**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-Q**

**x** QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**For the quarterly period ended February 28,2007;**

**OR**

**o** TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**for the transition period from        TO       **

**Golden Oval Eggs, LLC**

(Exact name ofregistrant as specified in its charter)

| **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’stelephone number, including area code)

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant was requiredto file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

Yes x Noo

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer or a non-accelerated filer. Seedefinition of “accelerated filer” and “large accelerated filer” inRule 12b-2 of the Exchange Act.
| Large Accelerated  Filer  o |   | Accelerated Filer o |   | Non-Accelerated Filer x |
|----------------------------------|--------|---------------------|--------|-------------------------|

 

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

Yes o  No x

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

Yes o  No x

As of February 28, 2007, there were 4,721,527 of theCompany’s Class A Units and 697,350 of the Company’s Class B Unitsissued and outstanding.

 

 

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**TABLEOF CONTENTS**

Golden Oval Eggs, LLC

Form 10-Q

For The Quarter EndedFebruary 28, 2007
| 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 |       | 7        |
| 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. CondensedFinancial Statements**

**GOLDENOVAL EGGS, LLC**

**Consolidated Condensed Balance Sheets**

**February28, 2007 and August 31, 2006**

**(In Thousands)**

(Unaudited)
| ** **                                | ** ** | **February 28,  2007** | ** ** | **August 31,  2006** | ** ** |
|-------------------------------------------|------------|-----------------------------|------------|---------------------------|------------|
| Assets                                    |       |                        |       |                      |       |
| Current assets                            |       |                        |       |                      |       |
| Cash and cash  equivalents                |       | $                           | 220        |                      | $          | 222 |   |
| Accounts  receivable                      |       | 17,223                      |       | 14,854                    |       |
| Inventories                               |       | 16,960                      |       | 16,005                    |       |
| Restricted cash                           |       | 1,141                       |       | 779                       |       |
| Other current  assets                     |       | 876                         |       | 1,076                     |       |
| Total current assets                      |       | 36,420                      |       | 32,936                    |       |
|                                      |       |                        |       |                      |       |
| Property, plant and  equipment            |       |                        |       |                      |       |
|                                      |       |                        |       |                      |       |
| Land and land  improvements               |       | 11,642                      |       | 11,553                    |       |
| Buildings                                 |       | 40,673                      |       | 40,669                    |       |
| Leasehold  improvements                   |       | 864                         |       | 860                       |       |
| Equipment                                 |       | 72,769                      |       | 72,312                    |       |
| Construction in  progress                 |       | 205                         |       | 57                        |       |
|                                      |       | 126,153                     |       | 125,451                   |       |
| Accumulated  depreciation                 |       | (51,423                     | )          | (45,622                   | )          |
| Total property, plant  and equipment, net |       | 74,730                      |       | 79,829                    |       |
|                                      |       |                        |       |                      |       |
| Other assets                              |       |                        |       |                      |       |
| Investments                               |       | 1,567                       |       | 1,576                     |       |
| Intangible  assets, net                   |       | 19,775                      |       | 20,724                    |       |
| Goodwill                                  |       | 22,858                      |       | 22,858                    |       |
| Note receivable                           |       | 136                         |       | 77                        |       |
| Total other assets                        |       | 44,336                      |       | 45,235                    |       |
|                                      |       |                        |       |                      |       |
| Total assets                              |       | $                           | 155,486    |                      | $          | 158,000 |   |

 

Seeaccompanying notes to consolidated condensed financial statements

 

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| ** **                                        | ** ** | **February 28,  2007** | ** ** | **August 31,  2006** | ** ** |
|---------------------------------------------------|------------|-----------------------------|------------|---------------------------|------------|
| Liabilities and Members’ Equity              |       |                        |       |                      |       |
| Current  liabilities                              |       |                        |       |                      |       |
| Revolving line of credit                          |       | $                           | 9,509      |                      | $          | 3,869 |   |
| Accounts payable                                  |       | 10,770                      |       | 7,665                     |       |
| Accrued interest                                  |       | 1,915                       |       | 812                       |       |
| Accrued compensation                              |       | 1,531                       |       | 1,485                     |       |
| Other current liabilities                         |       | 2,931                       |       | 2,877                     |       |
| Current maturities of long-term debt              |       | 9,461                       |       | 9,461                     |       |
| Total current  liabilities                        |       | 36,117                      |       | 26,169                    |       |
|                                              |       |                        |       |                      |       |
| Long-term debt,  less current maturities          |       | 89,995                      |       | 94,257                    |       |
|                                              |       |                        |       |                      |       |
| Members’ equity                              |       |                        |       |                      |       |
| Members’ equity                              |       | 28,434                      |       | 36,701                    |       |
| Non-controlling interest in consolidated entities |       | 940                         |       | 873                       |       |
| Total members’  equity                       |       | 29,374                      |       | 37,574                    |       |
| Total liabilities and  members’ equity       |       | $                           | 155,486    |                      | $          | 158,000 |   |

 

