UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x

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

 

 

For the quarterly period ended February 29,May 31, 2008;

 

 

OR

 

 

o

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

 

for the transition period from          TO         

 

Golden Oval Eggs, LLC

(Exact name of registrant as specified in its charter)

 

Delaware

 

20-0422519

(State or other jurisdiction of incorporation or
organization)

 

(I.R.S. employer identification
number)

 

 

 

1800 Park Avenue East

 

 

Renville, MN

 

56284

(Address of principal executive offices)

 

(Zip code)

 

Telephone: (320) 329-8182

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitiondefinitions of “large accelerated filer,” “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Fileraccelerated filer o

 

Accelerated Filerfiler o

 

 

 

Non-Accelerated FilerNon-accelerated filer x

 

Smaller Reporting Companyreporting company o

(Do not check if a smaller reporting company)

 

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

Yes o  No x

 

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

Yes o  No x

 

As of February 29,May 31, 2008, there were 5,430,8775,442,543 of the Company’s Class A Units issued and outstanding.outstanding

 

 



 

TABLE OF CONTENTS

 

Golden Oval Eggs, LLC

Form 10-Q

For The Quarter Ended February 29,May 31, 2008

 

Description

 

Page

Part I

Financial Information

 

Item 1.

Consolidated Condensed Financial Statements

1

Item 2.

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

8

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

1413

Item 4.

Controls and Procedures

1413

 

 

 

Part II

Other Information

 

Item 1.

Legal Proceedings

14

Item 1A.

Risk Factors

1514

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

1714

Item 3.

Defaults Upon Senior Securities

1714

Item 4.

Submission of Matters to a Vote of Security Holders

1714

Item 5.

Other Information

1714

Item 6.

Exhibits

1715

 

 

 

Signatures

 

1816

 



 

PART I.     FINANCIAL INFORMATION

 

Item 1. CondensedConsolidated Financial Statements

 

GOLDEN OVAL EGGS, LLC

 

Consolidated Condensed Balance Sheets

February 29,May 31, 2008 and August 31, 2007

 

(In Thousands)

(Unaudited)(unaudited)

 

 

February 29,
2008

 

August 31,
2007

 

 

May 31,
2008

 

August 31,
2007

 

Assets

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

 

$

 

 

 

$

706

 

$

 

Accounts receivable

 

19,319

 

18,502

 

 

16,029

 

18,502

 

Inventories

 

19,745

 

18,352

 

 

20,421

 

18,352

 

Restricted cash

 

1,115

 

783

 

 

1,449

 

783

 

Other current assets

 

1,461

 

1,047

 

 

1,252

 

1,047

 

Total current assets

 

41,640

 

38,684

 

 

39,857

 

38,684

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land and land improvements

 

11,649

 

11,649

 

 

11,649

 

11,649

 

Buildings

 

40,720

 

40,684

 

 

40,222

 

40,684

 

Leasehold improvements

 

916

 

896

 

 

922

 

896

 

Equipment

 

71,722

 

71,906

 

 

72,275

 

71,906

 

Construction in progress

 

85

 

173

 

 

44

 

173

 

 

125,092

 

125,308

 

 

125,112

 

125,308

 

Accumulated depreciation

 

(62,479

)

(57,103

)

 

(65,120

)

(57,103

)

Total property, plant and equipment, net

 

62,613

 

68,205

 

 

59,992

 

68,205

 

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

 

 

 

Investments

 

1,633

 

1,670

 

 

1,720

 

1,670

 

Intangible assets, net

 

14,715

 

18,826

 

 

14,336

 

18,826

 

Goodwill

 

22,858

 

22,858

 

 

22,858

 

22,858

 

Note receivable

 

298

 

135

 

 

297

 

135

 

Total other assets

 

39,504

 

43,489

 

 

39,211

 

43,489

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

143,757

 

$

150,378

 

 

$

139,060

 

$

150,378

 

 

 See accompanying notes to consolidated condensed financial statements

 

1



 

 

February 29,
2008

 

August 31,
2007

 

 

May 31,
2008

 

August 31,
2007

 

Liabilities and Members’ Equity

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

Revolving line of credit

 

$

14,695

 

$

11,884

 

 

$

13,508

 

$

11,884

 

Accounts payable

 

15,345

 

14,221

 

 

7,867

 

14,221

 

Accrued interest

 

599

 

2,988

 

 

788

 

2,988

 

Accrued compensation

 

1,851

 

1,824

 

 

2,606

 

1,824

 

Other current liabilities

 

3,029

 

2,595

 

 

3,254

 

2,595

 

Current maturities of long-term debt

 

9,521

 

9,522

 

 

9,522

 

9,522

 

Total current liabilities

 

45,040

 

43,034

 

 

37,545

 

43,034

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, less current maturities

 

66,244

 

84,727

 

 

66,210

 

84,727

 

 

 

 

 

 

 

 

 

 

 

Members’ equity

 

 

 

 

 

 

 

 

 

 

Members’ equity

 

31,343

 

21,612

 

 

34,129

 

21,612

 

Non-controlling interest in consolidated entities

 

1,130

 

1,005

 

 

1,176

 

1,005

 

Total members’ equity

 

32,473

 

22,617

 

 

35,305

 

22,617

 

Total liabilities and members’ equity

 

$

143,757

 

$

150,378

 

 

$

139,060

 

$

150,378

 

 

See accompanying notes to consolidated condensed financial statementsstatements.

