** **

**UNITED STATES SECURITIES ANDEXCHANGE COMMISSION**

**Washington,D.C. 20549**

**Form 10-Q**

** **

**(Mark one)**
| ý | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|--------|------------|----------------------------------------------------------------------------------------------|
|   | ** ** | ** **                                                                                   |
|   | ** ** | **For the quarterly period ended  November 30, 2004**                                        |

 

**or**

 
| o      | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                   |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ** ** | ** **                                                                                                                                      |
|   | ** ** | **For the transition period from            to         .** |

 

Commission file number **000-51096**

 

**Golden Oval Eggs, LLC**

(Exact name of registrantas specified in its charter)

 

 
| **DELAWARE**                                                     |   | **20-0422519**                           |
|------------------------------------------------------------------|--------|------------------------------------------|
| (State or other  jurisdiction  of incorporation or organization) |   | (I.R.S. employer  identification number) |

 

| **340  Dupont Avenue N.E.**               | ** ** | ** ** |
|-------------------------------------------|------------|------------|
| **Renville,  MN**                         | ** ** | **56284**  |
| (Address of principal  executive offices) |       | (Zip code) |

** **

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

(Registrant’s telephonenumber, including area code)

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past90 days. Yes ý No o

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

 

As of January 14, 2005, there were 4,581,832 unitsissued and outstanding.

** **

** **

** **

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** **

**TABLE OFCONTENTS**

 
| **PART I.**  | ** ** | **FINANCIAL INFORMATION**                                         | ** ** | **Page No.** |
|--------------|------------|-------------------------------------------------------------------|------------|--------------|
|         |       |                                                              |       |         |
| Item 1.      |       | Financial Statements.                                             |       | 1            |
|         |       |                                                              |       |         |
| Item 2.      |       | Management’s Discussion and Analysis of Financial  Condition |       |         |
|         |       | and  Results of Operations.                                       |       | 6            |
|         |       |                                                              |       |         |
| Item 3.      |       | Quantitative and Qualitative Disclosures About  Market Risk.      |       | 9            |
|         |       |                                                              |       |         |
| Item 4.      |       | Controls and Procedures.                                          |       | 9            |
|         |       |                                                              |       |         |
| **PART II.** | ** ** | **OTHER INFORMATION**                                             |       |         |
|         |       |                                                              |       |         |
| Item 1.      |       | Legal Proceedings.                                                |       | 9            |
|         |       |                                                              |       |         |
| Item 2.      |       | Unregistered Sales of Equity Securities and Use of  Proceeds.     |       | 9            |
|         |       |                                                              |       |         |
| Item 3.      |       | Defaults Upon Senior Securities.                                  |       | 9            |
|         |       |                                                              |       |         |
| Item 4.      |       | Submission of Matters to a Vote of Security Holders.              |       | 9            |
|         |       |                                                              |       |         |
| Item 5.      |       | Other Information.                                                |       | 9            |
|         |       |                                                              |       |         |
| Item 6.      |       | Exhibits.                                                         |       | 10           |
|         |       |                                                              |       |         |
| .            |       | Signatures                                                        |       | 11           |

 

 

 

ii

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**PART I. FINANCIAL INFORMATION**

 

**Item 1.****  FinancialStatements.**

 

 

