  2008** | ** ** | **August 31,  2008** | ** ** |
|----------------------------------------------------|------------|-----------------------------|------------|---------------------------|------------|
| ** **                                         | ** ** | **(unaudited)**             | ** ** | ** **                | ** ** |
| Liabilities  and Members’ Equity              |       |                        |       |                      |       |
| Current liabilities                                |       |                        |       |                      |       |
| Revolving line of credit                           |       | $                           | 14,667     |                      | $          | 16,261 |   |
| Accounts payable                                   |       | 7,884                       |       | 9,531                     |       |
| Accrued interest                                   |       | 564                         |       | 500                       |       |
| Accrued compensation                               |       | 2,286                       |       | 3,005                     |       |
| Other current liabilities                          |       | 3,145                       |       | 2,720                     |       |
| Current maturities of long-term debt               |       | 65,450                      |       | 67,526                    |       |
| Total current liabilities                          |       | 93,996                      |       | 99,543                    |       |
|                                               |       |                        |       |                      |       |
| Long-term debt, less current maturities            |       | 6,347                       |       | 6,420                     |       |
|                                               |       |                        |       |                      |       |
| Members’ equity                               |       |                        |       |                      |       |
| Members’ equity                               |       | 34,265                      |       | 34,852                    |       |
| Non-controlling interest in consolidated  entities |       | 1,195                       |       | 1,149                     |       |
| Total members’ equity                         |       | 34,460                      |       | 36,001                    |       |
| Total liabilities and members’ equity         |       | $                           | 135,803    |                      | $          | 141,964 |   |

 

Seeaccompanying notes to consolidated condensed financial statements

 

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**GOLDEN OVALEGGS, LLC**

 

**ConsolidatedCondensed Statements of Operations**

 

**For thePeriods Ended November 30, 2008 and 2007**

 

**(InThousands, except per unit data)**

**(Unaudited)**

 
| ** **                                                          | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                          | ** ** | **November 30,  2008**      | ** ** | **November 30,  2007** | ** ** |
|                                                                |       |                             |       |   |   |
| Net sales                                                           |       | $                                | 52,397     |   | $ | 53,203 |   |
|                                                                |       |                             |       |   |   |
| Cost of goods sold                                                  |       | 48,142                           |       | 49,118 |   |
|                                                                |       |                             |       |   |   |
| Gross profit                                                        |       | 4,255                            |       | 4,085 |   |
|                                                                |       |                             |       |   |   |
| Operating expenses                                                  |       | 4,461                            |       | 4,442 |   |
|                                                                |       |                             |       |   |   |
| Loss from operations                                                |       | (206                             | )          | (357 | ) |
|                                                                |       |                             |       |   |   |
| Other income (expense)                                              |       |                             |       |   |   |
| Interest (expense)                                                  |       | (1,724                           | )          | (2,729 | ) |
| Non-controlling interest in income (loss)  of consolidated entities |       | 11                               |       | (23 | ) |
| Other income                                                        |       | 1,305                            |       | 352 |   |
| Total other expense                                                 |       | (408                             | )          | (2,400 | ) |
|                                                                |       |                             |       |   |   |
| Net loss                                                            |       | $                                | (614       | ) | $ | (2,757 | ) |
|                                                                |       |                             |       |   |   |
| Weighted average net (loss) per members’  unit - basic         |       | $                                | (0.11      | ) | $ | (0.51 | ) |
|                                                                |       |                             |       |   |   |
| Diluted net (loss) per members’ unit                           |       | $                                | (0.11      | ) | $ | (0.51 | ) |

 

See accompanying notes toconsolidated condensed financial statements

 

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**GOLDEN OVALEGGS, LLC**

 

**ConsolidatedCondensed Statements of Cash Flows****For the Periods Ended November 30, 2008and 2007**

 