 

2



 

GOLDEN OVAL EGGS, LLC

 

Consolidated Condensed Statements of Operations

 

For the Periods Ended February 29,May 31, 2008 and February 28, 2007

 

(In Thousands, except per unit data)Except Per Unit Data)

(Unaudited)

 

 

Three Months Ended

 

Six Months Ended

 

 

Three Months Ended

 

Nine Months Ended

 

 

February 29,

 

February 28,

 

February 29,

 

February 28,

 

 

May 31,

 

May 31,

 

May 31,

 

May 31,

 

 

2008

 

2007

 

2008

 

2007

 

 

2008

 

2007

 

2008

 

2007

 

Net sales

 

$

55,335

 

$

45,446

 

$

108,538

 

$

94,063

 

 

$

56,649

 

$

53,035

 

$

165,187

 

$

147,098

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

51,949

 

42,581

 

101,067

 

86,976

 

 

47,427

 

47,025

 

148,494

 

134,001

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

3,386

 

2,865

 

7,471

 

7,087

 

 

9,222

 

6,010

 

16,693

 

13,097

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

8,877

 

5,890

 

13,319

 

11,072

 

 

4,785

 

4,750

 

18,104

 

15,822

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

(5,491

)

(3,025

)

(5,848

)

(3,985

)

Income (loss) from operations

 

4,437

 

1,260

 

(1,411

)

(2,725

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(2,480

)

(2,242

)

(5,209

)

(4,964

)

 

(1,901

)

(2,513

)

(7,110

)

(7,477

)

Non-controlling interest in income of consolidated entities

 

(81

)

 

(104

)

(62

)

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

 

1

 

(22

)

(103

)

(84

)

Other income

 

342

 

518

 

694

 

598

 

 

214

 

255

 

908

 

853

 

Forgiveness of debt

 

17,000

 

 

17,000

 

 

 

 

 

17,000

 

 

Total other income (expense)

 

14,781

 

(1,724

)

12,381

 

(4,428

)

 

(1,686

)

(2,280

)

10,695

 

(6,708

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

9,290

 

$

(4,749

)

$

6,533

 

$

(8,413

)

Net income (loss)

 

$

2,751

 

$

(1,020

)

$

9,284

 

$

(9,433

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average Members’ units outstanding

 

5,431

 

5,419

 

5,431

 

5,419

 

 

5,431

 

5,420

 

5,431

 

5,420

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per Members’ unit, basic

 

$

1.71

 

$

(0.88

)

$

1.20

 

$

(1.55

)

Net income (loss) per Members’ unit, basic

 

$

0.51

 

$

(0.19

)

$

1.71

 

$

(1.74

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per Members’ unit, diluted

 

$

1.67

 

$

(0.88

)

$

1.17

 

$

(1.55

)

 

0.44

 

(0.19

)

1.61

 

$

(1.74

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions per unit

 

$

 

$

 

$

 

$

 

 

$

 

$

 

$

 

$

 

 

See accompanying notes to consolidated condensed financial statementsstatements.

 

3



 

GOLDEN OVAL EGGS, LLC

 

Consolidated Condensed Statements of Cash Flows
For the Periods Ended February 29,May 31, 2008 and February 28, 2007

(In Thousands)
(Unaudited)

 

 

Six Months Ended

 

 

Nine Months Ended

 

 

February 29,

 

February 28,

 

 

May 31,

 

May 31,

 

 

2008

 

2007

 

 

2008

 

2007

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

Net income

 

$

6,533

 

$

(8,413

)

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

 

Net income (loss)

 

$

9,284

��

$

(9,433

)

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

 

 

 

 

 

Depreciation

 

5,376

 

5,813

 

 

8,013

 

8,704

 

Amortization

 

948

 

949

 

 

1,327

 

1,424

 

Gain on sale of property, plant & equipment

 

 

1

 

 

2

 

2

 

Asset impairment

 

3,531

 

 

 

3,531

 

 

Gain on debt forgiveness

 

(17,000

)

 

 

(17,000

)

 

Stock vesting (SFAS 123R)

 

26

 

 

Stock vesting unit compensation for vesting awards

 

(9

)

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

(887

)

(2,369

)

 

2,473

 

(3,625

)

Inventories

 

(1,393

)

(955

)

 

(2,069

)

(2,184

)

Other current assets

 

(414

)

200

 

 

(205

)

565

 

Accounts payable

 

1,124

 

3,105

 

 

(6,354

)

3,711

 

Accruals and other current liabilities

 

1,313

 

1,349

 

 

2,483

 

1,738

 

Minority interest

 

125

 

67

 

 

171

 

108

 

Net cash used by operating activities

 

(718

)

(253

)

Net cash provided by operating activities

 

1,647

 

1,010

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

(152

)

(716

)

 

(178

)

(958

)

Proceeds from sale of property, plant and equipment

 

 

1

 

 

8

 

5

 

Advance of note receivable

 

(162

)

(59

)

 

(162

)

(59

)

Purchases of investment in other cooperatives

 

(50

)

(102

)

Retirement of investment in other cooperatives

 

37

 

9

 

 

 

9

 

Net cash used by investing activities

 

(277

)

(765

)

 

(382

)

(1,105

)

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

Net increase in revolving line of credit

 

2,811

 