**GOLDEN OVAL EGGS, LLC**

** **

**Consolidated Balance Sheets**

** **

**November 30, 2004 and August 31,2004**

** **

**(In Thousands)**

 
| ** **                           | ** ** | **(Unaudited)  November 30,  2004** | ** ** | **(Audited)  August 31,  2004** | ** ** |
|--------------------------------------|------------|-------------------------------------|------------|---------------------------------|------------|
| Assets                               |       |                                |       |                            |       |
|                                 |       |                                |       |                            |       |
| Current assets                       |       |                                |       |                            |       |
| Cash and cash  equivalents           |       | $                                   | 3,157      |                            | $          | 7,642 |   |
| Accounts  receivable                 |       | 4,806                               |       | 5,920                           |       |
| Inventories                          |       | 9,975                               |       | 9,171                           |       |
| Restricted cash                      |       | 1,299                               |       | 2,272                           |       |
| Other current  assets                |       | 450                                 |       | 921                             |       |
| Total current  assets                |       | 19,687                              |       | 25,926                          |       |
|                                 |       |                                |       |                            |       |
| Property, plant  and equipment       |       |                                |       |                            |       |
| Land and land  improvements          |       | 7,936                               |       | 7,936                           |       |
| Buildings                            |       | 29,870                              |       | 25,406                          |       |
| Equipment                            |       | 44,554                              |       | 39,115                          |       |
| Construction in  progress            |       | 10,790                              |       | 14,181                          |       |
|                                 |       | 93,150                              |       | 86,638                          |       |
| Accumulated  depreciation            |       | (32,833                             | )          | (31,495                         | )          |
| Total property,  plant and equipment |       | 60,317                              |       | 55,143                          |       |
|                                 |       |                                |       |                            |       |
| Other assets                         |       |                                |       |                            |       |
| Restricted cash                      |       | 3,123                               |       | 3,481                           |       |
| Investments                          |       | 1,458                               |       | 1,512                           |       |
| Intangible  assets, net              |       | 1,941                               |       | 1,380                           |       |
| Note receivable                      |       | 23                                  |       | 23                              |       |
| Total other  assets                  |       | 6,545                               |       | 6,396                           |       |
|                                 |       |                                |       |                            |       |
| Total assets                         |       | $                                   | 86,549     |                            | $          | 87,465 |   |

 

1

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| ** **                                                                                                       | ** ** | **(Unaudited)  November 30,  2004** | ** ** | **(Audited)  August 31,  2004** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|---------------------------------|------------|
| Liabilities and Owners’ Equity                                                                              |       |                                |       |                            |       |
|                                                                                                             |       |                                |       |                            |       |
| Current  liabilities                                                                                             |       |                                |       |                            |       |
| Revolving line  of credit                                                                                        |       | $                                   | —     |                            | $          | 27 |   |
| Accounts payable                                                                                                 |       | 1,976                               |       | 3,562                           |       |
| Accrued interest                                                                                                 |       | 537                                 |       | 363                             |       |
| Accrued  compensation                                                                                            |       | 3,105                               |       | 3,539                           |       |
| Income taxes  payable                                                                                            |       | 2,685                               |       | 2,685                           |       |
| Patronage  dividends payable                                                                                     |       | —                              |       | 10,250                          |       |
| Other current  liabilities                                                                                       |       | 787                                 |       | 1,317                           |       |
| Current  maturities of long-term debt                                                                            |       | 3,239                               |       | 2,617                           |       |
| Total current  liabilities                                                                                       |       | 12,329                              |       | 24,360                          |       |
|                                                                                                             |       |                                |       |                            |       |
| Long-term debt,  less current maturities                                                                         |       | 40,057                              |       | 30,335                          |       |
|                                                                                                             |       |                                |       |                            |       |
| Minority  interest in consolidated subsidiaries                                                                  |       | 963                                 |       | 907                             |       |
|                                                                                                             |       |                                |       |                            |       |
| Owners’ equity                                                                                              |       |                                |       |                            |       |
| Common stock,  $.01 par value; 50,000 shares authorized; 4,582 shares issued and outstanding  at August 31, 2004 |       | —                              |       | 46                              |       |
| Additional paid-in  capital                                                                                      |       | —                              |       | 19,923                          |       |
| Qualified  written notices of allocation                                                                         |       | —                              |       | 7,250                           |       |
| Unallocated  capital reserve                                                                                     |       | —                              |       | 4,644                           |       |
| Members’ equity                                                                                             |       | 33,200                              |       | —                          |       |
| Total owners’  equity                                                                                       |       | 33,200                              |       | 31,863                          |       |
|                                                                                                             |       |                                |       |                            |       |
| Total  liabilities and owners’ equity                                                                       |       | $                                   | 86,549     |                            | $          | 87,465 |   |