**(InThousands)****(Unaudited)**

 
| ** **                                                                               | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                               | ** ** | **November 30,**            | ** ** | **November 30,** | ** ** |
| ** **                                                                               | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| Cash flows from operating activities                                                     |       |                             |       |   |   |
| Net loss                                                                                 |       | $                                | (614       | ) | $ | (2,757 | ) |
| Adjustments to reconcile net income to net  cash provided by operating activities        |       |                             |       |   |   |
| Depreciation                                                                             |       | 2,579                            |       | 2,681 |   |
| Amortization                                                                             |       | 371                              |       | 474 |   |
| Vesting of employee units                                                                |       | 27                               |       | — |   |
| Gain on sale of property, plant &  equipment                                    |       | (2                               | )          | — |   |
| Non-controlling interest in income of  consolidated entities, net of distributions       |       | 46                               |       | 33 |   |
| Changes in operating assets and liabilities                                              |       |                             |       |   |   |
| Accounts receivable                                                                      |       | 1,030                            |       | (1,246 | ) |
| Inventories                                                                              |       | (118                             | )          | 61 |   |
| Other current assets                                                                     |       | (48                              | )          | (110 | ) |
| Accounts payable                                                                         |       | (1,647                           | )          | 1,541 |   |
| Accruals and other current liabilities                                                   |       | (230                             | )          | 280 |   |
| Net cash provided by operating activities                                                |       | 1,394                            |       | 957 |   |
|                                                                                     |       |                             |       |   |   |
| Cash flows from investing activities                                                     |       |                             |       |   |   |
| Purchases of property, plant and equipment                                               |       | (1,298                           | )          | (126 | ) |
| Proceeds from sale of property, plant and  equipment                                     |       | 15                               |       | — |   |
| Retirement of investment in other  cooperatives                                          |       | 1                                |       | — |   |
| Net cash used by investing activities                                                    |       | (1,282                           | )          | (126 | ) |
|                                                                                     |       |                             |       |   |   |
| Cash flows from financing activities                                                     |       |                             |       |   |   |
| Net increase (decrease) in revolving line  of credit                                     |       | (1,594                           | )          | 188 |   |
| Payments of long-term debt                                                               |       | (2,149                           | )          | (733 | ) |
| (Increase) decrease in restricted cash                                                   |       | 658                              |       | (286 | ) |
| Net cash used by financing activities                                                    |       | (3,085                           | )          | (831 | ) |
| Net increase (decrease) in cash and cash  equivalents                                    |       | (2,973                           | )          | — |   |
| Cash and cash equivalents - beginning of  period                                         |       | 4,289                            |       | — |   |
| Cash and cash equivalents - end of period                                                |       | $                                | 1,316      |   | $ | — |   |
|                                                                                     |       |                             |       |   |   |
| Supplementary disclosures of cash flow  information                                      |       |                             |       |   |   |
| Cash paid during the period for:                                                         |       |                             |       |   |   |
| Interest, net of capitalized interest of  $84 and $51 during 2008 and 2007, respectively |       | $                                | 1,724      |   | $ | 2,660 |   |
| Supplementary disclosures of non-cash  transactions                                      |       |                             |       |   |   |
| Forfeiture of stock compensation of  departing employee                                  |       | 33                               |       | — |   |

 

Seeaccompanying notes to consolidated condensed financial statements

 

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**GOLDEN OVALEGGS, LLC**

 

**Notes toConsolidated Condensed Financial Statements**

 

**November 30,2008 and August 31, 2008**

 

**(InThousands Except Unit Data)**

 

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

 

2.Basis of Presentation  The accompanying consolidated condensedbalance sheet as of August 31, 2008, which has been derived from auditedconsolidated financial statements, and the unaudited interim consolidatedcondensed financial statements at November 30, 2008 and for thethree-month periods ended November 30, 2008 and 2007 of the Company havebeen prepared in accordance with generally accepted accounting principles forinterim financial reporting and Securities and Exchange Commission rules andregulations.  Certain information normally included in financialstatements and related footnotes prepared in accordance with generally acceptedaccounting principles has been condensed or omitted pursuant to the rules andregulations of the Securities and Exchange Commission.  The consolidatedcondensed financial statements reflect all adjustments (consisting only ofnormal recurring adjustments) which are, in the opinion of management,necessary for a fair presentation of the financial position and operatingresults for the interim periods presented. These consolidated condensedfinancial statements should be read in conjunction with Management’s Discussionand Analysis of Financial Condition and the consolidated financial statementsand notes thereto included in the Company’s Annual Report on Form 10-K forthe year ended August 31, 2008. The results of operations for the periodended November 30, 2008 are not necessarily indicative of results to beexpected for any other interim period or for the entire year.  There is a warrant outstanding which, ifexercised, would result in the issuance of 880,492 Class A units.  These additional units have not been takeninto consideration when calculating the loss per members’ unit-diluted on theConsolidated Condensed Statement of Operations.