5,640

 

Net increase (decrease) in revolving line of credit

 

1,624

 

7,281

 

Payments of long-term debt

 

(1,484

)

(4,262

)

 

(1,517

)

(6,359

)

(Increase) in restricted cash

 

(332

)

(362

)

Net cash provided by financing activities

 

995

 

1,016

 

Net increase (decrease) in cash and cash equivalents

 

 

(2

)

Decrease (increase) in restricted cash

 

(666

)

(697

)

Net cash provided (used) by financing activities

 

(559

)

225

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

706

 

130

 

 

 

 

 

 

Cash and cash equivalents - beginning of period

 

 

222

 

 

 

222

 

 

 

 

 

 

Cash and cash equivalents - end of period

 

$

 

$

220

 

 

$

706

 

$

352

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplementary disclosures of cash flow information

 

 

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

 

 

Interest, net of capitalized interest of $15 and $40 during 2008 and 2007, respectively

 

$

1,962

 

$

3,970

 

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

 

$

6,455

 

$

7,682

 

Supplementary disclosures of non-cash transactions

 

 

 

 

 

 

 

 

 

 

Debt forgiveness

 

$

17,000

 

 

 

$

17,000

 

$

 

Warrant issued for 880,492 Class A Convertible Preferred Units

 

3,242

 

 

Class A units issued as payment of accrued officer bonus

 

 

146

 

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

 

3,242

 

 

Members units issued to directors and officers (Note 5)

 

22

 

177

 

 

See accompanying notes to consolidated condensed financial statementsstatements.

 

4



GOLDEN OVAL EGGS, LLC

 

Notes to Consolidated Condensed Financial Statements

 

February 29,May 31, 2008 and August 31, 2007

 

(In Thousands Except Per Unit Data)

 

(unaudited)

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

 

2.             Basis of Presentation   The accompanying consolidated condensed balance sheet as of August 31, 2007, which has been derived from audited consolidated financial statements, and the unaudited interim consolidated condensed financial statements at February 29,May 31, 2008 and for the three-month and nine month periods ended February 29,May 31, 2008 and February 28, 2007 of the Company have been prepared in accordance with generally accepted accounting principles for interim financial reporting and Securities and Exchange Commission rules and regulations.  Certain information normally included in financial statements and related footnotes prepared in accordance with generally accepted accounting principles has been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.  The consolidated condensed financial statements reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods presented. These consolidated condensed financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended August 31, 2007. The results of operations for the periodperiods ended February 29,May 31, 2008 are not necessarily indicative of results to be expected for any other interim period or for the entire year.

 

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

 

 

 

February 29,
2008

 

August 31,
2007

 

Hens and pullets

 

$

11,619

 

$

10,766

 

Eggs and egg products

 

4,965

 

4,046

 

Feed, supplies and other

 

3,161

 

3,540

 

Total inventories

 

$

19,745

 

$

18,352

 

5



 

 

May 31,
2008

 

August 31,
2007

 

 

 

 

 

 

 

Hens and pullets

 

$

13,182

 

$

10,766

 

Eggs and egg products

 

4,227

 

4,046

 

Feed, supplies and other

 

3,012

 

3,540

 

Total inventories

 

$

20,421

 

$

18,352

 

 

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

5



generate monthly EBITDA of at least $1,000 for the term of the Credit Agreement. Principal payments for Tranche A and Tranche B loans continue to be deferred until July 31, 2008.  To the extent that monthly EBITDA exceeds $1,000, up to $200 per month will be transferred into an interest bearing escrow account to provide funds for the upgrade of the Thompson, Iowa wastewater facility. As has been reported in previous filings and disclosed in the Risk Factors discussion of the Company’s report on Form 10-K for the fiscal year ended August 31, 2007, the Company is continuing to seek alternative sources of capital to strengthen its balance sheet.  The Company was not in compliance with all covenants under the Credit Agreement for each month in the quarter ended February 29,May 31, 2008 and as of February 29,May 31, 2008.

 

On February 15, 2008, the Company and Land O’ Lakes executed an agreement whereby the purchase price of the Egg Products Division of MoArk was reduced by $17,000 and an equal amount of the subordinated note used to finance the acquisition was reduced.  Additionally, the Company issued a Warrant for the purchase of up to 880,492 newly authorized convertible preferred units in exchange for the forgiveness of accrued interest on the subordinated note. The 697,350 Class B units held by Land O’ Lakes were converted to Class A units per the agreement.

 

The subordinated note to Land O’Lakes of $17.0 million$17,000 was treated as debt forgiveness and was classified as income in the other income (expense) section of the Statement of Operations.  In exchange for the accrued interest of $3.2 million$3,242 on the $17.0 million$17,000 note that was forgiven, the Company issued Land O’Lakes a Warrant that is included in the Equity section of the Condensed Balance sheetvalued at a value of $3.2 million.$3,242.

 

5. Stock Based Compensation   The Company has bonus and compensation plans in place for management.  Under these agreements management may receive up to 50% of certain performance bonuses in the form of Class A Units.  The Company accrues for management bonuses during the year based upon the estimated amount that will be earned by year end.  Upon approval by the Board of Managers, the bonuses are paid to management.  The number of units to be issued is based upon the higher of the book or market value of the Class A Units at the time the bonus is awarded.  For the three months ended February 28,May 31, 2007 and February 29,May 31, 2008, no Class A Units were issued to management.