 

 

2

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**GOLDEN OVAL EGGS, LLC**

** **

**Consolidated Statements ofOperations**

** **

**For the Three Month Periods EndedNovember 30, 2004 and 2003**

** **

**(In Thousands, except per unitand per share data)**

**(Unaudited)**

 
|                                                            |   | **November  30,  2004** |   | **November  30,  2003** |   |
|-----------------------------------------------------------------|--------|-------------------------|--------|-------------------------|--------|
|                                                            |   |                    |   |                    |   |
| Net sales                                                       |   | $                       | 17,295 |                    | $      | 20,471 |   |
|                                                            |   |                    |   |                    |   |
| Cost of goods  sold                                             |   | 12,962                  |   | 11,983                  |   |
|                                                            |   |                    |   |                    |   |
| Gross profit                                                    |   | 4,333                   |   | 8,488                   |   |
|                                                            |   |                    |   |                    |   |
| Operating  expenses                                             |   | 1,613                   |   | 1,333                   |   |
|                                                            |   |                    |   |                    |   |
| Income from  operations                                         |   | 2,720                   |   | 7,155                   |   |
|                                                            |   |                    |   |                    |   |
| Other income  (expense)                                         |   |                    |   |                    |   |
| Interest expense                                                |   | (1,471                  | )      | (778                    | )      |
| Minority  interest in income of consolidated subsidiairies      |   | (23                     | )      | —                  |   |
| Other income                                                    |   | 124                     |   | 119                     |   |
| Total other  expense                                            |   | (1,370                  | )      | (659                    | )      |
|                                                            |   |                    |   |                    |   |
| Net income                                                      |   | $                       | 1,350  |                    | $      | 6,496 |   |
|                                                            |   |                    |   |                    |   |
| Weighted average  common shares or Class A units outstanding    |   | 4,582                   |   | 4,582                   |   |
|                                                            |   |                    |   |                    |   |
| Net income per  common share or Class A unit, basic and diluted |   | $                       | 0.29   |                    | $      | 1.42 |   |
|                                                            |   |                    |   |                    |   |
| Distributions  per common share                                 |   | $                       | — |                    | $      | 0.40 |   |

 

 