 

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

 
| ** **               | ** ** | **November 30,  2008** | ** ** | **August 31,  2008** | ** ** |
|--------------------------|------------|-----------------------------|------------|---------------------------|------------|
| ** **               | ** ** | **(unaudited)**             | ** ** | ** **                | ** ** |
| Hens and pullets         |       | $                           | 15,143     |                      | $          | 14,024 |   |
| Eggs and egg products    |       | 4,177                       |       | 3,987                     |       |
| Feed, supplies and other |       | 2,581                       |       | 3,772                     |       |
| Total inventories        |       | $                           | 21,901     |                      | $          | 21,783 |   |

 

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4.Financing Agreements   Golden Oval Eggs, LLC, MidwestInvestors of Iowa and GOECA, LP are parties to a Credit Agreement that wasoriginally entered into on September 13, 2004, and subsequentlyamended.  With the last amendment effective August 29, 2008, thematurity date of $2,500 of a short term revolving note was extended from July 31,2008 to March 1, 2009 and the commencement date of certain financialcovenants was also extended to March 1, 2009.  We have historicallyfinanced our working capital needs through the Credit Agreement and, to theextent of our cash flow, from operations.  The Credit Agreement, asamended, requires the Company, among other things, to generate monthly EBITDAof at least $1,000 for the term of the Credit Agreement.  In addition, theamendment requires payments into an escrow account to fund improvements towastewater processing facilities at the Thompson, Iowa location.  The amounts required and made are $200 permonth for September, October and November and $100 for December. TheCompany was in compliance with all covenants under the Credit Agreement foreach month in the quarter ended November 30, 2008 and as of November 30,2007.  Included in the amendment is arequirement that any funds from a sale of the Company be utilized to repay allindebtedness on or before March 1, 2009. Accordingly, all bank debt has been classified as a current liability.

 

5.Stock Based Compensation

 

TheCompany has bonus and compensation plans in place for management.  Underthese agreements management may receive up to 50% of certain performancebonuses in the form of Class A Units.  The Company accrues formanagement bonuses during the year based upon the estimated amount that will beearned by year end.  Upon approval by the Board of Managers, the bonusesare paid to management.  The number of units to be issued is based uponthe higher of the book or market value of the Class A Units at the timethe bonus is awarded.  For the three months ended November 30, 2008and 2007, no Class A Units were issued to management.

 

TheClass A Units are nontransferable and subject to forfeiture ratably overthe following three years.  The employee must be employed on theanniversary date of issuance to avoid forfeiture.  In the event thattermination of the employee occurs, the Company will record any forfeiture ofunits as a reduction to compensation expense in the period in which theforfeiture occurs.  There was a forfeiture of 7,222 Class A Units forthe three months ended November 30, 2008.  There were no forfeituresfor the three months ended November 30, 2007.

 

Themembers of the Board of Managers are granted 2,000 Class A Units for eachyear served on the board following each year of service.  The Companyrecognizes compensation expense for these awards based upon the fair value onthe date they are granted.  For the three months ended November 30,2008 and 2007 no units were awarded to the Board of Managers.

 

Belowis a summary of unit activity pursuant to these compensation plans for thethree months ended November 30th,2008 and 2007.

 
| ** **           | ** ** | **2008**  | ** ** | **2007**    | ** ** |
|----------------------|------------|-----------|------------|-------------|------------|
| ** **           | ** ** | **Units** | ** ** | **Dollars** | ** ** | **Units** | ** ** | **Dollars** | ** ** |
|                 |       |      |       |        |       |   |   |   |   |
| Issued to management |       | —    |       | $           | —     |   | — |   | $ | — |   |
| Issued to directors  |       | —    |       | —      |       | — |   | — |   |
| Forfeitures          |       | (7        | )          | (33         | )          | — |   | — |   |
|                 |       |      |       |        |       |   |   |   |   |
| Total                |       | (7        | )          | $           | (33        | ) | — |   | $ | — |   |

 

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6.Use of Estimates   The preparation of consolidated condensedfinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities andthe disclosure of contingent assets and liabilities at the date of theconsolidated condensed financial statements and the reported amounts ofrevenues and expenses during the reporting period. Actual results could differmaterially from those estimates.