 

The Class A Units are nontransferable and subject to forfeiture ratably over the following three years.  The employee must be employed on the anniversary date of issuance to avoid forfeiture.  In the event that termination of the employee occurs, the Company will record any forfeiture of units as a reduction to compensation expense in the period in which the forfeiture occurs.  There were no forfeitures for the three months ended February 29,May 31, 2008 nor for the quarter ended February 28,May 31, 2007.

 

The members of the Board of Managers are granted 2,000 Class A Units for each year served on the board following each year of service.  The Company recognizes compensation expense for these awards based upon the fair value on the date they are granted.  Forlast three recorded trade prices prior to the three months ended Februaryissuance of the members’ units. The unit value was calculated at $1.87 per unit and 11,666 units were issued on May 29, 2008 and February 28, 2007 no units were awarded to the Boardfor a total expense of Managers.$21,815.

 

6



 

6. Earnings per ShareUnit   Basic net income (loss) per unit was calculated by dividing net income (loss) by the weighted average number of Class A common units outstanding during the period. Diluted net income (loss) per unit was calculated by dividing net income (loss) by the weighted average number of Class A common units outstanding during the period plus the dilutive effects of the Warrant. Convertible Class A Preferred units representing 146,749340,628 units were included in the calculation of diluted net income per members’ unit.

 

 

February 29,
2008

 

February 28,
2007

 

 

May 31,
2008

 

May 31,
2007

 

Numerator

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

6,533

 

$

(8,843

)

 

$

9,284

 

$

(9,433

)

Denominator

 

 

 

 

 

 

 

 

 

 

Weighted average units outstanding

 

5,431

 

5,419

 

 

5,431

 

5,420

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average units outstanding

 

5,578

 

5,419

 

 

5,772

 

5,420

 

 

 

 

 

 

 

 

 

 

 

Basic profit (loss) per share

 

$

1.20

 

$

(1.55

)

Basic profit (loss) per unit

 

$

1.71

 

$

(1.74

)

 

 

 

 

 

 

 

 

 

 

Diluted profit (loss) per share

 

$

1.17

 

$

(1.55

)

Diluted profit (loss) per unit

 

$

1.61

 

$

(1.74

)

 

7.             Use of Estimates  The preparation of consolidated condensed financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated condensed financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

 

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

 

On March 11, 2008, the Company entered into an extension and amendment agreement with the lenders under the Credit Agreement that extends the termination date of a $2,500 short-term revolving note issued under our Restated and Amended Credit Agreement from February 29, 2008 to July 31, 2008.  The commencement of the effective date of financial covenants under the Credit Agreement has also been delayed from March 1, 2008 to July 31, 2008.

 

9. Legal Proceedings   The Attorney General of Iowa has filed suit in relation to the Thompson, Iowa wastewater facility.  Please refer to Item 1. Legal Proceedings under Part II. of this filing for a more detailed description of this and other legal matters.matters

 

7



 

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

 

Forward-Looking Statements

 

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

 

The following is a discussion and analysis of our financial condition and results of operations as of and for the three month and nine months periods ended February 29,May 31, 2008 and February 28, 2007. This section should be read in conjunction with the condensed financial statements and related notes in Item 1 of this Quarterly Report and our Annual Report on Form 10-K for the year ended August 31, 2007.

 

Summary

 

Golden Oval Eggs, LLC is a Delaware limited liability company primarily engaged in the business of producing, processing, marketing and distributing egg products. The Company operates seven production and/or distribution facilities in the United States.  It maintains its headquarters in Renville, Minnesota and a sales office in Plymouth, Minnesota.

 

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

 

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

 

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

 

The Company’s cost of production is materially affected by feed, purchased egg and liquid egg costs, which averaged approximately 65%50% of the Company’s total production costs in the secondthird quarter of fiscal 2008.

 

8



 

Results of Operations

 

Results of Operations — SecondThird Quarter Fiscal Year 2008 Compared to SecondThird Quarter Fiscal Year 2007

 

 Net Sales Net sales for the secondthird quarter of fiscal 2008 were $55.3$56.6 million, an increase of $9.9$3.6 million, or 21.8%6.8% over the secondthird quarter in the prior fiscal year. Pounds sold in the secondthird quarter were 69.666.5 million, a decrease of 21.627.5 million, or 23.7% 41.4%, less than the same period year ago.  The decrease is due to a significant reduction of the Millersburg, Ohio facility egg supply (15.9 million pounds) which resulted in an impairment charge in the fiscal year ended August 31, 2007.  Additional causes of the decline include a decrease in pounds available to sell from production fromat the Renville and Thompson facilities as a result of reductions in flock sizes associated with an increase in the amount of space allotted to each bird in compliance with animal care guidelines promulgated by industry groups (2.0 million pounds), and a decrease in pounds available to sell as a result of us exiting certain low margin businesses (3.7(9.6 million pounds).  The average selling price per pound sold increased from $0.468$0.541 to $0.745,$0.779, an increase of $0.277,$0.238, or 59.1%44.0%, as a result of higher selling prices executed in an environment of sharply increased liquid egg markets.