3

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**GOLDEN OVAL EGGS, LLC**

** **

**Consolidated Statements of CashFlows**

** **

**For the Three Month Periods EndedNovember 30, 2004 and 2003**

** **

**(In Thousands)**

**(Unaudited)**

** **
| ** **                                                                        | ** ** | **November  30,  2004** | ** ** | **November  30,  2003** | ** ** |
|-----------------------------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| Cash flows from  operating activities                                             |       |                    |       |                    |       |
| Net income                                                                        |       | $                       | 1,350      |                    | $          | 6,496 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities |       |                    |       |                    |       |
| Depreciation                                                                      |       | 1,411                   |       | 1,060                   |       |
| Amortization                                                                      |       | 908                     |       | 56                      |       |
| Equity in income  of unconsolidated subsidiary                                    |       | —                  |       | (17                     | )          |
| Changes in  operating assets and liabilities                                      |       |                    |       |                    |       |
| Accounts  receivable                                                              |       | 1,114                   |       | (1,101                  | )          |
| Inventories                                                                       |       | (804                    | )          | (935                    | )          |
| Other current  assets                                                             |       | 471                     |       | 627                     |       |
| Accounts payable                                                                  |       | (1,586                  | )          | 449                     |       |
| Accruals and  other current liabilities                                           |       | (790                    | )          | 707                     |       |
| Minority interest                                                                 |       | 56                      |       | —                  |       |
| Net cash  provided by operating activities                                        |       | 2,130                   |       | 7,342                   |       |
|                                                                              |       |                    |       |                    |       |
| Cash flows from  investing activities                                             |       |                    |       |                    |       |
| Purchases of  property, plant and equipment                                       |       | (6,586                  | )          | (1,471                  | )          |
| Proceeds from  sale of property, plant and equipment                              |       | 1                       |       | —                  |       |
| Purchase of  investment in United Mills                                           |       | —                  |       | (62                     | )          |
| Retirement of  investment in United Mills                                         |       | —                  |       | 60                      |       |
| Retirement of  investment in other coops                                          |       | 54                      |       | 89                      |       |
| Payments of  deferred debt costs                                                  |       | (1,469                  | )          | —                  |       |
| Net cash used by  investing activities                                            |       | (8,000                  | )          | (1,384                  | )          |
|                                                                              |       |                    |       |                    |       |
| Cash flows from  financing activities                                             |       |                    |       |                    |       |
| Net decrease in  revolving line of credit                                         |       | (27                     | )          | (20                     | )          |
| Proceeds from  issuance of long-term debt                                         |       | 32,000                  |       | —                  |       |
| Payments of  long-term debt                                                       |       | (21,656                 | )          | (172                    | )          |
| Decrease  (increase) in restricted cash                                           |       | 1,331                   |       | (1,487                  | )          |
| Distributions to  patrons                                                         |       | (10,263                 | )          | (1,824                  | )          |
| Net cash provided  (used) by financing activities                                 |       | 1,385                   |       | (3,503                  | )          |
|                                                                              |       |                    |       |                    |       |
| Net increase  (decrease) in cash and cash equivalents                             |       | (4,485                  | )          | 2,455                   |       |
|                                                                              |       |                    |       |                    |       |
| Cash and cash  equivalents - beginning of period                                  |       | 7,642                   |       | 2,429                   |       |
|                                                                              |       |                    |       |                    |       |
| Cash and cash  equivalents - end of period                                        |       | $                       | 3,157      |                    | $          | 4,884 |   |
|                                                                              |       |                    |       |                    |       |
| Supplementary  disclosures of cash flow information                               |       |                    |       |                    |       |
| Cash paid during  the period                                                      |       |                    |       |                    |       |
| Interest                                                                          |       | $                       | 618        |                    | $          | 578 |   |

 

 

4

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**GOLDEN OVAL EGGS, LLC**

** **

**Selected Information –Substantially all Disclosures Required by**

**Accounting Principles GenerallyAccepted in the United States of America are not Included**

** **

**November 30, 2004 and August 31,2004**

** **

**(In Thousands)**

 

1.       OnAugust 31, 2004, Midwest Investors of Renville, Inc. (the “Corporative”)converted form a Minnesota cooperative into a limited liability Company, GoldenOval Eggs, LLC (the “Company”). The Company operates as the Cooperative’ssuccessor and its operations are a continuance of the operations of theCooperative. Therefore, the consolidated financial statements of theCooperative as of August 31, 2004 and for the three month period ended November30, 2003 are comparative to the consolidated financial statements of theCompany as of and for the three month period ended November 30, 2004.

 

2.                     Inthe opinion of management, the accompanying unaudited consolidated financialstatements contain all adjustments which are of a normal and recurring naturenecessary to present fairly the financial position of the Company as ofNovember 30, 2004 and August 31, 2004 and the results of its operations for thethree month periods ended November 30, 2004 and 2003.

 

3.                     Theresults of operations for the three month periods ended November 30, 2004 and2003 are not necessarily indicative of the results expected for the full year.