See accompanying notes to consolidated condensedfinancial statements

 

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**GOLDENOVAL EGGS, LLC**

**ConsolidatedCondensed Statements of Operations**

**For thePeriods Ended February 28, 2007 and 2006**

**(In Thousands, except per unit data)**

**(Unaudited)**
| ** **                                                   | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                   | ** ** | **February 28,**            | ** ** | **February 28,**          | ** ** | **February 28,** | ** ** | **February 28,** | ** ** |
| ** **                                                   | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Net sales                                                    |       | $                                | 45,446     |                           | $          | 19,082 |   | $ | 94,063 |   | $ | 38,115 |   |
|                                                         |       |                             |       |                           |       |   |   |   |   |
| Cost of goods  sold                                          |       | 42,581                           |       | 15,812                         |       | 86,976 |   | 30,995 |   |
|                                                         |       |                             |       |                           |       |   |   |   |   |
| Gross profit                                                 |       | 2,865                            |       | 3,270                          |       | 7,087 |   | 7,120 |   |
|                                                         |       |                             |       |                           |       |   |   |   |   |
| Operating  expenses                                          |       | 5,890                            |       | 2,118                          |       | 11,072 |   | 4,234 |   |
|                                                         |       |                             |       |                           |       |   |   |   |   |
| Income from  operations                                      |       | (3,025                           | )          | 1,152                          |       | (3,985 | ) | 2,886 |   |
|                                                         |       |                             |       |                           |       |   |   |   |   |
| Other income  (expense)                                      |       |                             |       |                           |       |   |   |   |   |
| Interest expense                                             |       | (2,242                           | )          | (717                           | )          | (4,964 | ) | (1,224 | ) |
| Non-controlling  interest in income of consolidated entities |       | —                           |       | (26                            | )          | (62 | ) | (21 | ) |
| Other income                                                 |       | 518                              |       | 136                            |       | 598 |   | 487 |   |
| Total other  expense                                         |       | (1,724                           | )          | (607                           | )          | (4,428 | ) | (758 | ) |
|                                                         |       |                             |       |                           |       |   |   |   |   |
| Net income                                                   |       | $                                | (4,749     | )                              | $          | 545 |   | $ | (8,413 | ) | $ | 2,128 |   |
|                                                         |       |                             |       |                           |       |   |   |   |   |
| Weighted average  Members’ units outstanding            |       | 5,419                            |       | 4,689                          |       | 5,419 |   | 4,689 |   |
|                                                         |       |                             |       |                           |       |   |   |   |   |
| Net income per  Members’ unit, basic and diluted        |       | $                                | (0.88      | )                              | $          | 0.12 |   | $ | (1.55 | ) | $ | 0.45 |   |
|                                                         |       |                             |       |                           |       |   |   |   |   |
| Distributions per unit                                       |       | $                                | —     |                           | $          | — |   | $ | — |   | $ | — |   |

 

See accompanying notes to consolidated condensedfinancial statements

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**GOLDENOVAL EGGS, LLC**

**Consolidated Condensed Statements ofCash Flows****For the Periods Ended February 28, 2007 and2006**

(In Thousands)(Unaudited)
| ** **                                                                               | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                               | ** ** | **February 28,**          | ** ** | **February 28,** | ** ** |
| ** **                                                                               | ** ** | **2007**                       | ** ** | **2006** | ** ** |
| Cash flows from  operating activities                                                    |       |                           |       |   |   |
| Net income                                                                               |       | $                              | (8,413     | ) | $ | 2,128 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities        |       |                           |       |   |   |
| Depreciation                                                                             |       | 5,813                          |       | 3,704 |   |
| Amortization                                                                             |       | 949                            |       | 109 |   |
| Gain on sale of property, plant & equipment                                     |       | 1                              |       | (9 | ) |
| Non-controlling interest in income of consolidated  entities, net of distributions       |       | —                         |       | 6 |   |
| Changes in operating assets and liabilities                                              |       |                           |       |   |   |
| Accounts receivable                                                                      |       | (2,369                         | )          | (676 | ) |
| Inventories                                                                              |       | (955                           | )          | (449 | ) |
| Other current assets                                                                     |       | 200                            |       | 96 |   |
| Accounts payable                                                                         |       | 3,105                          |       | (867 | ) |
| Accruals and other current liabilities                                                   |       | 1,349                          |       | (98 | ) |
| Minority interest                                                                        |       | 67                             |       | — |   |
| Net cash  provided by operating activities                                               |       | (253                           | )          | 3,944 |   |
|                                                                                     |       |                           |       |   |   |
| Cash flows from  investing activities                                                    |       |                           |       |   |   |
| Purchases of property, plant and equipment                                               |       | (716                           | )          | (1,955 | ) |
| Proceeds from sale of property, plant and equipment                                      |       | 1                              |       | 22 |   |
| Advance of note receivable                                                               |       | (59                            | )          | (40 | ) |
| Retirement of investment in other cooperatives                                           |       | 9                              |       | 38 |   |
| Net cash used by  investing activities                                                   |       | (765                           | )          | (1,935 | ) |
|                                                                                     |       |                           |       |   |   |
| Cash flows from  financing activities                                                    |       |                           |       |   |   |
| Proceeds from issuance of long term debt                                                 |       | —                         |       | 3,000 |   |
| Net increase in revolving line of credit                                                 |       | 5,640                          |       | (2,650 | ) |
| Payments of long-term debt                                                               |       | (4,262                         | )          | (1,593 | ) |
| Decrease (increase) in restricted cash                                                   |       | (362                           | )          | (326 | ) |
| Net cash  provided (used) by financing activities                                        |       | 1,016                          |       | (1,569 | ) |
| Net increase  (decrease) in cash and cash equivalents                                    |       | (2                             | )          | 440 |   |
| Cash and cash  equivalents - beginning of period                                         |       | 222                            |       | 690 |   |
| Cash and cash  equivalents - end of period                                               |       | $                              | 220        |   | $ | 1,130 |   |
|                                                                                     |       |                           |       |   |   |
| Supplementary  disclosures of cash flow information                                      |       |                           |       |   |   |
| Cash paid during the period for:                                                         |       |                           |       |   |   |
| Interest, net of capitalized interest of $40 and $56  during 2007 and 2006, respectively |       | $                              | 3,970      |   | $ | 1,994 |   |
| Supplementary  disclosures of non-cash transactions                                      |       |                           |       |   |   |
| Class A units  issued as payment of accrued officer bonus                                |       | $                              | 146        |   | 649 |   |