 

Cost of goods sold. Cost of goods sold for the firstthird quarter of fiscal 2008 was $51.9$47.4 million, an increase of $9.3$0.4 million, or 21.8%0.9%, as compared to the secondthird quarter of fiscal 2008.2007.  The increase is due primarily as a result of increases in the cost of feed, purchased eggs and purchased liquid eggs of $8.8 million, and a $.5 million increaseexceeding the reduction in feed costs from the Company’s  interest in United Mills, which is included in our consolidated financial statements.purchased pounds needed for production.

 

Operating expenses. Operating expenses for the secondthird quarter of fiscal 2008 were $8.9$4.8 million, an increase of $3.0$.04 million, or 33.7%.7%, as compared to the secondthird quarter of fiscal 2007. Asset impairment of $3.7 millionThe slight increase was recorded for discontinued operations at two of the processing facilities and an intangible asset.  Absent the impairment charges, operating expenses declined $0.7 million, or 12.1%, due primarily  to a reduction inincreased discretionary spending in the amount of $0.7 million, primarily in marketing.spending.

 

Total other income( expense)income(expense). Total other incomeincome(expense) for the secondthird quarter of fiscal 2008 was $14.8$(1.7) million, an increaseimprovement of $16.5$.6 million from the prior year period. The primary reason forInterest expense decreased $0.6 million primarily as a result of the increase in total other income was the cancellationelimination of interest on the $17.0 million note we issued Land O’Lakes in connection with the amendment of the terms of the MoArk Acquisition, as described more fully below under the “Liquidity and Capital Resources”. Interest expense increased $.2 million.   Other income decreased $0.2 million due to the timing of sales of manure from the chicken barns, as the sales were reportedsubordinated debt that was forgiven in the second quarter in the priorof fiscal year. The manure sale for fiscal year 2008 occurred in March 2008, which is included in the  Company’s third quarter.2008.

 

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

 

Net IncomeIncome(Loss).  Operations for the secondthird quarter ended February 29,May 31, 2008 resulted in a profit of $9.3$2.8 million, or a profit of $1.71$.51 per basic members’ unit and $1.67$.44 per diluted members’ unit, as compared to a loss of $(4.7)$(1.0) million, or $(0.88)$(0.19) per basic and diluted members’ unit for the quarter ended February 29, 2008.May 31, 2007.

 

The Company’s financial performance in the current quarter may not be indicative of future quarters due to seasonal factors and volatility in both selling prices and cost of materials purchased, as well as industry factors in an intensely competitive industry.

 

9



Results of Operations — SixNine Months ended February 29,May 31, 2008 Compared to SixNine Months ended February 28,May 31, 2007

 

Net SalesSales.Net sales for the first halfnine months of fiscal 20082007 were $108.5$165.2 million, an increase of $14.5$18.1 million, or an increase of 15.4%12.3% over the sales of the first halfnine months of the prior fiscal year. The increase  is due to higher average selling pricesprice per pound for liquid eggsincreased from $0.478 to $0.729, an increase of $0.251, or 52.5% over the prior year same period. Total pounds shipped to customers for the first halfnine months of fiscal 2008 of $.706 versus $.448 for the first half of fiscal year 2007, an increase of $.258, as well as an improved product mix. The increase in selling prices was due to the increasing costs of feed and purchased shell and liquid egg.  Pounds sold in the first half were 148.4214.8 million, a decrease of 50.277.8 million pounds or 25.3% over26.6%. The increase in average selling price was enough to offset the same period year ago.  A 7.8% (8.1 million pounds) declinesales pounds decrease caused by the reduction in supply from the Renville and Thompson facilities was caused by increasing the space allotted to each bird inMillersburg facility (47.7 million pounds), compliance with animal care guidelines promulgated by industry groups.  The reductiongroups (6 million pounds), and a decrease in pounds

9



available to sell as a result of the Millersburg egg supply amounted to 35.0 million pounds. The remaining decrease (7.1 million pounds) was due to our decision to exitus exiting certain low margin business.business lines and the seasonality of the business (24.1 million pounds).

 

Cost of Goods SoldSold.  Cost of goods sold for the first halfthree quarters of fiscal 2008 was $101.1$148.5 million, an increase of $14.1$14.5 million or 16.2%10.8% of the figure for the first halfsame period of fiscal 2007.  As occurred2007 and less than the percentage increase in the second quarter, significantsales dollars, resulting in an increase of $3.6 million in gross profit. Significant unfavorable cost pressures were experienced in the period.  Feed costs rose by more than 31.0%, or $4.2 million for the half,prices have risen substantially, driven by higher corn and soybean meal costs.  Shell eggcosts, resulting in $7.6 million of additional feed expense at the Renville and Thompson facilities.  The cost of purchased liquid egg purchasesand eggs increased $(15.6)by $11.0 million, Operational improvementsor 21.9%, driven by the same pricing environment reflected in the increase in selling prices.  Improvements in operations resulted in savingsreductions in direct and indirect operating costs of $4.4 million and we recorded a  $1.3 million decrease in cost from our interest in  United Mills, which is included in our  consolidated financial statements.$4.1 million.

 

Operating Expenses            Expenses.Operating expenses for the first halfthree quarters of fiscal 2008 were $13.3$18.1 million, an increase of $2.2$2.3 million, or 20.3%14.4%, from the first halfsame period of fiscal 2007. AssetThe increase is primarily due to impairment of $3.7the Land O’ Lakes trademark of $3.2 million was recorded for discontinued operations at the Abbeville and California processing facilities, and a Land O’Lakes licensing agreement that was recorded on our balance sheet statements as an intangible asset. A reduction occurred  in discretionary spending in the amountsecond quarter of $1.5 millionthe current fiscal year with additional impairment expense and reserves relating to the balance spread across numerous accountstermination of the Land O’ Lakes license and withdrawal from certain unprofitable market segments of $.5 million.   Other operating expenses, primarily marketing, were reduced by $1.4 million.