 

4.                     Pulletinventories are stated at the cost of production which includes the costs ofthe chicks, feed, overhead and labor. Layer hen inventories are stated at the cost of production whichincludes the cost of the pullets, feed, overhead and labor.  Layer hen flocks are capitalized to the pointat which the pullet goes into production or are purchased and are amortizedover the productive lives of the flocks, generally 18 to 24 months.  Feed, supplies and liquid egg inventories arestated at the lower of cost (first-in, first-out) or market.  Inventories consisted of the following:

 
|                      |   | **(Unaudited)  November 30,  2004** |   | **(Audited)  August 31,  2004** |   |
|---------------------------|--------|-------------------------------------|--------|---------------------------------|--------|
|                      |   |                                |   |                            |   |
| Hens and pullets          |   | $                                   | 8,517  |                            | $      | 8,280 |   |
| Eggs and egg  products    |   | 153                                 |   | 179                             |   |
| Feed, supplies  and other |   | 1,305                               |   | 712                             |   |
|                      |   |                                |   |                            |   |
| Total  inventories        |   | $                                   | 9,975  |                            | $      | 9,171 |   |

 

5.       OnSeptember 13, 2004, the Company entered into a new financing agreement. The newagreement includes a $55,000 line of credit, of which $10,000 is a revolvingline of credit and the remaining $45,000 is term debt. During the three monthsended November 30, 2004, the Company drew $32,000 on this line of credit,$21,656 of which was used to extinguish the 2000 bonds.

 

6.                     Thepreparation of consolidated 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 financial statements and thereported amounts of revenues and expenses during the reporting period.  Actual results could differ from thoseestimates.

 

5

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

 

This Management’s Discussion and Analysis of FinancialCondition and Results of Operations (MD & A) should be read in conjunctionwith the MD & A included in the Company’s Form 10-K for the year endedAugust 31, 2004.

 

**Forward-Looking Statements**

 

This report contains forward-looking statements basedupon assumptions by the management of the Company as of the date of thisQuarterly Report, including assumptions about risks and uncertainties faced bythe Company. When used in this report, the words “believe,” “expect,” “anticipate,”“will,” “estimate” and similar verbs or expressions are intended to identifysuch forward-looking statements. If management’s assumptions prove incorrect orshould unanticipated circumstances arise, the Company’s actual results coulddiffer materially from those anticipated. These differences could be caused bya number of factors or combination of factors including, but not limited to,those factors described in the “Risk Factors” section of the Company’sForm 10-K for the year ended August 31, 2004. Readers are strongly urged to consider such factors when evaluating anyforward-looking statement. The Company undertakes no obligation to update anyforward-looking statements in this report to reflect future events ordevelopments.

 

**Summary**

 

Golden Oval Eggs, LLC (“we”, “us”, “our”, or the “Company”)is a Delaware limited liability company, primarily engaged in the business ofproducing, processing and distributing egg products. The Company operates twoin-line egg-breaking facilities, one in Renville, Minnesota and the other inThompson, Iowa and is currently ranked in the top 15 in the nation forproduction of shell eggs. We currently produce 93% of the shell eggs we breakwith the rest purchased through third-party producers. The Company wasorganized for the specific purpose of consummating the conversion of MidwestInvestors of Renville, Inc., d/b/a “Golden Oval Eggs”, a Minnesota cooperative(the “Cooperative”), into a limited liability company. The conversion wascompleted effective August 31, 2004, with the Company being the survivingentity in the conversion. The Company operates as the Cooperative’s successorand its operations are a continuance of the operations of the Cooperative.

 

The Company’s output consists of liquid whole egg,liquid egg white and liquid egg yolk. The egg products produced by the Companyare sold on a direct basis to companies who further process the raw liquid egginto various finished egg products such as dried eggs, frozen, hard cooked,extended shelf-life liquid, pre-cooked egg patties, specialty egg products,etc. Institutional, food service, restaurants, and food manufacturers in turnpurchase these further processed products.

 

The Company expects its production to reach 180million pounds in fiscal 2005 and to reach 225 million pounds annually uponcompletion of the second phase of the Thompson facility.  The second phase, currently underconstruction, is expected to be complete by February 2006.

