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Article by DailyStocks_admin    (01-19-09 05:36 AM)

The Daily Magic Formula Stock for 01/17/2009 is Cal Maine Foods Inc. According to the Magic Formula Investing Web Site, the ebit yield is 25% and the EBIT ROIC is 50-75%.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


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BUSINESS OVERVIEW

Our Business

Cal-Maine Foods, Inc. (“we”, “us”, “our”, or the “Company”) is the largest producer and marketer of shell eggs in the United States. In fiscal 2008, we sold approximately 678 million dozen shell eggs, which represented about 15.8% of domestic shell egg consumption in the United States. Our total flock of approximately 22 million layers and 6 million pullets and breeders is the largest in the United States. Layers are mature female chickens, pullets are young female chickens usually under 20 weeks of age, and breeders are male or female chickens used to produce fertile eggs to be hatched for egg production flocks.

Our primary business is the production, grading, packaging, marketing and distribution of shell eggs. We sell most of our shell eggs in 29 states, primarily in the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States. We market our shell eggs through our extensive distribution network to a diverse group of customers, including national and regional grocery store chains, club stores, foodservice distributors and egg product manufacturers. The strength of our position is evidenced by the fact that we have the largest market share in the grocery segment for shell eggs, and we sell shell eggs to a majority of the largest food retailers in the United States.

We are also one of the largest producers and marketers of value-added specialty shell eggs in the United States. Specialty shell eggs include reduced cholesterol, cage free and organic eggs and are a rapidly growing segment of the market. In fiscal 2008, specialty shell eggs represented approximately 14% of our shell egg dollar sales, as compared to 15% for fiscal 2007. Retail prices for specialty eggs are less cyclical than standard shell egg prices and are generally higher due to consumer willingness to pay for the increased benefits from those products. We market our specialty shell eggs under two distinct brands: Egg-Land's Best ( TM ) and Farmhouse ( TM ). We own a 25.9% non-voting equity interest in Egg-Land's Best, Inc., which markets the leading brand in the specialty shell egg segment. We have exclusive license agreements to market and distribute Egg-Land's Best(TM) specialty shell eggs in major metropolitan areas, including New York City, and a number of states in the southeast and southwest. We market cage free eggs under our trademarked Farmhouse brand and distribute those shell eggs across the southeast and southwest regions of the United States. We also produce market and distribute private label specialty shell eggs to several customers. Sales of specialty shell eggs accounted for approximately 12.0% of our total shell egg dozen volumes in fiscal 2008, as compared to 8.7% in fiscal 2007.

We are also a leader in industry consolidation. Since 1989, we have completed fourteen acquisitions ranging in size from 600,000 layers to 7.5 million layers. Despite a market that has been characterized by increasing consolidation, the shell egg production industry remains highly fragmented. There currently are 65 producers who each own more than one million layers and the ten largest producers own approximately 43% of total industry layers. We believe industry consolidation will continue and we plan to capitalize on opportunities as they arise.

Hillandale Acquisition

On July 28, 2005, we entered into an Agreement to Form a Limited Liability Company with Hillandale Farms, Inc. and Hillandale Farms of Florida, Inc. (together, “Hillandale”), and the Hillandale shareholders (the “Agreement”). Under the terms of the Agreement, we acquired 51% of the Units of Membership in Hillandale, LLC, formed under the Agreement, for cash of approximately $27 million on October 12, 2005, with the remaining 49% of the Units of Membership to be acquired in essentially equal annual installments over a four-year period. The purchase price of the Units equals their book value at the time of purchase as calculated under the terms of the Agreement.

In August 2006, in accordance with the Agreement, we purchased, for $6.1 million, an additional 13% of the Units of Hillandale, LLC based on their book value as of July 29, 2006. In August 2007, we purchased, for $6.8 million, an additional 12% of the Units of Hillandale, LLC based on their book value as of July 28, 2007. Our ownership of Hillandale, LLC currently is 76%. Our obligation to acquire the remaining 24% of Hillandale, LLC is recorded at its present value of $20.0 million as of May 31, 2008, of which $10.4 million is included in current liabilities and $9.6 million is included in other non-current liabilities in the accompanying consolidated balance sheet. During fiscal 2008, an early payment of $5.7 million was paid on the purchase obligation. We will purchase an additional 12% of Hillandale LLC based on the book value of the Membership Units as of July 26, 2008. This estimated obligation was adjusted in fiscal 2008 due to the effect of the expected earnings increase on the book value of the membership units. The Company will adjust the original Hillandale purchase price allocation based on the ultimate amount paid for the acquisition in accordance with SFAS 141.

Prior to the acquisition of our Units of Membership in Hillandale, LLC, we had a 44% membership interest in American Egg Products, LLC (“AEP”) and Hillandale, LLC had a 27.5% membership interest in AEP. Prior to the acquisition of Hillandale, LLC, our membership interest in AEP was accounted for by the equity method. Effective with our acquisition of Hillandale, LLC, we own a majority of the membership interests in AEP. Accordingly, the financial statements of AEP have been consolidated with our financial statements effective July 29, 2005.

We gained effective control of the Hillandale, LLC operations upon signing of the Agreement. Accordingly, the acquisition date for accounting purposes was July 28, 2005. The operations of Hillandale, LLC were consolidated with our operations beginning July 29, 2005.

Certain Other Acquisitions

During fiscal 2007, we completed two other acquisitions of egg production facilities located in Arkansas, which added approximately two million laying hens and expanded our pullet growing facilities for replacements. Eggs produced at these facilities are being marketed to retail food businesses and distributors in the south central states. See Note 2 of Notes to Consolidated Financial Statements in Part II of this Annual Report on Form 10-K.

On June 27, 2008, we completed the acquisition of the assets of Zephyr Egg Company, located in Zephyrhills, Florida. See Note 2 of Notes to Consolidated Financial Statements in Part II of this Annual Report on Form 10-K.

Our Corporate Information

We were incorporated in Delaware in 1969. Our principal executive office is located at 3320 Woodrow Wilson Drive, Jackson, Mississippi 39209. The telephone number of our principal executive office is (601) 948-6813. We maintain a website at www.calmainefoods.com where general information about our business is available. The information contained in our website is not a part of this document. Our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, Forms 3 and 4 ownership reports, and all amendments to those reports are available, free of charge, through our web site as soon as reasonably practicable after they are filed with the SEC. Information concerning corporate governance matters is also available on the website.

Our Common Stock is listed on the NASDAQ Global Market (“NASDAQ”) under the symbol “CALM”. On May 30, 2008, the last sale price of our Common Stock on NASDAQ was $31.20 per share . Our fiscal year 2008 ended May 31, 2008, and the first three fiscal quarters of fiscal 2008 ended September 1, 2007, December 1, 2007 and March 1, 2008. All references herein to a fiscal year means our fiscal year and all references to a year mean a calendar year.

We have adopted a Code of Conduct and Ethics for Directors, Officers and Employees, including the chief executive and principal financial and accounting officers of the Company. We will provide a copy of the code free of charge to any person that requests a copy by writing to:

Cal-Maine Foods, Inc.
P.O. Box 2960
Jackson, Mississippi 39207
Attn.: Investor Relations

Requests can be made by phone at (601) 948-6813

A copy is also available at our website www.calmainefoods.com . Information contained on our website is not a part of this report.

IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS

This report contains numerous forward-looking statements relating to the Company's shell egg business, including estimated production data, expected operating schedules, expected capital costs and other operating data. Such forward-looking statements are identified by the use of words such as "believes," "intends," "expects," "hopes," "may," "should," "plan," "projected," "contemplates," "anticipates" or similar words. Actual production, operating schedules, results of operations and other projections and estimates could differ materially from those projected in the forward-looking statements. The factors that could cause actual results to differ materially from those projected in the forward-looking statements include (i) the risk factors set forth below under the following Item 1A, (ii) the risks and hazards inherent in the shell egg business (including disease, pests, and weather conditions), (iii) changes in the market prices of shell eggs, and (iv) changes that could result from the Company's future acquisition of new flocks or businesses. Readers are cautioned not to put undue reliance on forward-looking statements. The Company disclaims any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise.

Industry Background

Based on historical consumption trends, demand for shell eggs increases in line with overall population growth, averaging an increase of about 1% per year. According to U.S. Department of Agriculture (“USDA”) reports, since 2000, annual per capita consumption in the United States has varied between 252 and 257 eggs. In 2007, per capita consumption in the United States was 254 eggs, or approximately five eggs per person per week.

Prices for Shell Eggs

Shell egg prices are a critical component of profitability in the industry. Over 90% of all shell eggs sold in the United States in the retail and foodservice channels are sold at prices related to the Urner Barry wholesale quotation for shell eggs. For fiscal 2008, wholesale large shell egg prices in the southeast region averaged 137.7 cents per dozen compared to an average of 79.9 cents per dozen for fiscal years 2005 to 2007. According to USDA reports, for the first five months of calendar year 2008, egg production was lower in four of the five months compared with the same five months of the previous calendar year. It is expected that the number of layers in the table-egg laying flock will slowly begin to expand, as the number of egg-type chicks hatched has been higher in the first half of calendar year 2008, as compared to the same time the previous calendar year. Table-egg production is expected to be slightly higher than the previous year in the second half of calendar year 2008, but still below the amount produced in the second half of calendar year 2006. Due to the increased production, egg supply should be slightly higher for the second half of 2008, which could translate into a slight decrease in prices for this period, as compared to last year.
Feed Costs for Shell Egg Production

Feed is a primary cost component in the production of shell eggs and represents over one-half of industry farm level production costs. Most shell egg producers are vertically integrated, manufacturing the majority of the feed they require themselves. Although feed ingredients, primarily corn and soybean meal, are available from a number of sources, prices for ingredients can fluctuate and can be affected by weather and by various supply and demand factors. Current feed prices are higher than the previous year. Forecasts vary widely for prices over the next year, due to irregular weather patterns in the Midwest and a much stronger demand for corn from ethanol plants.

Growth Strategy and Acquisitions

For many years, we have pursued a growth strategy focused on the acquisition of existing shell egg production and processing facilities, as well as the construction of new and more efficient facilities. Since the beginning of fiscal 1989, we have completed fourteen acquisitions. In addition, we have built seven new “in-line” shell egg production and processing facilities and one pullet growing facility which added 8 million layers and 1.5 million growing pullets to our capacity. Each of the new shell egg production facilities generally provide for the processing of approximately 400 cases of shell eggs or 12,000 dozen eggs, per hour. These increases in capacity have been accompanied by the retirement of older and less efficient facilities and a reduction in eggs produced by contract producers. The “in-line” facilities result in the gathering, grading and packaging of shell eggs by less labor-intensive, more efficient, mechanical means.

As a result of our strategy, our total flock, including pullets, layers and breeders, has increased from approximately 6.8 million at May 28, 1988 to an average of approximately 26.4 million for the past five fiscal years. Also, the number of dozens of shell eggs sold has increased from approximately 117.0 million in the fiscal year ended May 28, 1988 to an average of approximately 645.5 million over the past five fiscal years. Net sales amounted to $915.9 million in fiscal 2008 compared to net sales of $69.9 million in fiscal 1988.

We plan to continue to pursue opportunities for the acquisition of other companies engaged in the production and sale of shell eggs. We will continue to evaluate and selectively pursue acquisitions that will expand our shell egg production capabilities in existing markets and broaden our geographic reach. We have extensive experience identifying, valuing, executing and integrating acquisitions and we intend to leverage that experience in the evaluation and execution of future acquisitions. We will seek to acquire regional shell egg businesses that have significant market share and long-standing customer relationships. We believe that enhancing our national presence will help us further strengthen our relationships with existing customers which have operations across the United States.

Through exclusive license agreements with Egg-Land's Best, Inc. in several key territories and our trademarked Farmhouse brand, we are one of the leading producers and marketers of value-added specialty shell eggs. We also produce, market and distribute private label specialty shell eggs to several customers. Since selling prices of specialty shell eggs are not as volatile as those of generic shell eggs, we believe that growing our specialty eggs business will enhance the stability of our margins. We expect that the price of specialty eggs will remain at a premium to regular shell eggs. We intend to pursue acquisitions that may expand our specialty shell egg production.

Federal anti-trust laws require regulatory approval of acquisitions that exceed certain threshold levels of significance. Also, we are subject to federal and state laws generally prohibiting anti-competitive conduct. Because the shell egg production and distribution industry is so fragmented, we believe that our sales of shell eggs during last fiscal year represented approximately 15.8% of domestic shell egg sales notwithstanding that we are the largest producer and distributor of shell eggs in the United States based on independently prepared industry statistics. We believe that regulatory approval of any future acquisitions either will not be required, or, if required, that such approvals will be obtained.

The construction of new, more efficient production and processing facilities is an integral part of our growth strategy. Any such construction will require compliance with applicable environmental laws and regulations, including the receipt of permits that could cause schedule delays, although we have not experienced any significant delays in the past.

Shell Eggs

Production . Our operations are fully integrated. At our facilities, we hatch chicks, grow pullets, manufacture feed and produce and distribute shell eggs. Company-owned facilities accounted for approximately 93% of our total fiscal 2008 egg production, with the balance attributable to contract producers used by us. Under arrangements with our contract producers, we own the entire flock, furnish all feed and supplies, own the shell eggs produced and assume all market risks. The contract producers own their facilities and are paid a fee based on production with incentives for performance.

The commercial production of shell eggs requires a source of baby chicks for laying flock replacement. We produce approximately 95% of our chicks in our own hatcheries and obtain the balance from commercial sources. We own breeder facilities producing 15.5 million pullet chicks per year in a computer-controlled environment. These pullets are distributed to 33 state-of-the-art laying operations around the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States. The facilities produce an average of 1.5 million dozen shell eggs per day and process the shell eggs through grading and packaging without handling by human hands. We have spent a cumulative total of $86.7 million over the past five years upgrading our facilities with the most advanced equipment and technology available in our industry. We believe our focus on automation throughout the supply chain enables us to be a low cost supplier in all the markets in which we compete.

Feed for the laying flocks is produced by Company-owned and operated mills located in the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States. All ingredients necessary for feed production are readily available in the open market and most are purchased centrally from Jackson, Mississippi. Approximately 95% of the feed for our flocks is manufactured at feed mills owned and operated by us. Poultry feed is formulated using a computer model to determine the least-cost ration to meet the nutritional needs of the flocks. Although most feed ingredients are purchased on an as-needed basis, from time-to-time, when deemed advantageous, we purchase ingredients in advance with a delayed delivery of several weeks or a few months.

Feed cost represents the largest element of our farm egg production cost, ranging from 52% to 64% of total cost in the last five years. Although feed ingredients are available from a number of sources, we have little, if any, control over the prices of the ingredients we purchase, which are affected by weather and by various supply and demand factors. Increases in feed costs not accompanied by increases in the selling price of eggs can have a material adverse effect on the results of our operations. However, higher feed costs may encourage producers to reduce production, possibly resulting in higher egg prices. Alternatively, low feed costs can encourage industry overproduction, possibly resulting in lower egg prices. Historically, we have tended to have higher profit margins when feed costs are higher. However, this may not be the case in the future.