 

7.Capital Resources, Liquidity, and Sale of Substantially All Assets.  The Company is a party to an Amended and Restated Credit Agreement, asamended, with Metropolitan Life Insurance Company as lender and CoBank, ACB aslender and administrative agent (the “Credit Agreement”).  The Company hashad limited access to capital under the Credit Agreement and the lenders underthe Credit Agreement have modified certain financial covenants in order toallow compliance with these covenants by the Company.  Commencing in March 2008the Company had undertaken an evaluation of strategic alternatives as requiredunder its credit agreements.  On September 12,2008, the Company signed a letter of intent to sell substantially all of itsassets to Rembrandt Enterprises, Inc. for $123.750 and the assumption ofcertain liabilities, with a subsequent adjustment for working capital.  The Company intends to use the proceeds ofthe sale to satisfy its obligations to lenders under its credit agreementswhich have a current expiration date of March 1, 2009 for the revolvingportion of the loans.  A definitiveagreement was subsequently signed as of December 15, 2008 and is morefully described in a report on Form 8-K filed December 15, 2008.

 

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

 

**Forward-Looking Statements**

 

ThisManagement’s Discussion and Analysis of Financial Condition and Results ofOperations contains, in addition to historical information, forward-lookingstatements that are based on current expectations, beliefs, intentions orfuture strategies of the management of Golden Oval Eggs, LLC (“we”, “us”, “our”,or the “Company”). When used in this Management’s Discussion and Analysis ofFinancial Condition and Results of Operations or elsewhere in this QuarterlyReport on Form 10-Q, the words “believe,” “expect,” “anticipate,” “will,” “estimate”and similar verbs or expressions are intended to identify such forward-lookingstatements.  If our management’s assumptions prove incorrect or shouldunanticipated circumstances arise, our actual results could differ materiallyfrom those anticipated. These differences could be caused by a number offactors or combination of factors including, but not limited to, those factorsdescribed in Part I, Item 1A. “Risk Factors” section of the Company’sAnnual Report on Form 10-K for the year ended August 31, 2008, aswell as those identified in other filings with the Securities and ExchangeCommission.  Readers are strongly urged to consider such factors whenevaluating any forward-looking statement. The Company undertakes no obligationto update any forward-looking statements to reflect future events ordevelopments.

 

Thefollowing is a discussion and analysis of our financial condition and resultsof operations as of and for the three month periods ended November 30,2008 and 2007. This section should be read in conjunction with the condensedfinancial statements and related notes in Item 1 of this Quarterly Report andour Annual Report on Form 10-K for the year ended August 31, 2008.

 

**Summary**

 

GoldenOval Eggs, LLC is a Delaware limited liability company, primarily engaged inthe business of producing, processing, marketing and distributing egg products.The Company operates five production facilities in the United States.  Itmaintains its headquarters in Renville, Minnesota and a sales office inPlymouth, Minnesota.

 

TheCompany produces a wide range of egg products, from unpasteurized liquid eggs,further processed egg products for other food manufacturers, and finished goodsfor sale to retailers and food service customers.  Products are sold toother food manufacturers, restaurants, supermarkets and foodservicedistributors.

 

TheCompany produces approximately half of its annual needs from eggs produced atlayer barns at the Company’s Renville, Minnesota and Thompson, Iowafacilities.  The remainder is satisfied from purchases of eggs or liquidproduct under a variety of pricing arrangements with third parties.

 

TheCompany’s operating income or loss is materially affected by wholesale liquidegg prices, and pricing of further processed products which can fluctuatewidely and are outside of the Company’s control. Liquid eggs are a commodityproduct and prices fluctuate in response to supply/demand factors. The Companyalso sells a portion of its products under contracts at non-market prices.Depending upon market circumstances, the prices generated by the Company’snon-market volume tend to be less or more than what the prevailing open marketprices would generate.

 

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TheCompany’s cost of production is materially affected by feed, purchased egg andpurchased liquid egg costs, which averaged approximately 69% of the Company’sdirect production costs in the first quarter of fiscal 2009.