 

Total Other Income (Expense).Total other income increased from a loss of $(4.4)$(6.7) million to $12.4$10.7 million, an increase of $16.8$17.4 million for the period.  The primary reason forincrease is due almost exclusively to the increase in other income was the cancellationforgiveness of the $17.0 million note we issued to Land O’Lakes in connection with the amendment of the terms of the MoArk Acquisition, as described more fully below under “Liquidity and Capital Resources”.subordinated note.  Interest expense increased by $0.3decreased $0.4 million, primarily reflecting the elimination of interest on increased line of credit debt and other income increased $0.1 million due primarily to litter sales.the forgiven note for the fiscal third quarter.

 

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

 

Net Income (loss).  Net income for the sixnine months ended February 29,May 31, 2008 resulted in a profit of $6.5$9.3 million, or $1.20$1.71 per basic members’ unitweighted average units and $1.17 per diluted members’ unit ,of $1.61, as compared to a loss of $(8.4)$(9.4) million, or $(1.55)$(1.74)  per members’ unit weighted average and diluted unit for the same period a year ago.

10



 

Liquidity and Capital Resources

 

The Company’s working capital at February 29,May 31, 2008 was $(3.4)$2.3 million compared to $(4.3) million at August 31, 2007.   The Company’s current ratio was 0.921.06 at February 29,May 31, 2008 compared to 0.90 at August 31, 2007. On March 11, 2008, the Company entered into an Extension and Amendment Agreement with its lenders that extended the termination date of all revolving loans from March 1, 2008 to July 31, 2008.  Additionally, the principal payments for the Tranche A and Tranche B term loans were deferred for the months of March, April, May, June and July of 2008 until the maturity date of the applicable loan.  The Company is current on all interest and principal payments as required for the quarter ending February 29,May 31, 2008 and complied with its minimum monthly EBITDA requirement for all three months but one as of the end of the secondthird quarter of fiscal 2008. The amended and restated credit agreement provides for a $95.5 line of credit, consisting of a $15.0 million revolving note that terminates on March 1, 2008, a short term revolving note of $2.5 million that also terminates on March 1, 2008 and $78.0 million in term notes with principal repayment schedules resulting in retirement beginning in 2014.  Certain financial benchmarks and ratios contained in the credit agreements have had their effective dates extended until July 31, 2008.  In the interim period, the Company must produce a minimum EBITDA of $1.0 million per month.  To the extent that EBITDA exceeds $1.0 million in any month, up to $200$0.2 million is to be placed in an interest bearing escrow account to be used for the Thompson wastewater project.  The Company has agreed to explore strategic alternatives on terms, conditions and time frames mutually agreed between the Company and its lenders.

 

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

10



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

 

The Company was unable to meet all of the terms and conditions associated with the commitment from a new lender received on December 13, 2007, and the commitment has expired.

The Company’s long-term debt at February 29,May 31, 2008, including current maturities, was $75.8$75.7 million compared to $94.2 million at August 31, 2007. As of February 29,May 31, 2008, $14.7$13.5 million has been drawn against the $17.5 revolving line of credit including the $2.5 million short term revolving note, compared to $11.9 million as of August 31, 2007. Substantially all trade receivables and inventories collateralize the Company’s line of credit and property, plant and equipment collateralize the Company’s long-term debt under its credit agreement.

 

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

 

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

 

11



Net cash flow from operations was $(0.7)$1.6 million for the first twothree quarters of fiscal 2008 compared to $(0.3)$1.0 million in the first halfthree quarters of fiscal 2007. Principal payments on long-term debt were $1.5 million and additions to fixed assets were $0.2 million.  There were no distributions to unit holders during the first two quarters of fiscal 2008.  An additional $0.4$0.6 million was added to restricted cash to provide for the principal paymentand interest payments on the 1999 and 2001 bonds due in July 2008.

 

Critical Accounting Policies and Estimates

 

The above discussion and analysis of our results of operations and financial condition are based upon our consolidated condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. However, future events may change and even the best estimates and judgments may require adjustment. For a complete description of the Company’s significant accounting policies, please see Note 1 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended August 31, 2007. There have been no changes to critical accounting policies identified in our Annual Report on Form 10-K for the year ended August 31, 2007.

 

Tangible Assets

 

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

11



indicators are present, we estimate the future cash flows expected to result from the use of this asset and its eventual disposal. During the secondthird quarter of Fiscalfiscal year 2008, no triggering events were identified that would have resulted in the Company recognizedcarrying value of any asset to be deemed unrecoverable. As a result, no impairment tested was initiated.

 Recorded impairment of tangible assets for two discontinued operations and the decision to exit the Retail test market. We determined that an impairment of  $0.2 million had occurred at the Vernon facility in California. The Vernon facility has ceased all production operations due to a decrease of egg supply and excess production capacity. The Abbeville facility incurred a loss of egg supply and has terminated the breaking of shell eggs. This resulted in impairment of $0.2nine months ending May 31, 2008 is $.5 million. With the conclusion of the test marketing of retail sales in the Northeast, the Company has cancelled license agreements with Land O’Lakes (Form 8K filed 2/20/2008) and has determined that the company will exit the retail test market. Impairment charges of $0.5 million were incurred. All impairment charges were recorded in the operations section of the Statement of Operations.