 

See accompanying notes to consolidated condensedfinancial statements

 

 

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**GOLDENOVAL EGGS, LLC**

**Notes toConsolidated Condensed Financial Statements**

**February28, 2007 and August 31, 2006**

**(InThousands Except Unit Data)**

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

2. Basisof Presentation  The accompanying consolidated condensed balance sheetas of August 31, 2006, which has been derived from audited consolidatedfinancial statements, and the unaudited interim consolidated condensedfinancial statements at February 28, 2007 and for the three-month periods endedFebruary 28, 2007 and 2006 of the Company have been prepared in accordance withgenerally accepted accounting principles for interim financial reporting andSecurities and Exchange Commission rules and regulations.  Certaininformation normally included in financial statements and related footnotesprepared in accordance with generally accepted accounting principles has beencondensed or omitted pursuant to the rules and regulations of the Securitiesand Exchange Commission.  The consolidated condensed financial statementsreflect all adjustments (consisting only of normal recurring adjustments) whichare, in the opinion of management, necessary for a fair presentation of thefinancial position and operating results for the interim periods presented.These consolidated condensed financial statements should be read in conjunctionwith Management’s Discussion and Analysis of Financial Condition and theconsolidated financial statements and notes thereto included in the Company’sAnnual Report on Form 10-K for the year ended August 31, 2006. The resultsof operations for the period ended February 28, 2007 are not necessarilyindicative of results to be expected for any other interim period or for theentire year.

3. Inventories   Pullet and layer heninventories are stated at the cost of production, which includes the costs ofthe chicks, feed, overhead and labor. Layer hen flock costs are capitalized tothe point at which the pullet goes into production and are amortized over theproductive lives of the flocks, generally 18 to 24 months. Feed, supplies andliquid egg inventories are stated at the lower of cost (first-in, first-out) ormarket. Inventories consisted of the following:
| ** **                | ** ** | **February 28,  2007** | ** ** | **August 31,  2006** | ** ** |
|---------------------------|------------|-----------------------------|------------|---------------------------|------------|
| Hens and pullets          |       | $                           | 10,306     |                      | $          | 10,050 |   |
| Eggs and egg products     |       | 4,151                       |       | 3,409                     |       |
| Feed, supplies and  other |       | 2,503                       |       | 2,546                     |       |
| Total inventories         |       | $                           | 16,960     |                      | $          | 16,005 |   |

 

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4. Stock BasedCompensation   The Company has bonus and compensation plans in placefor Management.  Under these agreementsManagement may receive up to 50% of certain performance bonuses in the form ofClass A Units.  The Company accrues forManagement bonuses during the year based upon the estimated amount that will beearned by year-end.  Upon approval by theBoard of Managers the bonuses are paid to Management.  The number of units to be issued is basedupon the higher of the book or market value of the Class A Units at the timethe bonus is awarded.  For the six monthsended February 28, 2007 and 2006, a total of 20,895 and 107,203 units wereissued to Management at a per unit value of $7.63 and $6.05, respectively.  This resulted in a reduction to the accruedliability for compensation expense and issuance of additional shares.

The units arenontransferable and subject to forfeiture ratably over the following threeyears.  The employee must be employed onthe anniversary date of issuance to avoid forfeiture.   In the event that termination of theemployee occurs the Company will record any forfeiture of units as a contra tocompensation expense.  For the six monthsended February 28, 2007 and 2006 there were forfeitures of 2,045 and 0 unitsresulting in a reduction of compensation expense of $13 and $0, respectively.