 

The Company’s operating income or loss is materiallyaffected by wholesale liquid egg prices, which can fluctuate widely and areoutside of the Company’s control.  Liquideggs are a commodity product and prices fluctuate in response to supply/demandfactors.  The Company also sells aportion of its products under contract at non-market prices.  Depending upon market circumstances, the pricesgenerated by the Company’s non-market volume tend to be less or more than whatthe prevailing open market prices would generate.

 

The Company’s cost of production is materiallyaffected by feed costs, which average approximately 40%

 

6

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of the Company’s total costs.  Approximately 60% of these feed costs areincurred in the procurement of corn and soybean meal.  The cost of these ingredients is affected bya number of supply and demand factors such as crop production and weather, andother factors, such as the level of grain exports, over which the Company hasno control.

 

**Results OfOperations**

 

*Net Sales.***  Net sales for the first quarter of fiscal2005 were $17.3 million, a decrease of $3.2 million or 15.5% as comparedto net sales of $20.5 million for the first quarter of fiscal 2004.  Although the volume of total eggs soldincreased during the first fiscal 2005 quarter as compared to the first fiscal2004 quarter, the price per pound decreased. Pounds sold for first quarter 2005 were 43.4 million, an increase of 5.2million pounds, or 13.6% as compared to first quarter 2004.  The increase in production was the result oftwo new layer barns that were added at the Thompson facility during the fourthquarter of fiscal 2004 and one new layer barn added during the beginning of thefirst quarter of fiscal 2005.  The Company’saverage selling price per pound for the first quarter of fiscal 2005 was $.368,compared to $.536 for the first quarter of fiscal 2004, a decrease of $.168 perpound or 31.3%.  The Company’s averageselling price is the blended price for liquid whole eggs, liquid egg whites andliquid egg yolks.  The decrease in theaverage selling price was the result of an increase in the supply of eggs coupledwith a decrease in the demand for eggs relating to high protein/lowcarbohydrate diets.  The net effect ofthe increased production and the decreased average selling price was a decreasein net sales of $4.5 million.  This decreasewas offset, in part, by the results of consolidating the variable interestentities United Mills and Midwest Investors of Iowa, Cooperative in accordancewith Financial Accounting Standards Board Interpretation 46.  Consolidating these variable interestentities resulted inan increase in net sales of $1.3 million, during the first quarter of fiscal 2005,as compared to the first quarter of fiscal 2004.  As a resultof this consolidation, all significant intercompany transactions and accounts,primarily with Midwest Investors of Iowa, Cooperative, have been eliminated.

 

*Cost of goods sold.*  Cost of goods sold for thefirst quarter of fiscal 2005 was $13.0 million, an increase of $1.0 millionor 8.2% as compared to the first quarter of fiscal 2004.  The increase is the net of an increase in thecost of feed, additional cost of goods sold associated with 3 new layer barns,the effect of consolidation of variable interest entities and a decrease in thecost of eggs purchased from third parties for the Company’s off-line production.  Feed cost increased $.9 million during thefirst quarter of fiscal 2005 as compared to the corresponding period of the previousyear.  This increase was the result ofcorn and soybean hedging activity.  Shelleggs purchased for the off-line production decreased in cost by $1.2million.  This decrease in cost wasreflective of the drop in egg prices as discussed in the net sales section ofthe MD & A.  Consolidatingthe variable interest entities discussed in the net sales paragraph aboveresulted in an increase in cost of goods sold of $.8 million during the firstquarter of fiscal 2005, as compared to the first quarter of 2004. The rest of the increase was the result of the 3 additional barns addedto the Thompson facility.

 

*Operating expenses.*** Operating expenses for the firstquarter of fiscal 2005 were $1.6 million, an increase of $.3 million or 21.0%as compared to the first quarter of fiscal 2004.  Administration salaries and fringes increased$.1 million while the corporate bonus accrual decreased $.3 million. Consolidatingthe variable interest entities discussed in the net salesparagraph above resulted in an increase in operating expenses of $.5 millionduring the first quarter of fiscal 2005, as compared to the first quarter offiscal 2004.