 

**Results of Operations**

 

*Net Sales.* Net sales for the first quarterof fiscal 2009 were $52.4 million, a decrease of $0.8 million, or 1.5% lessthan the first quarter in the prior fiscal year. Pounds sold in the firstquarter were 65.9 million, a decrease of 12.8 million, or 16.3% less than thesame period year ago. The decrease in pounds sold was experienced in allchannels in which the Company sells product. The average selling price per pound sold increased from $0.673 to$0.726, an increase of $0.053, or 7.9%, as a result of higher selling prices,as well as an improved product mix.

 

*Cost of goods sold.* Cost of goods sold for the first quarter of fiscal 2009 was $48.1million, a decrease of $1.0 million, or 2.0%, as compared to the first quarterof fiscal 2008. The decrease was due largely to reduced sales volumeswhich result in reduced purchases of eggs and liquid eggs, as well as other rawmaterials in response to lower requirements.

 

*Operating expenses.* Operating expenses for the first quarter of fiscal 2009 were $4.5million, nearly unchanged compared to the first quarter of fiscal 2008.  Adecline in spending as a result of the withdrawal from retail markets and thetermination of the license agreement with Land O’ Lakes was offset by a chargeof $(.6) million resulting from the complete closure of the Millersburg, Ohiofacility, which had been previously impaired when operations were significantlycurtailed in response to a loss of the egg supply on favorable economic terms.

 

*Total other expense.* Total other expense for the first quarter offiscal 2009 was $0.4 million, a decrease of $(2.0) million from the prior yearperiod.  Interest expense declined $(1.0) million with $(0.5) million dueto the elimination of interest on the Land O’ Lakes subordinated noteeliminated in February 2008, with lower charges due to lower interestrates on the variable portion of the debt accounting for the majority of theremainder.  Other income increased $1.0 million due primarily to therefund of collateral on the interest rate derivative exited by the Company inthe quarter.

 

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

 

*Net Income*.  Operations for the first quarter ended November 30, 2008resulted in a loss of $(0.6) million, or a loss of ($0.11) per basic anddiluted members’ unit, as compared to a loss of $(2.7) million, or$(0.51) per basic and diluted members’ unit for the quarter ended November 30,2007.

 

TheCompany’s financial performance in the current quarter may not be indicative offuture quarters due to seasonal factors and volatility in both selling pricesand cost of materials purchased, as well as industry factors in an intenselycompetitive industry.

 

**Liquidity and Capital Resources**

 

TheCompany’s working capital at November 30, 2008 was $(53.1) millioncompared to $(54.0) million at August 31, 2008.   In both cases,amounts due under the credit agreements have been accelerated, as they areanticipated to be paid from the proceeds of the sale of substantially all ofthe Company’s assets, anticipated to close less than twelve months from the endof the prior fiscal year. In both periods, absent the acceleration, the Company’sworking capital would be positive.  TheCompany’s current ratio was 0.4 at November 30, 2008 compared to 0.5 at August 31,2008, also affected by the debt acceleration. Without the acceleration, in both periods the Company’s current ratiowould exceed 1.0.

 

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EffectiveAugust 29, 2008, the Company entered into an amendment to its creditagreements that provided for the resumption of principal payments on itsTranche A and Tranche B Term Loans, in the aggregate amount of $692,000 permonth, extended the termination date on a $2.5 million short term note to March 1,2009, extended the termination date of the revolving line of credit to March 1,2009, and required monthly deposits into an escrow account to be used forimprovements to the Thompson, Iowa waste water processing facility.  The payments are $200,000 for September 2008,October 2008 and November 2008 and $100,000 for December 2008.  All payments were made. The Company is alsorequired to maintain a minimum EBITDA of $1.0 million for each month through March 1,2009.  No events of default have beendeclared in the period ending November 30, 2008.  The Company is current on all interest andprincipal payments, including those to the trustee for the bonds.

 

Aspreviously reported, on December 15, 2008, the Company entered into adefinitive agreement to sell substantially all of its assets for $123.75million plus the assumption of certain liabilities, to be adjusted for workingcapital at close.  The transaction isanticipated to close within the first calendar quarter of 2009 subject toregulatory approvals and an affirmative vote of the Company’s unit holders.