The members of the Boardof Managers are granted 2,000 Class A Units for each year served on the boardfollowing each year of service.  TheCompany recognizes compensation expense for these awards based upon the fairvalue on the date they are granted.  Forthe six months ended February 28, 2007 and 2006 a total of 0 and 14,000 unitswere awarded resulting in $0 and $98 compensation expense, respectively.

TheFinancial Accounting Standards Board (“FASB”) issued SFAS No. 123R “Share-BasedPayment,” as amended, which revised SFAS No. 123, “Accounting for Stock-BasedCompensation” and superseded Accounting Principles Bulletin (“APB”) Opinion No.25, “Accounting for Stock Issued to Employees.”  This statementestablishes standards for accounting for transactions in which an entityexchanges its equity instruments for goods or services.  It also addressestransactions in which an entity incurs liabilities in exchange for goods orservices that are based on the fair value of the entity’s equity instruments orthat may be settled by the issuance of those equity instruments.  Thisstatement is effective for public entities as of the beginning of the firstinterim or annual reporting period that begins after June 15, 2005.  Forthe Company, SFAS No. 123R was effective for the reporting period beginningSeptember 1, 2006.  The adoption of SFAS No. 123R did not have a materialimpact on the results of operations of the Company.

5. Use of Estimates   The preparation ofconsolidated condensed financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and the disclosure of contingent assets andliabilities at the date of the consolidated condensed financial statements andthe reported amounts of revenues and expenses during the reporting period.Actual results could differ materially from those estimates.

6. Intangibles andGoodwill   On June 30, 2006, the Company completed the MoArkAcquisition.  The purchase price consisted of $38,000 paid in cash, theissuance by the Company of a $17,000 promissory note, and $5,000 paid by theissuance of 697,350 newly-created Class B Units. Also on June 30,2006, the Company entered into an amended and restated credit agreement, asdescribed in Liquidity and Capital Resources.  The Company has allocatedthe purchase price in accordance with SFAS 141 “Business Combinations” andrecorded $19,000 of intangible assets to be amortized over the relevant life ofthe underlying assets, and $22,800 in goodwill that is not amortized, but willbe tested at least annually for impairment under SFAS 142, “Goodwill and OtherIntangible Assets.”  During the quarter ended February 28, 2007, weconsidered whether an event had occurred or circumstances had changed that morelikely than not would reduce the fair value of the Company below its carryingamount. Examples of such events or circumstances include:

a.                                       Asignificant adverse change in legal factors or in the business climate;

b.                                      Anadverse action or assessment by a regulator;

c.                                       Unanticipatedcompetition;

d.                                      Aloss of key personnel; or

e.                                       Amore-likely-than-not expectation that a significant portion of the Company willbe sold or otherwise disposed of.

After such consideration,Management concluded that circumstances and events did not indicate that aninterim test of goodwill recoverability was required.

7. LegalProceedings   Subsequent to the endof the current reporting period, the Attorney General of Iowa has filed suit inrelation to the Thompson, Iowa wastewater facility.  Please refer to Item 1. Legal Proceedingsunder Part II. of this filing for a fuller description of the matter.

 

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

**Forward-Looking Statements**

This Management’s Discussion and Analysis of FinancialCondition and Results of Operations contains, in addition to historicalinformation, forward-looking statements that are based on current expectations,beliefs, intentions or future strategies of the management of Golden Oval Eggs,LLC (“we”, “us”, “our”, or the “Company”). When used in this Management’sDiscussion and Analysis of Financial Condition and Results of Operations orelsewhere in this Quarterly Report on Form 10-Q, the words “believe,” “expect,”“anticipate,” “will,” “estimate” and similar verbs or expressions are intendedto identify such forward-looking statements.  If our management’sassumptions prove incorrect or should unanticipated circumstances arise, ouractual results could differ materially from those anticipated. Thesedifferences could be caused by a number of factors or combination of factorsincluding, but not limited to, those factors described in Part I, Item 1A. “RiskFactors” section of the Company’s Annual Report on Form 10-K for theyear ended August 31, 2006, as well as those identified in other filingswith the Securities and Exchange Commission.  Readers are strongly urgedto consider such factors when evaluating any forward-looking statement. TheCompany undertakes no obligation to update any forward-looking statements toreflect future events or developments.

The following is a discussion and analysis of ourfinancial condition and results of operations as of and for the three monthperiods ended February 28, 2007 and 2006. This section should be read inconjunction with the condensed financial statements and related notes in Item 1of this Quarterly Report and our Annual Report on Form 10-K for the year endedAugust 31, 2006.

**Summary**

Golden Oval Eggs, LLC is a Delaware limited liabilitycompany, primarily engaged in the business of producing, processing, marketingand distributing egg products. The Company operates seven production facilitiesin the United States.  On June 30, 2006, the Company closed its previouslyannounced acquisition of certain asset of MoArk, LLC and its subsidiariesrelating to the business of manufacturing, marketing, selling and distributingliquid egg products, as more fully described in the Company’s Annual Report onForm 10-K for the year ended August 31, 2006.  With the completion of theMoArk Acquisition, the Company moved into the further processed egg business.