 

*Total other expense.*  Total other expense for thefirst quarter of fiscal 2005 was $1.4 million, an increase of $.7 millionor 107.9% as compared to the first quarter of fiscal 2004.  In September 2004, theCompany entered into a new financing arrangement with CoBank.  As part of this arrangement, the Company paidoff the balance of the 2000 bonds.  Dueto the extinguishment of this debt, the Company wrote off the value of the bondissue costs associated with those bonds and recorded it as interest expense.  The net book value of those costs was$.8 million.

 

*Income Taxes.** *As a limited liability company, theCompany expects to be treated as a partnership for federal income tax purposesand therefore will pay no federal income tax as its members will pay tax ontheir pro-rata share of the LLC’s net income.

 

7

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# *Net Income.*   As a resultof the above, net income for the first quarter ended November 30, 2004 was $1.4million, or $.29 per basic and diluted unit, compared to net income of $6.5million, or $1.42 per basic and diluted share for the quarter ended November30, 2003.  As a percent of net sales, netincome was 7.8% for the quarter ended November 30, 2004, compared to net incomeof 31.7% for the quarter ended November 30, 2003.

 

**Liquidity and Capital Resources**

 

The Company’s working capital at November 30, 2004 was$7.4 million compared to $1.6 million at August 31, 2004.    TheCompany’s current ratio was 1.6 at November 30, 2004 compared to 1.1 at August31, 2004. On September 13, 2004, the Company entered into a new financingagreement with CoBank.  The new agreement gives the Company a $55 millionline of credit of which $10 million is a revolving line of credit and theremaining $45 million is term debt.  The $10 million revolving line ofcredit replaced the $5.5 million working capital line of credit with USBank and is collateralized by accounts receivable and inventories.  Thisrevolving credit line, which protects the Company from seasonal cash fluctuations,terminates on September 16, 2005.  The $45 million term piece will have a10 year maturity and will be used to pay off the 2000 bonds and to fund thecurrent construction at the Thompson site.  $32 million of the $45 millionhas been drawn as of November 30, 2004. A $10 million draw is expected to occur during May 2005 and the final $3million will be drawn in December of 2005. The Company expects that cash flow from operations and proceeds from itsexisting credit lines will be sufficient to fund operations, to provideadequate capital expenditures for the current expansion, and to makedistributions to its members for at least the next 12 months. The Company mayrequire significant additional capital resources in order to proceed withpotential future expansions or to otherwise respond to competitive pressures inthe industry.

 

The Company’s long-term debt at November 30, 2004,including current maturities, was $43.3 million compared to$33.0 million at August 31, 2004. 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 loan agreements.The Company is required by certain provisions of its loan agreements tomaintain (1) a minimum tangible net worth of not less than$28.8 million plus 40% of earnings; (2) a minimum current ratio of notless than 1.25 to 1.0; (3) working capital of no less than$7.0 million; (4) a leverage ratio of less than 4.25 to 1.0; and(5) a fixed charge coverage ratio no less than 1.15 to 1.  Inaddition, these provisions restrict the Company’s ability to makedistributions, create liens, incur indebtedness and sell assets and properties.As of November 30, 2004, the Company was in compliance with these covenants.

 

Net cash flow from operations was $2.1 millionfor the first quarter of fiscal 2005.  $6.6 million was used for the purchase of property, plant and equipmentand $1.5 million was used to pay deferred debt financing costs.  $32.0 million was received from the issuanceof long-term debt and was used to retire $21.7 million of long-term debt andpay a $10.3 million distribution to our members.  The net effect of this activity was areduction in cash of $4.5 million since August 31, 2004.

 

Management believes that non-cash working capitallevels are appropriate in the current business environment and does not expecta significant increase or reduction of non-cash working capital in the next12 months.