After the eggs are produced, they are graded and packaged. Substantially all of our farms have modern “in-line” facilities that mechanically gather, grade and package the eggs produced. The increased use of in-line facilities has generated significant cost savings as compared to the cost of eggs produced from non-in-line facilities. In addition to greater efficiency, the in-line facilities produce a higher percentage of grade A eggs, which sell at higher prices. Eggs produced on farms owned by contractors are brought to our processing plants where they are graded and packaged. Since shell eggs are perishable, we maintain very low shell egg inventories, usually consisting of approximately four days of production.

Our egg production activities are subject to risks inherent in the agriculture industry, such as weather conditions and disease factors. These risks are not within our control and could have a material adverse effect on our operations. Also, the marketability of our shell eggs is subject to risks such as possible changes in food consumption opinions and practices reflecting perceived health concerns.

We operate in a cyclical industry with total demand that is generally level and a product that is price-inelastic. Thus, small increases in production or decreases in demand can have a large adverse effect on prices and vice-versa. However, economic conditions in the egg industry are expected to exhibit less cyclicality in the future. The industry is concentrating into fewer but stronger hands, which should help lessen the extreme cyclicality of the past.

Marketing . Of the 678 million dozen shell eggs sold by us in the fiscal year ended May 31, 2008, 535 million were produced by our flocks.

We sell our shell eggs to a diverse group of customers, including national and local grocery store chains, club stores, foodservice distributors and egg product manufacturers. We utilize electronic ordering and invoicing systems that enable us to manage inventory for certain of our customers. Our top 10 customers accounted for an aggregate of 66.5% of net sales in fiscal 2008 and 67.4% of net sales for fiscal 2007. Two affiliated customers, Wal-Mart Stores and Sam’s Club, on a combined basis, accounted for 36.5% of net sales during fiscal 2008 and 36.9% of net sales for fiscal 2007.

The majority of eggs sold are merchandised on a daily or short-term basis. Most sales to established accounts are on open account with terms ranging from seven to 30 days. Although we have established long-term relationships with many of our customers, they are free to acquire shell eggs from other sources.

The shell eggs we sell are either delivered by us to our customers' warehouses and facilities with our own fleet of owned or contracted refrigerated delivery trucks or are picked up by our customers at our processing facilities.

We sell our shell eggs at prices generally related to independently quoted wholesale market prices. Wholesale prices are subject to wide fluctuations. The prices of our shell eggs reflect fluctuations in the quoted market, and the results of our shell egg operations are materially affected by changes in market quotations. Egg prices reflect a number of economic conditions, such as the supply of eggs and the level of demand, which, in turn, are influenced by a number of factors that we cannot control. No representation can be made as to the future level of prices.

According to U.S. Department of Agriculture reports, since 2000, annual per capita consumption in the United States has varied between 252 and 257 eggs. While we believe that fast food restaurant consumption, high protein diet trends, reduced egg cholesterol levels and industry advertising campaigns may result in a continuance of the recent increases in current per capita egg consumption levels, no assurance can be given that per capita consumption will not decline in the future.

We sell the majority of our shell eggs in approximately 29 states across the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States. We are a major factor in egg marketing in a majority of these states. Many states in our market area are egg deficit regions; that is, production of fresh shell eggs is less than total consumption. Competition from other producers in specific market areas is generally based on price, service, and quality of product. Strong competition exists in each of our markets.

Seasonality. Shell eggs are perishable. Consequently, we maintain very low shell egg inventories, usually consisting of approximately four days of production. Retail sales of shell eggs are greatest during the fall and winter months and lowest during the summer months. Prices for shell eggs fluctuate in response to seasonal demand factors and a natural increase in egg production during the spring and early summer. We generally experience lower sales and net income in our fourth and first fiscal quarters ending in May and August, respectively. During the past ten years, eight of our first quarters and four of our fourth quarters have resulted in net operating losses.

Specialty Eggs. We also produce specialty eggs such as Egg-Land’s Best(TM) and Farmhouse eggs. For fiscal 2008, specialty eggs accounted for 14.2% of shell egg dollar sales and 12.0% of shell egg dozens sold. Egg-Land’s Best (TM) eggs are patented eggs that are believed by its developers, based on scientific studies, to cause no increase in serum cholesterol when eaten as part of a low fat diet. We produce and process Egg-Land’s Best (TM) eggs , under license from Egg-Land’s Best, Inc. (“EB”), at our existing facilities, under EB guidelines. The product is marketed to our established base of customers at prices that reflect a premium over ordinary shell eggs. Egg-Land’s Best (TM) eggs accounted for approximately 9.7% of our shell egg dollar sales in fiscal 2008, as compared to 11.2% in fiscal 2007. Farmhouse brand eggs are produced at our facilities by hens that are not caged, and are provided with a diet of natural grains. As in our other flocks, these hens are provided with drinking water that is free of hormones or other chemical additives. Farmhouse and other non EB specialty eggs accounted for 4.5% of our shell egg dollar sales in fiscal 2008, as compared to 4.0% in fiscal 2007. They are intended to meet the demands of consumers who are sensitive to environmental and animal welfare issues. Based on dozens sold Egg-Land’s Best (TM) eggs accounted for 8.0% of dozens sold for fiscal 2008, as compared to 6.3% in fiscal 2007. Farmhouse and other non EB specialty eggs accounted for 4.0% of dozens sold for fiscal 2008, as compared to 2.4% for fiscal 2007. The statistical data concerning specialty egg sales reflects the upward trend of specialty eggs.

Competition . The production, processing, and distribution of shell eggs is an intensely competitive business, which, traditionally, has attracted large numbers of producers. Shell egg competition is generally based on price, service, and quality of production. Although we are the largest combined producer, processor, and distributor of shell eggs in the United States, we do not occupy a controlling market position in any area where our eggs are sold.


CEO BACKGROUND

Our Business

Cal-Maine Foods, Inc. (“we”, “us”, “our”, or the “Company”) is the largest producer and marketer of shell eggs in the United States. In fiscal 2008, we sold approximately 678 million dozen shell eggs, which represented about 15.8% of domestic shell egg consumption in the United States. Our total flock of approximately 22 million layers and 6 million pullets and breeders is the largest in the United States. Layers are mature female chickens, pullets are young female chickens usually under 20 weeks of age, and breeders are male or female chickens used to produce fertile eggs to be hatched for egg production flocks.

Our primary business is the production, grading, packaging, marketing and distribution of shell eggs. We sell most of our shell eggs in 29 states, primarily in the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States. We market our shell eggs through our extensive distribution network to a diverse group of customers, including national and regional grocery store chains, club stores, foodservice distributors and egg product manufacturers. The strength of our position is evidenced by the fact that we have the largest market share in the grocery segment for shell eggs, and we sell shell eggs to a majority of the largest food retailers in the United States.