 

TheCompany’s long-term debt at November 30, 2008, including currentmaturities, was $71.8 million compared to $73.9 million at August 31,2008. As of November 30, 2008, $14.7 million has been drawn against the$17.5 revolving line of credit, compared to $16.3 million as of August 31,2008. Substantially all trade receivables and inventories collateralize theCompany’s line of credit, and property, plant and equipment collateralize theCompany’s long-term debt under its credit agreement.

 

Netcash flow from operations was $1.4 million for the first quarter of fiscal2009 compared to $1.0 million in the first quarter of fiscal 2008. Principalpayments on long-term debt for the first quarter of fiscal 2009 were $2.1million and additions to fixed assets were $1.3 million.  There were nodistributions to unit holders during the first quarter of fiscal 2009.  Anadditional $0.3 million was added to restricted cash to provide for principaland interest payments on the 1999 and 2001 bonds due in January 2009 andan additional $0.6 million was deposited into the escrow account to fundimprovements at the Thompson, Iowa wastewater processing facility.

 

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**Critical Accounting Policies and Estimates**

 

Theabove discussion and analysis of our results of operations and financialcondition are based upon our consolidated condensed financial statements, whichhave been prepared in accordance with accounting principles generally acceptedin the United States. The preparation of these financial statements requiresmanagement to make estimates and judgments that affect the reported amounts ofassets, liabilities, revenues and expenses, and related disclosure ofcontingent assets and liabilities. These estimates form the basis for makingjudgments about the carrying values of assets and liabilities that are notreadily apparent from other sources. We base our estimates and judgments onhistorical experience and on various other assumptions that we believe arereasonable under the circumstances. However, future events may change and eventhe best estimates and judgments may require adjustment. For a completedescription of the Company’s significant accounting policies, please see Note 1to the consolidated financial statements in the Company’s Annual Report on Form 10-Kfor the year ended August 31, 2008. There have been no changes to criticalaccounting policies identified in our Annual Report on Form 10-K for theyear ended August 31, 2008.

 

**Impact of Recently Issued AccountingPronouncements**

 

Please refer to Item 7,“Management’s Discussion and Analysis of Financial Condition and Results ofOperations”, in our Annual Report form 10-K for the year ended August 31, 2008for a discussion of the impact of recently issued accounting pronouncements

 

  In December 2007, the FASB approved theissuance of SFAS No. 160, *Noncontrolling Interestsin Consolidated Financial Statements—an amendment**of**ARB No. 51*(“SFAS 160”). SFAS 160 will change the accounting and reporting for minorityinterests, which will now be termed *noncontrolling interests*.SFAS 160 requires noncontrolling interest to be presented as a separate componentof equity and requires the amount of net income attributable to the parent andto the noncontrolling interest to be separately identified on the consolidatedstatement of operations. SFAS 160 is effective for fiscal years beginning on orafter December 15, 2008. We do not expect adoption of SFAS 160 to have anyimpact on our consolidated financial position, results of operations or cashflows.

 

In December 2007, the FASBissued SFAS No. 141 (revised 2007), *Business Combinations*(“SFAS 141R”). SFAS 141R establishes the requirements for how an acquirerrecognizes and measures the identifiable assets acquired, the liabilitiesassumed, any noncontrolling interest in the acquiree and the goodwill acquired.SFAS 141R also establishes disclosure requirements for business combinations.SFAS 141R is effective for annual periods beginning after December 31, 2008 andshould be applied prospectively for all business combinations entered intoafter the date of adoption. SFAS 141R will have an impact on our accounting forbusiness combinations once adopted on December 15, 2008.

 

In March 2008, the FinancialAccounting Standards Board (“FASB”) issued FASB Statement No. 161, Disclosuresabout Derivative Instruments and Hedging Activities, an Amendment to FASBStatement No. 133. FAS 161 establishes the disclosure requirements forderivative instruments and hedging activities and expands the disclosurerequirements of statement 133. The effective date for financial statementsissued for fiscal years and interim periods beginning after November 15, 2008which for us begins with our 2010 fiscal year. Golden Oval is reviewing FASB161 but anticipates very little impact to the Company.