 

**Critical Accounting Policies**

 

The accompanying discussion and analysis of ourresults of operations and financial condition are based upon our consolidatedfinancial statements, which have been prepared in accordance with accountingprinciples generally accepted in the United States.  The preparation of these financial statementsrequires management to make estimates and judgments that affect the reportedamounts of assets, liabilities, revenues and expenses, and related disclosureof contingent assets and liabilities. These estimates form the basis for making judgments about the carryingvalues of assets and liabilities that are not readily apparent from othersources.  We base our estimates andjudgments on historical experience and on various other assumptions

 

 

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that we believe are reasonable under thecircumstances.  However, future eventsare subject to change and the best estimates and judgments may requireadjustment.  For a complete descriptionof the Company’s significant accounting policies, please see Note 1 to theconsolidated financial statements in the Company’s form 10-K for the year endedAugust 31, 2004.  There have been nochanges to critical accounting policies identified in our annual Report on Form10-K for the year ended August 31, 2004.

 

## **Impact of Recently Issued Accounting Pronouncements**

 

 Please refer toItem 7, “Management’s discussion and Analysis of financial Condition andResults of Operations”, in our Annual Report form 10-K for the year endedAugust 31, 2004 for a discussion of the impact of recently issued accountingpronouncements.  There were no accounting pronouncements issued during the quarter endedNovember 30, 2004 that we expect will have a material impact on ourconsolidated financial statements.

 

**Item 3.****Quantitative andQualitative 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 year endedAugust 31, 2004.

 

**Item 4.****  Controls andProcedures**

 

***Evaluation of DisclosureControls and Procedures***

 

The Company’s Chief Executive Officer, Dana Persson,and Chief Financial Officer, Doug Leifermann, have reviewed the Company’sdisclosure controls and procedures as of the end of the period covered by thisreport. Based upon this review, these officers believe that the Company’sdisclosure controls and procedures are effective in ensuring that materialinformation related to the Company is made known to them by others within theCompany.

 

***Changes in InternalControls***

 

There were no changes in the Company’s internalcontrol during the Company’s fiscal first quarter ended November 30, 2004 thathave materially affected or are reasonable likely to materially affect theCompany’s internal control over financial reporting.

 

**PART II.****OTHER INFORMATION**

**Item 1.****LegalProceedings**

      None.

**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.****OtherInformation**

On September 13, 2004, the Company entered into anew financing agreement between the Company and Midwest Investors of Iowa,Cooperative as borrowers, and CoBank, ACB and Metropolitan Life InsuranceCompany et al as lenders. The membership and board of directors of MidwestInvestors of Iowa is composed in part of members of the Board of Managers ofthe Company. The new agreement gives the Company a $55 million line ofcredit of which $10 million is a revolving line of credit and theremaining $45 million is term debt. A copy of the credit agreement isattached as Exhibit 10.1 to this report.

 

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**Item 6.****Exhibits**

 
| 10.1   |   | Credit Agreement dated as  of September 13, 2004 by and between Golden Oval Eggs, LLC, Midwest Investors  of Iowa, Cooperative, CoBank, ACB, and Metropolitan Life Insurance Company,  et al. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                          |
| 31.1   |   | Certification of the Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.                                                                                |
|   |   |                                                                                                                                                                                          |
| 31.2   |   | Certification of the Chief  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.                                                                                |
|   |   |                                                                                                                                                                                          |
| 32.1   |   | Certification of the Chief  Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                            |
|   |   |                                                                                                                                                                                          |
| 32.2   |   | Certification of the Chief  Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                            |

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 

 

 
|   | Golden Oval Eggs, LLC |
|--------|-----------------------|
|   |                  |
|   |                  |
|   | By:                   | /s/  Dana Persson |
|   |                  | Dana  Persson *President,**Chief Executive Officer**(Principal Executive Officer)* |
|   |                  |   |
|   |                  |   |
|   | By:                   | /s/  Doug Leifermann |
|   |                  | Doug  Leifermann *Vice President/**Chief Financial Officer**(Principal Financial and Accounting Officer)* |

 

 

 

Date: January 14, 2005

 

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