 

Intangible Assets

 

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

12



 

Those intangibles with indefinite lives have been recorded as goodwill, and will not be amortized over a fixed time period.  Rather, they will be tested for impairment when impairment indicators are deemed present.  As of February 29, 2008 we tested for impairment under the provisions of SFAS No. 142. The results of the impairment test indicated that the fair value of the single entity reporting unit exceeded the carrying value of the reporting unit. As a result, no provision for impairment was required.required for the first two quarters of fiscal 2008. No impairment testing was done in the third quarter ending May 31, 2008 due to no triggering events being present.

 

Impact of Recently Issued Accounting Pronouncements

 

Please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, in our Annual Report form 10-K for the year ended August 31, 2007 for a discussion of the impact of recently issued accounting pronouncements

 

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

 

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

 

12



In December 2007, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements (“FAS 160”). FAS 160 establishes accounting and reporting standards for the4the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The effective date of FAS 160 is for fiscal years beginning on or after December 15, 2008. Golden Oval is reviewing FAS 160  to determine what impact it may have to the consolidated financial statements.

 

In March 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities, an Amendment to FASB Statement No. 133. FAS 161 establishes the disclosure requirements for derivative instruments and hedging activities and expands the disclosure requirements of statement 133. The effective date for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Golden Oval is reviewing FASB 161 but anticipates very little impact to the Company.

 

13The FASB issued two new statements in May 2008, FASB Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles and FASB Statements No. 163, Accounting for Financial Guaranty Insurance Contract, an interpretation of FASB 60. FASB 162 identifies sources of accounting principles and establishes a hierarchy of accounting principles to be used in preparation of financial statements in conformity with GAAP for non governmental entities. FASB 162 is effective 60 days following SEC approval of Public Company Accounting Oversight Board (PCAOB) amendments to AU section 411. The Company does not anticipate any impact with the enactment of FASB 162. FASB 163 clarifies the recognition and measurement of claim liabilities in an insured financial obligation by insurance enterprises. FASB 163 is not applicable to the Company.



 

Item 3. Quantitative and Qualitative Disclosures Aboutabout Market Risk

 

There have been no material changes in the market risk reported in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2007.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

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

 

Changes in Internal Control over Financial Reporting

 

Except for the addition of personnel resources to address the deficiency in disclosure controls and procedures as described above, thereThere have been no changes in internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

13



PART II.    OTHER INFORMATION

 

Item 1. Legal Proceedings

 

Our Thompson, Iowa facility has an industrial wastewater treatment facility designed to treat wastewater from egg breaking.  The Thompson facility also has an associated National Pollution Discharge and Elimination System (“NPDES”) permit from the Iowa Department of Natural Resources (“IDNR”) that governs the quality of the wastewater influent to and effluent from the treatment facility.

 

In 2006, IDNR issued three Notices of Violation (“NOV”) against us regarding alleged violations of the NPDES permit discharge limits for biochemical oxygen demand, total suspended solids, and ammonia nitrogen.

On March 29, 2007, the Iowa Attorney General’s office filed suit against us requesting civil penalties for and injunctive relief against furtheralleged NPDES permit violations.  We have received extensions from the Iowa District Courtviolations for Winnebago County to submit our Answer to the suit,exceeding discharge limits for biochemical oxygen demand, total suspended solids, and during this time weammonia nitrogen.

We have been negotiating the terms of a Consent Decree with the Iowa Attorney General’s office.  Currently, we have until April 30, 2008 to submit our Answer.  We expect the terms of the Consent Decree to enjoin us from further violations, include an obligation by us to make improvements to the Thompson wastewater treatment system to prevent further permit violations on an agreed-upon timeline, as well as the amountand make payment of a $200,000 civil penalty.

 

Consistent with this expectation,In February 2008, we applied toreceived from IDNR for a permit for construction of permanent improvements to the Thompson wastewater treatment system.  We received the permit in February 2008,system, and we are in the process of preparing for construction of the improvements, which we anticipate will be

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completed in 2008.no later than April 30, 2009.  In addition, operational changes have been made at the wastewater facility that have achieved significant improvement in compliance with the NPDES permit requirements.

 

At this time, the cost associated with the interim solution, permanent improvement to the wastewater treatment facility compliance withis estimated to be approximately $2.5 million. The Company is securing bids to determine final costs for the NPDES permit, and the amount of penalty or fine imposed by the Iowa Attorney General cannot be estimated, however they may be significant, both individually and in the aggregate.project.

 

On March 27, 2008, we received a subpoena from the U.S. Department of Justice, through the U.S. Attorney for the Eastern District of Pennsylvania, requesting documents for the period of January 1, 2002 through March 27, 2008 relating primarily to the pricing, marketing, and sales of our egg products. We intend to fully cooperate with the Department of Justice request. We cannot predict what, if any, impact this inquiry and any results from this inquiry could have on our current or future operations or results of operations.