 The Company produces a wide range of eggproducts, from unpasteurized liquid eggs, further processed egg products forother food manufacturers, and finished goods for sale to retailers and foodservice customers.  Products are sold to other food manufacturers,restaurants, supermarkets and foodservice distributors.

The Company produces less than half of its annualneeds from eggs produced at layer barns at the Company’s Renville, Minnesotaand Thompson, Iowa facilities.  The remainder is satisfied from purchasesof eggs or liquid product in market based transactions.

The Company’s operating income or loss is materiallyaffected by wholesale liquid egg prices and pricing of further processedproducts, each of which can fluctuate widely and are outside of the Company’scontrol. Liquid eggs are a commodity product and prices fluctuate in responseto supply/demand factors. The Company also sells a portion of its productsunder contracts at non-market prices. Depending upon market circumstances, theprices generated by the Company’s non-market volume tend to be less or morethan what the prevailing open market prices would generate.

The Company’s cost of production is materiallyaffected by feed, purchased egg and liquid egg costs, which averagedapproximately 48% of the Company’s total costs in the first two quarters offiscal year 2007.  As a result of the MoArk acquisition on June 30, 2006,feed by itself has dropped from 36% of sales for the quarter ended February 28,2006, to 16% for the quarter ending February 28, 2007, reducing direct exposureto volatile corn and soybean markets. Agricultural commodity prices influencepurchased eggs and open market liquid egg prices although not necessarily inthe same direction at the same time.

 

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**Results of Operations**

Results of Operations —Second Quarter Fiscal Year 2007 Compared to Second Quarter Fiscal Year 2006

*Net Sales*               Net sales for the second quarterof fiscal 2007 were $45.4 million, an increase of $26.4 million, or 138% overthe second quarter of the prior fiscal year. More than 90% of the increase, or $24.0 million, is due to the inclusionof results from operations acquired in the MoArk acquisition, which wascompleted on June 30, 2006, in the fourth quarter of fiscal 2006.  The remainder of the increase or $2.4 millionis due to higher average selling prices for liquid eggs at the Company’sRenville, Minnesota and Thompson, Iowa facilities, and an increase in salesresulting from higher feed costs from the Company’s interest in United Mills,which is consolidated in the financial statements, with each contributingapproximately half of the remaining increase. Pounds sold in the second quarter of fiscal 2007 were 91.3 million, anincrease of 37.6 million, or 70% over the same period year ago.  Pounds from the facilities acquired fromMoArk accounted for all of the increase, offsetting a 6% decline in productionfrom the Renville and Thompson facilities caused by decreased flock sizesassociated with an increase in the space allotted to each bird in compliancewith animal care guidelines promulgated by industry groups.  The average selling price per pound for thequarter increased from $0.327 to $0.468, an increase of $0.141, or 43.1% overthe prior year same period, with $0.117 due to the inclusion of furtherprocessed products which command a higher selling price per pound in themarketplace, as well as overall strengthening in liquid whole egg prices, whichaccounted for $0.024 of the increase at the Renville and Thompson locations.

*Cost of Goods Sold            * Cost of goodssold for the second quarter of fiscal 2007 was $42.6 million, an increase of$26.8 or 169% of the figure for the second quarter of fiscal 2006.  The majority of the increase was associatedwith the acquired businesses. Significant unit cost increases in purchased materials, such as feed andeggs, were experienced, resulting in costs growing faster than revenues for theperiod, resulting in a decline in gross profit from $3.3 million in the quarterending February 28, 2006 to $$2.9 million in the current quarter, a decline of$(0.4) million, or 12%..  Feed pricesrose by more than 30% per ton, driven by higher corn and soybean mealcosts.  The impact of higher feed costsat the Renville and Thompson facilities was $(1.8) million for the quarter. Inthe acquired businesses, two factors had a negative impact on results.  First, prices for carton eggs rose to veryhigh levels, and with them, the cost of eggs purchased for breaking as eggswere diverted to supermarkets and other users of carton eggs.  Secondly, the value of the liquid eggs didnot move simultaneously higher thereby substantially reducing or eliminatingthe margin to cover the costs of converting the eggs into liquid.  The acquired facilities typically capturedthis margin to break an egg before adding value, and as this margin shrank,results in the acquired facilities were adversely affected.  The decline in gross profit as a result ofthe cost pressures effectively accounted for the loss for the period.

*Operating Expenses*            Operating expenses for thesecond quarter of fiscal 2007 were $5.9 million, an increase of $3.8 million,or 178%, from the second quarter of fiscal 2006.  As was the case in the first quarter, theincrease is primarily due to additional sales, management and administrativeexpenses associated with the MoArk acquisition, as the majority of theemployees of the acquired facilities became Golden Oval employees.  Additionally, marketing expenses, includingthe Land O’ Lakes licensed products test market costs, are incremental in thecurrent period. Amortization of intangible assets and deferred financing costsassociated with the MoArk Acquisition accounted for $0.4 million for theperiod.  Operating expenses increased asa percent of net sales from 11.1% to 13.0%.