We are also one of the largest producers and marketers of value-added specialty shell eggs in the United States. Specialty shell eggs include reduced cholesterol, cage free and organic eggs and are a rapidly growing segment of the market. In fiscal 2008, specialty shell eggs represented approximately 14% of our shell egg dollar sales, as compared to 15% for fiscal 2007. Retail prices for specialty eggs are less cyclical than standard shell egg prices and are generally higher due to consumer willingness to pay for the increased benefits from those products. We market our specialty shell eggs under two distinct brands: Egg-Land's Best ( TM ) and Farmhouse ( TM ). We own a 25.9% non-voting equity interest in Egg-Land's Best, Inc., which markets the leading brand in the specialty shell egg segment. We have exclusive license agreements to market and distribute Egg-Land's Best(TM) specialty shell eggs in major metropolitan areas, including New York City, and a number of states in the southeast and southwest. We market cage free eggs under our trademarked Farmhouse brand and distribute those shell eggs across the southeast and southwest regions of the United States. We also produce market and distribute private label specialty shell eggs to several customers. Sales of specialty shell eggs accounted for approximately 12.0% of our total shell egg dozen volumes in fiscal 2008, as compared to 8.7% in fiscal 2007.

We are also a leader in industry consolidation. Since 1989, we have completed fourteen acquisitions ranging in size from 600,000 layers to 7.5 million layers. Despite a market that has been characterized by increasing consolidation, the shell egg production industry remains highly fragmented. There currently are 65 producers who each own more than one million layers and the ten largest producers own approximately 43% of total industry layers. We believe industry consolidation will continue and we plan to capitalize on opportunities as they arise.

Hillandale Acquisition

On July 28, 2005, we entered into an Agreement to Form a Limited Liability Company with Hillandale Farms, Inc. and Hillandale Farms of Florida, Inc. (together, “Hillandale”), and the Hillandale shareholders (the “Agreement”). Under the terms of the Agreement, we acquired 51% of the Units of Membership in Hillandale, LLC, formed under the Agreement, for cash of approximately $27 million on October 12, 2005, with the remaining 49% of the Units of Membership to be acquired in essentially equal annual installments over a four-year period. The purchase price of the Units equals their book value at the time of purchase as calculated under the terms of the Agreement.

In August 2006, in accordance with the Agreement, we purchased, for $6.1 million, an additional 13% of the Units of Hillandale, LLC based on their book value as of July 29, 2006. In August 2007, we purchased, for $6.8 million, an additional 12% of the Units of Hillandale, LLC based on their book value as of July 28, 2007. Our ownership of Hillandale, LLC currently is 76%. Our obligation to acquire the remaining 24% of Hillandale, LLC is recorded at its present value of $20.0 million as of May 31, 2008, of which $10.4 million is included in current liabilities and $9.6 million is included in other non-current liabilities in the accompanying consolidated balance sheet. During fiscal 2008, an early payment of $5.7 million was paid on the purchase obligation. We will purchase an additional 12% of Hillandale LLC based on the book value of the Membership Units as of July 26, 2008. This estimated obligation was adjusted in fiscal 2008 due to the effect of the expected earnings increase on the book value of the membership units. The Company will adjust the original Hillandale purchase price allocation based on the ultimate amount paid for the acquisition in accordance with SFAS 141.

Prior to the acquisition of our Units of Membership in Hillandale, LLC, we had a 44% membership interest in American Egg Products, LLC (“AEP”) and Hillandale, LLC had a 27.5% membership interest in AEP. Prior to the acquisition of Hillandale, LLC, our membership interest in AEP was accounted for by the equity method. Effective with our acquisition of Hillandale, LLC, we own a majority of the membership interests in AEP. Accordingly, the financial statements of AEP have been consolidated with our financial statements effective July 29, 2005.

We gained effective control of the Hillandale, LLC operations upon signing of the Agreement. Accordingly, the acquisition date for accounting purposes was July 28, 2005. The operations of Hillandale, LLC were consolidated with our operations beginning July 29, 2005.

Certain Other Acquisitions

During fiscal 2007, we completed two other acquisitions of egg production facilities located in Arkansas, which added approximately two million laying hens and expanded our pullet growing facilities for replacements. Eggs produced at these facilities are being marketed to retail food businesses and distributors in the south central states. See Note 2 of Notes to Consolidated Financial Statements in Part II of this Annual Report on Form 10-K.

On June 27, 2008, we completed the acquisition of the assets of Zephyr Egg Company, located in Zephyrhills, Florida. See Note 2 of Notes to Consolidated Financial Statements in Part II of this Annual Report on Form 10-K.

Our Corporate Information

We were incorporated in Delaware in 1969. Our principal executive office is located at 3320 Woodrow Wilson Drive, Jackson, Mississippi 39209. The telephone number of our principal executive office is (601) 948-6813. We maintain a website at www.calmainefoods.com where general information about our business is available. The information contained in our website is not a part of this document. Our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, Forms 3 and 4 ownership reports, and all amendments to those reports are available, free of charge, through our web site as soon as reasonably practicable after they are filed with the SEC. Information concerning corporate governance matters is also available on the website.

Our Common Stock is listed on the NASDAQ Global Market (“NASDAQ”) under the symbol “CALM”. On May 30, 2008, the last sale price of our Common Stock on NASDAQ was $31.20 per share . Our fiscal year 2008 ended May 31, 2008, and the first three fiscal quarters of fiscal 2008 ended September 1, 2007, December 1, 2007 and March 1, 2008. All references herein to a fiscal year means our fiscal year and all references to a year mean a calendar year.

We have adopted a Code of Conduct and Ethics for Directors, Officers and Employees, including the chief executive and principal financial and accounting officers of the Company. We will provide a copy of the code free of charge to any person that requests a copy by writing to:

Cal-Maine Foods, Inc.
P.O. Box 2960
Jackson, Mississippi 39207
Attn.: Investor Relations

Requests can be made by phone at (601) 948-6813

A copy is also available at our website www.calmainefoods.com . Information contained on our website is not a part of this report.

IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS

This report contains numerous forward-looking statements relating to the Company's shell egg business, including estimated production data, expected operating schedules, expected capital costs and other operating data. Such forward-looking statements are identified by the use of words such as "believes," "intends," "expects," "hopes," "may," "should," "plan," "projected," "contemplates," "anticipates" or similar words. Actual production, operating schedules, results of operations and other projections and estimates could differ materially from those projected in the forward-looking statements. The factors that could cause actual results to differ materially from those projected in the forward-looking statements include (i) the risk factors set forth below under the following Item 1A, (ii) the risks and hazards inherent in the shell egg business (including disease, pests, and weather conditions), (iii) changes in the market prices of shell eggs, and (iv) changes that could result from the Company's future acquisition of new flocks or businesses. Readers are cautioned not to put undue reliance on forward-looking statements. The Company disclaims any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise.

Industry Background

Based on historical consumption trends, demand for shell eggs increases in line with overall population growth, averaging an increase of about 1% per year. According to U.S. Department of Agriculture (“USDA”) reports, since 2000, annual per capita consumption in the United States has varied between 252 and 257 eggs. In 2007, per capita consumption in the United States was 254 eggs, or approximately five eggs per person per week.

Prices for Shell Eggs

Shell egg prices are a critical component of profitability in the industry. Over 90% of all shell eggs sold in the United States in the retail and foodservice channels are sold at prices related to the Urner Barry wholesale quotation for shell eggs. For fiscal 2008, wholesale large shell egg prices in the southeast region averaged 137.7 cents per dozen compared to an average of 79.9 cents per dozen for fiscal years 2005 to 2007. According to USDA reports, for the first five months of calendar year 2008, egg production was lower in four of the five months compared with the same five months of the previous calendar year. It is expected that the number of layers in the table-egg laying flock will slowly begin to expand, as the number of egg-type chicks hatched has been higher in the first half of calendar year 2008, as compared to the same time the previous calendar year. Table-egg production is expected to be slightly higher than the previous year in the second half of calendar year 2008, but still below the amount produced in the second half of calendar year 2006. Due to the increased production, egg supply should be slightly higher for the second half of 2008, which could translate into a slight decrease in prices for this period, as compared to last year.
Feed Costs for Shell Egg Production

Feed is a primary cost component in the production of shell eggs and represents over one-half of industry farm level production costs. Most shell egg producers are vertically integrated, manufacturing the majority of the feed they require themselves. Although feed ingredients, primarily corn and soybean meal, are available from a number of sources, prices for ingredients can fluctuate and can be affected by weather and by various supply and demand factors. Current feed prices are higher than the previous year. Forecasts vary widely for prices over the next year, due to irregular weather patterns in the Midwest and a much stronger demand for corn from ethanol plants.