 

In April 2008,the FASB issued FASB Staff Position No. FAS 142-3, *“Determinationof the Useful Life of Intangible Assets”* (“FSP 142-3”). FSP 142-3amends the factors that should be considered in developing renewal or extensionassumptions used to determine the useful life of a recognized intangible assetunder FASB Statement No. 142, *“Goodwill and OtherIntangible Assets”* and requires enhanced disclosures relating to:(a) the entity's accounting policy on the treatment of costs incurred to renewor extend the term of a recognized intangible asset; (b) in the period ofacquisition or renewal, the weighted-average period prior to the next renewalor extension (both explicit and implicit), by major intangible asset class and(c) for an entity that capitalizes renewal or extension costs, the total amountof costs incurred in the period to renew or extend the term of a recognizedintangible asset for each period for which a statement of financial position ispresented, by major intangible asset class. FSP 142-3 must be appliedprospectively to all intangible assets acquired as of and subsequent to fiscalyears beginning after December 15, 2008, and interim periods within thosefiscal years. Early adoption is prohibited. We are currently evaluating theimpact that FAS No. 142-3 will have on our financial statements.

 

The FASB issued two newstatements in May 2008, FASB Statement No. 162, The Hierarchy of GenerallyAccepted Accounting Principles and FASB Statements No. 163, Accounting forFinancial Guaranty Insurance Contract, an interpretation of FASB 60. FASB 162identifies sources of accounting principles and establishes a hierarchy ofaccounting principles to be used in preparation of financial statements inconformity with GAAP for non governmental entities. FASB 162 is effective 60days following SEC approval of Public Company Accounting Oversight Board(PCAOB) amendments to AU section 411. The Company does not anticipate anyimpact with the enactment of FASB 162. FASB 163 clarifies the recognition andmeasurement of claim liabilities in an insured financial obligation byinsurance enterprises. FASB 163 is not applicable to the Company.

 

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**Item 3.Quantitative and Qualitative Disclosures About Market Risk**

 

Therehave been no material changes in the market risk reported in the Company’sAnnual Report on Form 10-K for the fiscal year ended August 31, 2006.

 

**Item 4.Controls and Procedures**

 

**Evaluation of Disclosure Controls and Procedures**

 

TheCompany’s Chief Executive Officer, Dana Persson, and Chief Financial Officer,Thomas A. Powell, have reviewed the Company’s disclosure controls andprocedures as of the end of the period covered by this report. Based upon thisreview, they have concluded that there is a continuing deficiency in theCompany’s disclosure controls and procedures as described in Part II, Item9A “Controls and Procedures” of the Company’s Annual Report on Form 10-Kfor the year ended August 31, 2008.  As a result of this deficiency,the Company’s filing of this Quarterly Report on Form 10-Q was nottimely.  As of December 15, 2008, the Company has entered into adefinitive agreement to sell substantially all of the Company’s assets to anon-reporting Company, and has chosen to devote its limited resources to thepreparation of a proxy for a unit holder vote currently anticipated to takeplace in the second quarter of fiscal 2009.

 

**Changes in Internal Control over Financial Reporting**

 

Therehave been no changes in internal control over financial reporting that occurredduring the fiscal quarter covered by this report that have materially affected,or are reasonably likely to materially affect, the Company’s internal controlover financial reporting.

 

**PART II.     OTHER INFORMATION**

 

**Item 1.Legal Proceedings**

 

Please refer to Part I, Item 3 of the Company’s Annual Report on Form10-K for the year ended August 31, 2008 for a discussion of certain legalmatters related to the Company.

 

**Item 1A.Risk Factors**

 

As of the date of this filing, there have been no material changes inthe risk factors described in Part I, Item 1A of the Company’s Annual Report onForm 10-K for the year ended August 31, 2008. Readers are urged to consider that information when analyzing the materialcontained in this report.

 

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

 

None.

 

**Item 3.Defaults Upon Senior Securities**

 

None.

 

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

 

None.

 

**Item 5.Other Information**

 

None.

 

**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. |
|             |       |                                                                                                                                             |
| 32               |       | Certification  of the Chief Executive Officer and Chief Financial Officer pursuant to 18  U.S.C. Section 1350                               |

 

**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 
|                               | GOLDEN  OVAL EGGS, 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:   January 20, 2009 |                                           |   |

 

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