*Total Other Expense*Total other expense increased from $0.6 million to $1.7 million, an increase of$1.1 million for the period.  Interestexpenses on higher debt levels associated with the acquisition accounted for$1.5 million, offset $0.4 million favorable other income, primarily from thesale of litter.

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

*Net Income* Netincome for the quarter ended February 28, 2007 resulted in a loss of $(4.7)million, or $(0.88) per basic and diluted members’ unit, as compared to aprofit of $0.5 million, or $0.12 per unit for the same period a year ago.

 

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Results of Operations —Six Months ended February 28, 2007 Compared to Six Months ended February 28,2006

*Net Sales*               Net sales for the first half offiscal 2007 were $94.1 million, an increase of $55.9 million, an increase of147% over the sales of the first half of the prior fiscal year.  More than 94% of the increase is due to theinclusion of results from operations acquired in the MoArk acquisition, whichwas completed on June 30, 2006, in the fourth quarter of fiscal 2006.  The balance is due to higher average sellingprices for liquid eggs at the Company’s Renville, Minnesota and Thompson, Iowafacilities, $1.3 million, and an increase in sales resulting from higher feedcosts from the Company’s interest in United Mills, which is consolidated in thefinancial statements, for $2.2 million. Pounds sold in the first half were 198.5 million, an increase of 93.2million, or 89% over the same period year ago. Pounds from the acquired facilities accounted for all of the increase,more than offsetting a 1% decline in the Renville and Thompson facilitiescaused by increasing the space allotted to each bird in compliance with animalcare guidelines promulgated by industry groups. The average selling price per pound for the half increased from $0.335to $0.448, an increase of $0.114, or 34% over the prior year same period, withvirtually all of the increase due to the inclusion of further processedproducts which command a higher selling price per pound in the marketplace. Forthe first half of fiscal 2007, average selling prices at the Renville andThompson locations rose just under 4% compared to the prior year period.

*Cost of Goods Sold*             Cost of goods sold for thefirst half of fiscal 2007 was $87.0 million, an increase of $56.0 million or181% of the figure for the first half of fiscal 2006 and nearly exactly thesame amount that sales increased, resulting in essentially the same grossprofit on increased sales.  The majorityof the increase was associated with the acquired businesses.  As occurred in the second quarter, significantunfavorable cost pressures were experienced in the period.  Feed prices rose by more than 25% per ton,driven by higher corn and soybean meal costs. The impact at the Renville and Thompson facilities was $(3.4) millionfor the half.  In the acquiredbusinesses, two factors had a negative impact on results. First, prices forcarton eggs rose to very high levels, and with them, the cost of eggs purchasedfor breaking as eggs were diverted to supermarkets and other users of cartoneggs.  Secondly, the value of the liquideggs did not move simultaneously higher thereby substantially reducing oreliminating the margin to cover the costs of converting the eggs intoliquid.  The acquired facilitiestypically captured this margin to break an egg before adding value, and as thismargin shrank, results in the acquired facilities were adversely affected.  The decline in gross profit as a result ofthe cost pressures effectively accounted for the loss for the period.

*Operating Expenses           * Operatingexpenses for the first half of fiscal 2007 were $11.1 million, an increase of$6.8 million, or 161%, from the first half of fiscal 2006.  As was the case in the first quarter, theincrease is primarily due to additional sales, management and administrativeexpenses associated with the MoArk Acquisition, as the majority of theemployees of the acquired facilities became Golden Oval employees.  Additionally, marketing expenses, includingthe Land O’ Lakes licensed products test market costs, are incremental in thecurrent period. Amortization of intangible assets and deferred financing costsassociated with the MoArk Acquisition accounted for $0.8 million for theperiod.  Operating expenses increased asa percent of net sales from 11.1% to 11.8%.

*Total Other Expense          * Total otherexpense increased from $0.8 million to $4.4 million, an increase of $3.7million for the period.  Interestexpenses on higher debt levels associated with the acquisition accounted forthe entire $3.7 million.

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

*Net Income* Netincome for the six months ended February 28, 2007 resulted in a loss of $(8.4)million, or $(1.55) per basic and diluted members’ unit, as compared to aprofit of $2.1 million, or $0.45 per unit for the same period a year ago.