Growth Strategy and Acquisitions

For many years, we have pursued a growth strategy focused on the acquisition of existing shell egg production and processing facilities, as well as the construction of new and more efficient facilities. Since the beginning of fiscal 1989, we have completed fourteen acquisitions. In addition, we have built seven new “in-line” shell egg production and processing facilities and one pullet growing facility which added 8 million layers and 1.5 million growing pullets to our capacity. Each of the new shell egg production facilities generally provide for the processing of approximately 400 cases of shell eggs or 12,000 dozen eggs, per hour. These increases in capacity have been accompanied by the retirement of older and less efficient facilities and a reduction in eggs produced by contract producers. The “in-line” facilities result in the gathering, grading and packaging of shell eggs by less labor-intensive, more efficient, mechanical means.

As a result of our strategy, our total flock, including pullets, layers and breeders, has increased from approximately 6.8 million at May 28, 1988 to an average of approximately 26.4 million for the past five fiscal years. Also, the number of dozens of shell eggs sold has increased from approximately 117.0 million in the fiscal year ended May 28, 1988 to an average of approximately 645.5 million over the past five fiscal years. Net sales amounted to $915.9 million in fiscal 2008 compared to net sales of $69.9 million in fiscal 1988.

We plan to continue to pursue opportunities for the acquisition of other companies engaged in the production and sale of shell eggs. We will continue to evaluate and selectively pursue acquisitions that will expand our shell egg production capabilities in existing markets and broaden our geographic reach. We have extensive experience identifying, valuing, executing and integrating acquisitions and we intend to leverage that experience in the evaluation and execution of future acquisitions. We will seek to acquire regional shell egg businesses that have significant market share and long-standing customer relationships. We believe that enhancing our national presence will help us further strengthen our relationships with existing customers which have operations across the United States.

Through exclusive license agreements with Egg-Land's Best, Inc. in several key territories and our trademarked Farmhouse brand, we are one of the leading producers and marketers of value-added specialty shell eggs. We also produce, market and distribute private label specialty shell eggs to several customers. Since selling prices of specialty shell eggs are not as volatile as those of generic shell eggs, we believe that growing our specialty eggs business will enhance the stability of our margins. We expect that the price of specialty eggs will remain at a premium to regular shell eggs. We intend to pursue acquisitions that may expand our specialty shell egg production.

Federal anti-trust laws require regulatory approval of acquisitions that exceed certain threshold levels of significance. Also, we are subject to federal and state laws generally prohibiting anti-competitive conduct. Because the shell egg production and distribution industry is so fragmented, we believe that our sales of shell eggs during last fiscal year represented approximately 15.8% of domestic shell egg sales notwithstanding that we are the largest producer and distributor of shell eggs in the United States based on independently prepared industry statistics. We believe that regulatory approval of any future acquisitions either will not be required, or, if required, that such approvals will be obtained.

The construction of new, more efficient production and processing facilities is an integral part of our growth strategy. Any such construction will require compliance with applicable environmental laws and regulations, including the receipt of permits that could cause schedule delays, although we have not experienced any significant delays in the past.

Shell Eggs

Production . Our operations are fully integrated. At our facilities, we hatch chicks, grow pullets, manufacture feed and produce and distribute shell eggs. Company-owned facilities accounted for approximately 93% of our total fiscal 2008 egg production, with the balance attributable to contract producers used by us. Under arrangements with our contract producers, we own the entire flock, furnish all feed and supplies, own the shell eggs produced and assume all market risks. The contract producers own their facilities and are paid a fee based on production with incentives for performance.

The commercial production of shell eggs requires a source of baby chicks for laying flock replacement. We produce approximately 95% of our chicks in our own hatcheries and obtain the balance from commercial sources. We own breeder facilities producing 15.5 million pullet chicks per year in a computer-controlled environment. These pullets are distributed to 33 state-of-the-art laying operations around the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States. The facilities produce an average of 1.5 million dozen shell eggs per day and process the shell eggs through grading and packaging without handling by human hands. We have spent a cumulative total of $86.7 million over the past five years upgrading our facilities with the most advanced equipment and technology available in our industry. We believe our focus on automation throughout the supply chain enables us to be a low cost supplier in all the markets in which we compete.

Feed for the laying flocks is produced by Company-owned and operated mills located in the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States. All ingredients necessary for feed production are readily available in the open market and most are purchased centrally from Jackson, Mississippi. Approximately 95% of the feed for our flocks is manufactured at feed mills owned and operated by us. Poultry feed is formulated using a computer model to determine the least-cost ration to meet the nutritional needs of the flocks. Although most feed ingredients are purchased on an as-needed basis, from time-to-time, when deemed advantageous, we purchase ingredients in advance with a delayed delivery of several weeks or a few months.

Feed cost represents the largest element of our farm egg production cost, ranging from 52% to 64% of total cost in the last five years. Although feed ingredients are available from a number of sources, we have little, if any, control over the prices of the ingredients we purchase, which are affected by weather and by various supply and demand factors. Increases in feed costs not accompanied by increases in the selling price of eggs can have a material adverse effect on the results of our operations. However, higher feed costs may encourage producers to reduce production, possibly resulting in higher egg prices. Alternatively, low feed costs can encourage industry overproduction, possibly resulting in lower egg prices. Historically, we have tended to have higher profit margins when feed costs are higher. However, this may not be the case in the future.

After the eggs are produced, they are graded and packaged. Substantially all of our farms have modern “in-line” facilities that mechanically gather, grade and package the eggs produced. The increased use of in-line facilities has generated significant cost savings as compared to the cost of eggs produced from non-in-line facilities. In addition to greater efficiency, the in-line facilities produce a higher percentage of grade A eggs, which sell at higher prices. Eggs produced on farms owned by contractors are brought to our processing plants where they are graded and packaged. Since shell eggs are perishable, we maintain very low shell egg inventories, usually consisting of approximately four days of production.

Our egg production activities are subject to risks inherent in the agriculture industry, such as weather conditions and disease factors. These risks are not within our control and could have a material adverse effect on our operations. Also, the marketability of our shell eggs is subject to risks such as possible changes in food consumption opinions and practices reflecting perceived health concerns.

We operate in a cyclical industry with total demand that is generally level and a product that is price-inelastic. Thus, small increases in production or decreases in demand can have a large adverse effect on prices and vice-versa. However, economic conditions in the egg industry are expected to exhibit less cyclicality in the future. The industry is concentrating into fewer but stronger hands, which should help lessen the extreme cyclicality of the past.

Marketing . Of the 678 million dozen shell eggs sold by us in the fiscal year ended May 31, 2008, 535 million were produced by our flocks.

We sell our shell eggs to a diverse group of customers, including national and local grocery store chains, club stores, foodservice distributors and egg product manufacturers. We utilize electronic ordering and invoicing systems that enable us to manage inventory for certain of our customers. Our top 10 customers accounted for an aggregate of 66.5% of net sales in fiscal 2008 and 67.4% of net sales for fiscal 2007. Two affiliated customers, Wal-Mart Stores and Sam’s Club, on a combined basis, accounted for 36.5% of net sales during fiscal 2008 and 36.9% of net sales for fiscal 2007.