 

Item 1A. Risk Factors

 

We are a party to an Amended and Restated Credit Agreement dated June 30, 2006, which has been amended by a First Amendment to the Amended and Restated Credit Agreement dated April 30, 2007, by a Second Amendment to the Amended and Restated Credit Agreement dated October 19, 2007 and an “Extension Agreement” dated December 13, 2007.  The Amended and Restated Credit Agreement as amended by the various amendments and the extension agreement is referred to herein as the “Amended Credit Agreement”.  On March 11, 2008, the Company, COBANK ACB (the “Administrative Agent”) and the banks and other financial institutions or entities, including COBANK ACB, which are parties to the Amended Credit Agreement entered into an “Extension and Amendment Agreement”.  Pursuant to the Extension and Amendment Agreement, the lenders granted the Company’s request for certain accommodations under the Amended Credit Agreement.Not applicable.

Pursuant to the Extension and Amendment Agreement, the “Termination Date” as it applies to the Company’s Revolving Loans under the Amended Credit Agreement is extended to July 31, 2008.  In addition, the due dates for principal payments with respect to the Company’s Tranche A and Tranche B Loans have been extended.  Those payments which were due on March 20, 2008, April 20, 2008, May 20, 2008, June 20, 2008 and July 20, 2008 are deferred until the Maturity Date of the applicable Tranche Loan.  Finally, the date for the Company to meet certain financial benchmarks and ratios pursuant to the Amended Credit Agreement was extended from March 1, 2008 to the Termination Date of July 31, 2008.  Commencing with the month of March, 2008, the Company is required to maintain a monthly minimum EBITDA of One Million Dollars ($1,000,000).  The Company must also escrow certain amounts each month to provide for the costs and expenses of associated with remedying certain regulatory violations at the Company’s facility in Thompson, Iowa.

Under the Extension and Amendment Agreement, the Company is obligated to explore strategic alternatives upon such terms and conditions and within such time frames as may be mutually agreed by the Company and the lenders under the Amended Credit Agreement.  The Company will seek alternatives that provide for the mutual benefit of the Company and its lenders.  The Company is required to regularly report to the lenders regarding the status of its efforts.

An Event of Default will occur under the Extension and Amendment Agreement if the Company fails to comply with any of the requirements of the Amended Credit Agreement or the Extension and Amendment Agreement.   In addition, the lender may declare an Event of Default upon three days written notice if the lenders reasonably believe that the Company will be unable to comply with any mutually agreed-upon arrangements regarding the Company’s strategic alternatives.

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No assurance can be given that we will be able to identify or consummate a strategic alternative upon terms and conditions or within such time frames as may be mutually agreed to by us and the lenders.  Our efforts to identify or negotiate an acceptable strategic alternative may be hampered by economic conditions related to credit markets, egg markets, commodity markets, or the U.S.  economy, or our inability to successfully execute the Company’s plans.  If we do not consummate an acceptable strategic alternative or if we otherwise default upon our Amended Credit Agreement and the obligations there under were to become accelerated and due, we may be required to curtail significantly or stop our business activities.

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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.

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Item 6. Exhibits

 

Exhibit
No.

 

Description

3.4

Amendment No. 1 to Amended and Restated Limited Liability Company Agreement of Golden Oval Eggs, LLC dated as of February 15, 2008 (incorporated by reference to Exhibit 3.4 to Form 8-K (File No. 000-51096) filed with the Commission on February 20, 2008).

3.5

Certificate of Designation of Class A Convertible Preferred Units of Golden Oval Eggs, LLC effective as of February 15, 2008 (incorporated by reference to Exhibit 3.5 to Form 8-K (File No. 000-51096) filed with the Commission on February 20, 2008).

10.1

Amendment to Purchase Agreement dated February 15, 2008 by and among Moark, LLC, Cutler at Abbeville, L.L.C., Hi Point Industries, LLC, L & W Egg Products, Inc., Norco Ranch, Inc., Moark Egg Corporation, Land O’Lakes, Inc., Golden Oval Eggs, LLC, and GOECA, LP (incorporated by reference to Exhibit 10.1to Form 8-K (File No. 000-51096) filed with the Commission on February 20, 2008).

10.2

Warrant dated February 15, 2008 to purchase 880,492 Class A Convertible Preferred Units of Golden Oval Eggs, LLC issued to Land O’Lakes, Inc. (incorporated by reference to Exhibit 10.2 to Form 8-K (File No. 000-51096) filed with the Commission on February 20, 2008).

10.3

Extension Agreement dated December 13, 2007 to the to the Second Amendment to the Amended and Restated Credit Agreement effective as of October 19, 2007 by and between Golden Oval Eggs, LLC, GOECA, LP and Midwest Investors of Iowa as borrowers, by Metropolitan Life Insurance Company, as a bank and lender, and by CoBank, ACB as a lender and administrative agent (filed herewith).

10.4

Extension and Amendment Agreement dated March 11, 2008 to the Second Amendment to the Amended and Restated Credit Agreement effective as of October 19, 2007 by and between Golden Oval Eggs, LLC, GOECA, LP and Midwest Investors of Iowa as borrowers, by Metropolitan Life Insurance Company, as a bank and lender, and by CoBank, ACB as a lender and administrative agent (filed herewith).

 

 

 

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.

 

 

 

32.132

 

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

 

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SIGNATURES

 

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

 

 

GOLDEN OVAL EGGS, 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 14, 2007

 

 

Date:  July 1, 2008

 

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