 

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**Liquidity and Capital Resources**

TheCompany’s working capital at February 28, 2007 was $0.3 million compared to$6.8 million at August 31, 2006.   The Company’s current ratio was1.01 at February 28, 2007 compared to 1.26 at August 31, 2006. On June 30,2006, the Company entered into an amended and restated credit agreement withCoBank ACB and the Metropolitan Life Insurance Company.  The amended andrestated credit agreement provides for a $93.0 million line of credit,consisting of a $15.0 million revolving note that terminates on April 30, 2007and $78.0 million in term notes due beginning in 2014. The amended and restatedcredit agreement provided $38.0 million in new debt to finance the MoArkacquisition and amended certain restrictive covenants contained in the prioragreement, as amended.  The Company is current on all interest andprincipal payments although it did not meet certain restrictive covenantsregarding current ratio, working capital, leverage and fixed cost coverage forthe quarter ending November 30, 2006.  The Company requested waiversrelating to the current ratio, working capital, leverage, and fixed chargecoverage covenants and received waivers effective as of November 30, 2006. At the written request of the Company, the revolving note commitment may berenewed for any number of successive one-year periods in the sole discretion ofthe revolving note lenders, in which case the termination date shall beextended for a period corresponding to each such renewal, if any. In January2007, the Company requested a renewal of the revolving note.

Whilethe Company has collateral in excess of the cap used to determine availabilityon the revolving loan portion of its facility, the Company may requiresignificant additional capital resources in order to proceed with potentialfuture expansions or to otherwise respond to competitive pressures in theindustry.   In addition, the Company may seek additional capital froman offering of our equity securities or by incurring additional indebtedness,or both.  No assurance can be given that additional working capital willbe obtained in an amount that is sufficient for the Company’s needs, in atimely manner or on terms and conditions acceptable to the Companyor its members.  The Company’s financing needs are basedupon management estimates as to future revenue and expense. Our business planand our financing needs are also subject to change based upon, among otherfactors, market and industry conditions, our ability to increase cashflow from operations and our ability to control costs and expenses.  Ourefforts to raise additional funds from the sale of equity may be hamperedby the fact that our securities are illiquid and are subject to restrictionson transfer. Our efforts to raise additional funds from incurringadditional indebtedness may be hampered by the fact that the Company hassignificant outstanding indebtedness and all of the Company’s assetsare pledged to its lenders to secure existing debt.

The Company’s long-term debt at February 28, 2007,including current maturities, was $99.5 million compared to$103.7 million at August 31, 2006. As of February 28, 2007, $9.5million has been drawn against the $15.0 revolving line of credit, compared to $3.9million as of August 31, 2006. Substantially all trade receivables andinventories collateralize the Company’s line of credit and property, plant andequipment collateralize the Company’s long-term debt under its credit agreementand the note issued to Land O’Lakes, Inc.  The Company is required bycertain provisions of its credit agreements to maintain (1) a minimumtangible net worth of not less than $28.8 million plus 40% of earningsplus 100% of equity contributed after September 1, 2005; (2) a minimumcurrent ratio of not less than 1.25 to 1.0; (3) working capital of no lessthan $7.0 million; (4) a leverage ratio of less than 6.50 to 1.0;(5) a fixed charge coverage ratio no less than 1.00 to 1; and have acertain amount of product under contracts based on the current ratio of theCompany. In addition, these provisions restrict the Company’s ability to makedistributions, create liens, incur indebtedness and sell assets and properties.The Company requested waivers relating to the current ratio, working capital,leverage, and fixed charge coverage covenants and received waivers effective asof November 30, 2006.

With respect the improvements that will be required tothe Thompson, Iowa wastewater system (see Part II, Item 1 “Legal Proceedings”),the Company is currently estimating the cost of these improvements.  Management does not believe the cost of theseimprovements will adversely impact the liquidity or capital resources of theCompany.

 

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Net cash flow from operations was $(0.3) millionfor the first two quarters of fiscal 2007 compared to $3.9 million in the firsthalf of fiscal 2006. Principal payments on long-term debt were $4.3 million andadditions to fixed assets were $0.7 million.  There were no distributionsto unit holders during the first two quarters of fiscal 2007.  Anadditional $0.4 million was added to restricted cash to provide for theprincipal payment on the 1999 and 2001 bonds due in July 2007.  EffectiveSeptember 1, 2006, we issued 20,895 Class A units to pay $.2 millionin management bonuses. The management bonuses were earned and accrued duringfiscal year 2006. On April 1, 2006, 14,000 Class A Units were issuedto pay $0.1 million in Board of Directors compensation. The Board of Director’scompensation was earned and accrued during fiscal years 2005 and 2006.

**Critical Accounting Policies andEstimates**

The above discussion and analysis of our results ofoperations and financial condition are based upon our consolidated condensedfinancial statements, which have been prepared in accordance with accountingprinciples generally accepted in the United States. The preparation of thesefinancial statements requires management to make estimates and judgments thataffect the reported amounts of assets, liabilities, revenues and expenses, andrelated disclosure of contingent assets and liabilities. These estimates formthe basis for making judgments about the carrying values of assets andliabilities that are not readily apparent from other sources. We base ourestimates and judgments on historical experience and on various otherassumptions that we believe are reasonable under the circumstances. However,future events may change and even the best estimates and judgments may requireadjustment. For a complete description of the Company’s significant accountingpolicies, please see Note 1 to the consolidated financial statements in theCompany’s Annual Report on Form 10-K for the year ended August 31,2006. There have been no changes to critical accounting policies identified inour Annual Report on Form 10-K for the year ended August 31, 2006.