The majority of eggs sold are merchandised on a daily or short-term basis. Most sales to established accounts are on open account with terms ranging from seven to 30 days. Although we have established long-term relationships with many of our customers, they are free to acquire shell eggs from other sources.

The shell eggs we sell are either delivered by us to our customers' warehouses and facilities with our own fleet of owned or contracted refrigerated delivery trucks or are picked up by our customers at our processing facilities.

We sell our shell eggs at prices generally related to independently quoted wholesale market prices. Wholesale prices are subject to wide fluctuations. The prices of our shell eggs reflect fluctuations in the quoted market, and the results of our shell egg operations are materially affected by changes in market quotations. Egg prices reflect a number of economic conditions, such as the supply of eggs and the level of demand, which, in turn, are influenced by a number of factors that we cannot control. No representation can be made as to the future level of prices.

According to U.S. Department of Agriculture reports, since 2000, annual per capita consumption in the United States has varied between 252 and 257 eggs. While we believe that fast food restaurant consumption, high protein diet trends, reduced egg cholesterol levels and industry advertising campaigns may result in a continuance of the recent increases in current per capita egg consumption levels, no assurance can be given that per capita consumption will not decline in the future.

We sell the majority of our shell eggs in approximately 29 states across the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States. We are a major factor in egg marketing in a majority of these states. Many states in our market area are egg deficit regions; that is, production of fresh shell eggs is less than total consumption. Competition from other producers in specific market areas is generally based on price, service, and quality of product. Strong competition exists in each of our markets.

Seasonality. Shell eggs are perishable. Consequently, we maintain very low shell egg inventories, usually consisting of approximately four days of production. Retail sales of shell eggs are greatest during the fall and winter months and lowest during the summer months. Prices for shell eggs fluctuate in response to seasonal demand factors and a natural increase in egg production during the spring and early summer. We generally experience lower sales and net income in our fourth and first fiscal quarters ending in May and August, respectively. During the past ten years, eight of our first quarters and four of our fourth quarters have resulted in net operating losses.

Specialty Eggs. We also produce specialty eggs such as Egg-Land’s Best(TM) and Farmhouse eggs. For fiscal 2008, specialty eggs accounted for 14.2% of shell egg dollar sales and 12.0% of shell egg dozens sold. Egg-Land’s Best (TM) eggs are patented eggs that are believed by its developers, based on scientific studies, to cause no increase in serum cholesterol when eaten as part of a low fat diet. We produce and process Egg-Land’s Best (TM) eggs , under license from Egg-Land’s Best, Inc. (“EB”), at our existing facilities, under EB guidelines. The product is marketed to our established base of customers at prices that reflect a premium over ordinary shell eggs. Egg-Land’s Best (TM) eggs accounted for approximately 9.7% of our shell egg dollar sales in fiscal 2008, as compared to 11.2% in fiscal 2007. Farmhouse brand eggs are produced at our facilities by hens that are not caged, and are provided with a diet of natural grains. As in our other flocks, these hens are provided with drinking water that is free of hormones or other chemical additives. Farmhouse and other non EB specialty eggs accounted for 4.5% of our shell egg dollar sales in fiscal 2008, as compared to 4.0% in fiscal 2007. They are intended to meet the demands of consumers who are sensitive to environmental and animal welfare issues. Based on dozens sold Egg-Land’s Best (TM) eggs accounted for 8.0% of dozens sold for fiscal 2008, as compared to 6.3% in fiscal 2007. Farmhouse and other non EB specialty eggs accounted for 4.0% of dozens sold for fiscal 2008, as compared to 2.4% for fiscal 2007. The statistical data concerning specialty egg sales reflects the upward trend of specialty eggs.

Competition . The production, processing, and distribution of shell eggs is an intensely competitive business, which, traditionally, has attracted large numbers of producers. Shell egg competition is generally based on price, service, and quality of production. Although we are the largest combined producer, processor, and distributor of shell eggs in the United States, we do not occupy a controlling market position in any area where our eggs are sold.

MANAGEMENT DISCUSSION FROM LATEST 10K

Risk Factors; Forward-Looking Statements

For information relating to important risks and uncertainties that could materially adversely affect our business, securities, financial condition or operating results, reference is made to the disclosure set forth under Item 1A above under the caption "Risk Factors." In addition, because the following discussion includes numerous forward-looking statements relating to us, our results of operations and financial condition and business, reference is made to the information set forth above in Item 1 under the caption "Important Factors Relating to Forward-Looking Statements."

OVERVIEW

We are primarily engaged in the production, grading, packing, and sale of fresh shell eggs. Our fiscal year end is the Saturday nearest to May 31 which was May 31, 2008 (52 weeks), June 2, 2007 (52 weeks), and June 3, 2006 (53 weeks) for the most recent three fiscal years.

Our operations are fully integrated. At our facilities we hatch chicks, grow pullets, manufacture feed, and produce, process, and distribute shell eggs. We currently are the largest producer and distributor of fresh shell eggs in the United States. Shell eggs accounted for approximately 94% of our net sales in fiscal 2008 and 96% in fiscal 2007. Egg products accounted for approximately 5% of our net sales in fiscal 2008 and 2% in fiscal 2007. We primarily market our shell eggs in the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States. Shell eggs are sold directly by us primarily to national and regional supermarket chains.

We currently use contract producers for approximately 7% of our total egg production. Contract producers operate under agreements with us for the use of their facilities in the production of shell eggs by layers owned by us. We also own the eggs produced. Also, shell eggs are purchased, as needed, for resale by us from outside producers.

Our operating income or loss is significantly affected by wholesale shell egg market prices, which can fluctuate widely and are outside of our control. Retail sales of shell eggs are greatest during the fall and winter months and lowest during the summer months. Prices for shell eggs fluctuate in response to seasonal factors and a natural increase in egg production during the spring and early summer.

Our cost of production is materially affected by feed costs, which currently averages about 64% of our total farm egg production cost. Changes in feed costs result in changes in our cost of goods sold. The cost of feed ingredients is affected by a number of supply and demand factors such as crop production and weather, and other factors, such as the level of grain exports, over which we have little or no control.

The purchase of Hillandale, LLC, AEP and Hillandale Farms, LLC described above in Part 1, Item 1, is collectively referred to below as the “Hillandale Purchase".

Fiscal Year Ended May 31, 2008 Compared to Fiscal Year Ended June 2, 2007

Net Sales. In fiscal 2008, approximately 94% of our net sales consisted of shell egg sales and approximately 5% was for sales of egg products, with the 1% balance consisting of sales of incidental feed sales to outside egg producers. Net sales for the fiscal year ended May 31, 2008 were $915.9 million, an increase of $317.8 million, or 53.1%, from net sales of $598.1 million for fiscal 2007. In fiscal 2008 total dozens of eggs sold decreased and egg selling prices increased as compared to fiscal 2007. In fiscal 2008 total dozens of shell eggs sold were 678.5 million, a decrease of 6.9 million dozen, or 1.0%, compared to 685.4 million sold in fiscal 2007. Our average selling price of shell eggs increased from $.832 per dozen for fiscal 2007 to $1.260 per dozen for fiscal 2008, an increase of $.428 per dozen, or 51.4%. Our operating results are significantly affected by wholesale shell egg market prices, which are outside of our control. Small changes in production or demand levels can have a large effect on shell egg prices. Egg supply has been better balanced with demand resulting in favorable egg market conditions. According to statistics from the USDA, the number of table-egg laying hens was down from the previous year, which added continued support in balancing supply and demand in the shell egg market. Improved balancing of supply and demand, led to higher average shell egg selling prices throughout the fiscal year ended May 31, 2008, as compared to the previous year.