**Impact of Recently Issued AccountingPronouncements**

Please refer to Item 7, “Management’s Discussion andAnalysis of Financial Condition and Results of Operations”, in our AnnualReport form 10-K for the year ended August 31, 2006 for a discussion ofthe impact of recently issued accounting pronouncements

In September 2006, the Financial Accounting StandardsBoard (“FASB”) issued FASB Statement No. 157, Fair Value Measurements (“FAS 157”). FAS 157 establishes a single authoritative definition of fair value, sets out aframework for measuring fair value, and expands on required disclosures aboutfair value measurement.  FAS 157 is effective for the Company on September1, 2008 and will be applied prospectively.  The provisions of FAS 157 arenot expected to have a material impact on our consolidated financialstatements.

In December 2004, the FASB issued SFAS Statement No.123 (revised 2004), “Share-Based Payment,” which is a revision of SFAS No. 123,“Accounting for Stock-Based Compensation.” SFAS No. 123(R) supersedes APBOpinion No. 25, “Accounting for Stock Issued to Employees”, and amends SFAS No.95, “Statement of Cash Flows”. SFAS No. 123(R) requires all share-basedpayments to employees, including grants of employee stock options, restrictedstock and performance-based shares to be recognized in the income statementbased on their fair values. SFAS No. 123(R) also requires the benefits of taxdeductions in excess of recognized compensation cost to be reported as afinancing cash flow, rather than as an operating cash flow as required undercurrent literature. In the first quarter of fiscal 2007, we adopted SFAS No.123(R).  No stock options wereoutstanding at the date of adoption and none are currently outstanding.

In September 2006, the SEC issued Staff AccountingBulletin No. 108, Considering the Effects of Prior Year Misstatements whenQuantifying Misstatements in Current Year Financial Statements (SAB 108). SAB108 addresses the diversity in practice in quantifying financial statementmisstatements and establishes an approach that requires quantification offinancial statement misstatements based on the effects of the misstatements ona company’s financial statements and related disclosures. SAB 108 is effectivefor fiscal years ending after November 15, 2006. The adoption of SAB 108 hasnot had a material impact on our financial position, results of operations orcash flows.

 

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In February 2007, the FASB issued SFAS No. 159,Establishing the Fair Value Option for Financial Assets and Liabilities, topermit all entities to choose to elect to measure eligible financialinstruments at fair value. SFAS No. 159 applies to fiscal years beginning afterNovember 15, 2007, with early adoption permitted for an entity that has alsoelected to apply the provisions of SFAS No. 157, Fair Value Measurements. Anentity is prohibited from retrospectively applying SFAS No. 159, unless itchooses early adoption. Management is currently evaluating the impact of SFAS No.159 on its consolidated financial statements.

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

There have been no material changes in the market riskreported in the Company’s Annual Report on Form 10-K for the fiscal yearended August 31, 2006.

**Item 4.Controls and Procedures**

**Evaluation of Disclosure Controls andProcedures**

The Company’s Chief Executive Officer, Dana Persson,and Interim Chief Financial Officer, Thomas A. Powell, have reviewed theCompany’s disclosure controls and procedures as of the end of the periodcovered by this report. Based upon this review, they have concluded that theCompany’s disclosure controls and procedures are effective.

**Changes in Internal Control OverFinancial Reporting**

There have been no changes in internal control overfinancial reporting that occurred during the fiscal quarter covered by thisreport that have materially affected, or are reasonably likely to materiallyaffect, the Company’s internal control over financial reporting.

**PART II.    OTHER INFORMATION**

**Item 1.Legal Proceedings**

As previously disclosed,three Notices of Violation were issued against us by the Iowa Department ofNatural Resources regarding alleged violations at our Thompson, Iowa facilityof National Pollution Discharge and Elimination System (“NPDES”) permit limitsfor biochemical oxygen demand, total suspended solids, and ammonia nitrogen. OnDecember 5, 2006, the Iowa Environmental Protection Commission referred thematter to the Iowa Attorney General. 

On March 29, 2007, theIowa Attorney General’s office filed suit against Golden Oval Eggs, LLCrequesting civil penalties and injunctive relief from further permitviolations. On April 2, 2007, the Iowa Attorney General’s verbally officeapproved a stay of the suit to allow time for us to negotiate a consent decreewith the state of Iowa.  We expect theterms of the consent decree to include an obligation by us to make improvementsto the wastewater treatment system to prevent further permit violations on anagreed-upon timeline, as well as the amount of civil penalties. In addition,our Board of Managers has authorized management to begin a competitive biddingprocess for improvements to the wastewater treatment system and has establisheda preliminary budget for capital improvements spending.  At this time, the cost associated with theinterim solution, permanent improvement to the wastewater treatment facility,compliance with the NPDES permit, and the amount of penalty or fine imposed bythe Iowa Attorney General cannot be estimated, however they may be significant,both individually and in the aggregate.

**Item 1A.Risk Factors**

Not applicable.

 

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**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.

**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**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon 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:   April 3, 2007 |   |                                         |                 |   |

 

 

 

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