We continue to increase our sales volume of specialty eggs, which include reduced cholesterol, cage free and organic eggs. Specialty egg retail prices are less cyclical than standard shell egg prices and are generally higher due to consumer willingness to pay for the increased benefits from these products. For fiscal 2008, specialty eggs accounted for 14.2% of shell egg dollar sales, as compared to 15.2% in fiscal 2007 and 12.0% of shell egg dozens sold in fiscal 2008, as compared to 8.7% in fiscal 2007. This fiscal year our egg product sales were $42.8 million, an increase of $28.9 million or 207.9%, as compared to $13.9 million for fiscal 2007. Our consolidated net sales include the sales of egg products by AEP and Texas Egg Products, LLC. For fiscal 2008, egg product sales for AEP were $25.5 million, as compared to $13.5 million for fiscal 2007, an increase of $12.0 million, or 88.9%. The egg product sales for Texas Egg Products, LLC in fiscal 2008 were $17.3 million, as compared to $424,000 for fiscal 2007, an increase of $16.9 million. As described in note 1 to the consolidated financial statements, Texas Egg Products, LLC is a variable interest entity for which the Company is the primary beneficiary. Texas Egg Products, LLC began operations in fiscal 2007, and we consolidated 5 weeks of activity for fiscal 2007, as compared to 52 weeks in fiscal 2008. Our net average shell egg selling price is the blended price for all sizes and grades of shell eggs, including non-graded shell egg sales, breaking stock and undergrades.

Cost of Sales. Cost of sales consists of costs directly related to production and processing of shell eggs, including feed costs, and purchases of shell eggs from outside egg producers. Cost of sales for the fiscal year ended May 31, 2008 was $617.4 million, an increase of $137.9 million, or 28.8%, as compared to cost of sales of $479.5 million for fiscal 2007. On a comparable basis, dozens produced decreased, dozens purchased from outside shell egg producers decreased and cost of feed ingredients increased in fiscal 2008. The cost of the shell eggs purchased from outside producers increased due to improved egg market selling prices. This fiscal year we produced 79% of the eggs sold by us, as compared to 78% for the previous year. Feed cost for fiscal 2008 was $.334 per dozen, compared to $.252 per dozen for the prior fiscal year, an increase of 32.5%. Higher than average egg selling prices, more than offset the increase in feed ingredient costs and higher costs of purchases from outside egg producers, resulting in an increase in gross profit from 19.8% of net sales for fiscal 2007 to 32.6% of net sales for fiscal 2008.

Selling, General and Administrative Expenses. Selling, general and administrative expenses include costs of marketing, distribution, accounting and corporate overhead. Selling, general and administrative expense was $74.9 million in fiscal 2008, an increase of $14.5 million as compared to $60.4 million for fiscal 2007. The increase in selling, general, and administrative expenses is primarily attributable to increases of $2.3 million in franchise fees for specialty egg sales, $4.8 million in our equity compensation plan expense, $2.2 million in administrative payroll expenses, $2.1 million in employee insurance costs, $645,000 for commissions paid to egg brokers, with delivery costs slightly up with an increase of $598,000. The expense recognized in connection with our stock based compensation plans is dependent on the price of the Company's common stock, which increased from $13.46 at June 2, 2007 to $31.20 at May 31, 2008. Overall, delivery costs increased slightly, due to continued reduction in the number of Company long haul trucks and the increased use of contract trucking. As a percent of net sales, selling, general and administrative expense decreased from 10.1% for fiscal 2007 to 8.2% for fiscal 2008.

Operating Income (Loss). As a result of the above, our operating income was $223.6 million for fiscal 2008, as compared to operating income of $58.2 million for fiscal 2007. The operating income as a percent of sales for fiscal 2008 was 24.4%, as compared to operating income of 9.7% for fiscal 2007.

Other Income (Expense). Other income or expense consists of income or costs not directly charged or related to operations such as equity in income of affiliates and interest expense. Other income for fiscal 2008 was $7.8 million as compared to other expense of $2.0 million for fiscal 2007, an increase of $9.8 million. We had lower average long-term borrowing balances and higher invested cash balances, which decreased net interest expense. Other income increased due to increased equity in income of affiliates, which are also in the shell egg business. Gains recorded on the sale of property, plant, & equipment, which includes the sale of our feed mill in Albuquerque, NM, also increased other income. Our net interest expense includes the computation of non-cash interest expense, which is imputed on our non-interest bearing obligation to acquire the remaining membership units of Hillandale, LLC over the remaining acquisition period culminating with us having a 100% ownership interest in Hillandale, LLC. As a percent of net sales, other income was .9% for fiscal 2008, as compared to other expense of .3% for fiscal 2007.

Income Taxes. For the fiscal year ended, May 31, 2008, our pre-tax income was $231.4 million, as compared to $56.3 million for fiscal 2007. Income tax expense of $79.5 million was recorded for fiscal 2008 with an effective income tax rate of 34.4%, as compared to $19.6 million for fiscal 2007 with an effective income tax rate of 34.8%. Our effective tax rate differs from the federal statutory income tax rate of 35% due to state income taxes and certain items included in income for financial reporting purposes that are not included in taxable income or loss for income tax purposes, including tax exempt interest income, certain employee stock option expense and the minority ownership in the profits and losses held in consolidated entities.

Net Income. As a result of the above, net income for fiscal 2008 was $151.9 million, or $6.41 per basic share and $6.40 per diluted share, as compared to $36.7 million, or $1.56 per basic share and $1.55 per diluted share for fiscal 2007.

Fiscal Year Ended June 2, 2007 Compared to Fiscal Year Ended June 3, 2006

Net Sales. In fiscal 2007, approximately 96% of our net sales consisted of shell egg sales and approximately 2% was for incidental feed sales to outside egg producers, with the 2% balance consisting of sales of egg products. Net sales for the fiscal year ended June 2, 2007 were $598.1 million, an increase of $120.5 million, or 25.2%, from net sales of $477.6 million for fiscal 2006. Total dozens of eggs sold and egg selling prices increased as compared to fiscal 2006. In fiscal 2007 total dozens of shell eggs sold were 685.4 million, an increase of 2.3 million dozen, or .3%, compared to 683.1 million sold in fiscal 2006. Our average selling price of shell eggs increased from $.672 per dozen for fiscal 2006 to $.832 per dozen for fiscal 2007, an increase of $.160 per dozen, or 23.8%. Our operating results are significantly affected by wholesale shell egg market prices, which are outside of our control. Small changes in production or demand levels can have a large effect on shell egg prices. During fiscal 2004, consumer demand increased, partially due to the popularity of high protein diets. Egg producers increased egg supply to meet consumer demand. During our second fiscal 2005 quarter, consumer demand decreased to normal levels. At the same time, egg supply continued at the higher levels and resulted in a drop in egg selling prices for the remainder of fiscal 2005. During fiscal 2006, consumer demand improved slightly, but egg supply continued at higher levels. During fiscal 2007, consumer demand remained steady, but egg supply was lower, which resulted in stronger egg prices.

Cost of Sales. Cost of sales consists of costs directly related to production and processing of shell eggs, including feed costs, and purchases of shell eggs from outside egg producers. Cost of sales for the fiscal year ended June 2, 2007 was $479.5 million, an increase of $64.2 million, or 15.5%, as compared to cost of sales of $415.3 million for fiscal 2006. On a comparable basis, dozens produced decreased, dozens purchased from outside shell egg producers increased and cost of feed ingredients increased in fiscal 2007. The cost of the shell eggs purchased from outside producers increased due to improved egg market selling prices. Feed cost for fiscal 2007 was $.252 per dozen, compared to $.206 per dozen for the prior fiscal year, an increase of 22.3%. Higher than average egg selling prices, more than offset the increase in feed ingredient costs and higher costs of purchases from outside egg producers, resulting in an increase in gross profit from 13% of net sales for fiscal 2006 to 19.8% of net sales for fiscal 2007.

Selling, General and Administrative Expenses. Selling, general and administrative expenses include costs of marketing, distribution, accounting and corporate overhead. Selling, general and administrative expense was $60.4 million in fiscal 2007, an increase of $2.7 million as compared to $57.7 million for fiscal 2006. The increase in selling, general, and administrative expenses is primarily attributable to an increase of $1.8 million in franchise fees for specialty egg sales, and an increase of $2.2 million in our equity compensation plan expense, with an overall decrease in delivery costs. The cost of the stock based compensation plans is dependent on the price of the Company's common stock, which increased from $7.19 at June 3, 2006 to $13.46 at June 2, 2007. Overall, delivery costs have decreased, due to a reduction in the number of Company long haul trucks, increased back haul loads and the increased use of contract trucking. Selling, general and administrative expense was $.088 per dozen sold for fiscal 2007 as compared to $0.084 for fiscal 2006. As a percent of net sales, selling, general and administrative expense decreased from 12.1% for fiscal 2006 to 10.1% for fiscal 2007

Operating Income (Loss). As a result of the above, our operating income was $58.2 million for fiscal 2007, as compared to operating income of $4.5 million for fiscal 2006. The operating income as a percent of sales for fiscal 2007 was 9.7%, as compared to operating income of .9% for fiscal 2006.

Other Income (Expense). Other income or expense consists of income or costs not directly charged or related to operations such as equity in income of affiliates and interest expense. Other expense for fiscal 2007 was $2.0 million as compared to other expense of $6.0 million for fiscal 2006, a decrease of $4.0 million. Net interest expense for fiscal 2007 decreased by $1.0 million, due to lower average long-term debt balances. In fiscal 2007, we reduced interest expense by capitalizing $566,000 of interest in connection with the construction of egg products and spent hen processing facilities in Waelder, TX. The non-cash interest expense, as explained below, decreased by $402,000. The reduction of other expense is attributable primarily to the increase in net income of affiliates. The non-cash expense is imputed on our non-interest bearing obligation to acquire the remaining membership units of Hillandale, LLC’s over the remaining acquisition period culminating with us having a 100% interest in Hillandale, LLC. As a percent of net sales, other expense was .3% for fiscal 2007, as compared to 1.2% for fiscal 2006.

Income Taxes. For the fiscal year ended, June 2, 2007, our pre-tax income was $56.3 million, as compared to a pre-tax loss of $1.5 million for fiscal 2006. Income tax expense of $19.6 million was recorded for fiscal 2007 with an effective income tax rate of 34.8%, as compared to an income tax benefit of $465,000 for fiscal 2006 with an effective income tax rate of 31.5%. Our effective tax rate differs from the federal statutory income tax rate of 35% due to state income taxes and certain items included in income for financial reporting purposes that are not included in taxable income or loss for income tax purposes, including tax exempt interest income, certain employee stock option expense and the minority ownership in the profits and losses held in consolidated entities such as Hillandale, LLC.

Net Income. As a result of the above, net income for fiscal 2007 was $36.7 million, or $1.56 per basic share and $1.55 per diluted share, compared to net loss of $1.0 million, or $0.04 per basic and diluted share for fiscal 2006.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

This report contains numerous forward-looking statements relating to our shell egg business, including estimated production data, expected operating schedules, expected capital costs and other operating data. Such forward-looking statements are identified by the use of words such as "believes," "intends," "expects," "hopes," "may," "should," "plan," "projected," "contemplates," "anticipates" or similar words. Actual production, operating schedules, results of operations and other projections and estimates could differ materially from those projected in the forward-looking statements. The factors that could cause actual results to differ materially from those projected in the forward-looking statements include (i) the risk factors set forth under Item 1A of our Annual Report on Form 10-K for the fiscal year ended May 31, 2008, (ii) the risks and hazards inherent in the shell egg business (including disease, pests, and weather conditions), (iii) changes in the market prices of shell eggs, and (iv) changes or obligations that could result from our future acquisition of new flocks or businesses. Readers are cautioned not to put undue reliance on forward-looking statements. We disclaim any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise.

As widely reported, financial markets have been experiencing extreme disruption in recent months, including, among other things, extreme volatility in securities prices, severely diminished liquidity and credit availability, rating downgrades of certain investments and declining valuations of others. Among other risks we face, the current tightening of credit in financial markets may adversely affect our ability to obtain financing in the future, including, if necessary, to fund a strategic acquisition, and our ability to refinance any of our long-term debt.

In addition, current economic conditions could harm the liquidity or financial position of our customers or suppliers, which could in turn cause such parties to fail to meet their contractual or other obligations to us.

In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured limits. Given the current instability of financial institutions, we cannot be assured that we will not experience losses on these deposits.

OVERVIEW

Cal-Maine Foods, Inc. (“we”, “us”, “our”, or the “Company”) is primarily engaged in the production, grading, packaging, marketing and distribution of fresh shell eggs. Our fiscal year end is the Saturday closest to May 31.

Our operations are fully integrated. At our facilities we hatch chicks, grow and maintain flocks of pullets (young female chickens, usually under 20 weeks of age), layers (mature female chickens) and breeders (male or female birds used to produce fertile eggs to be hatched for egg production flocks), manufacture feed, and produce, process and distribute shell eggs. We are the largest producer and marketer of shell eggs in the United States. We market the majority of our shell eggs in 29 states, primarily in the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States. We market our shell eggs through our extensive distribution network to a diverse group of customers, including national and regional grocery store chains, club stores, foodservice distributors and egg product manufacturers.

We currently produce approximately 78% of the total number of shell eggs sold by us, with approximately 5% of such total shell egg production being through the use of contract producers. Contract producers operate under agreements with us for the use of their facilities in the production of shell eggs by layers owned by us. We own the shell eggs produced under these arrangements. Approximately 22% of the total number of shell eggs sold by us is purchased from outside producers for resale, as needed.

Our operating income or loss is significantly affected by wholesale shell egg market prices, which can fluctuate widely and are outside of our control. Retail sales of shell eggs are generally greatest during the fall and winter months and lowest during the summer months. Prices for shell eggs fluctuate in response to seasonal factors and a natural increase in egg production during the spring and early summer.

Our cost of production is materially affected by feed costs, which currently average about 66% of our total farm egg production cost. Changes in market prices for corn and soybean meal, the primary ingredients of the feed we use, result in changes in our cost of goods sold. The cost of our feed ingredients, which are commodities, are subject to factors in which we have little or no control such as volatile price changes caused by weather, size of harvest, transportation and storage costs, demand and the agricultural and energy policies of the United States and foreign governments. Market prices for corn remain higher in part because of increasing demand from ethanol producers. Market prices for soybean meal remain higher as a result of competition for acres from other grain producers. However, our feed costs were lower than the previous quarter with both corn and soybean meal prices moving precipitously lower after reaching record levels during the summer of calendar year 2008. Feed costs, while much improved, will likely remain relatively high and could be volatile in the year ahead

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain items from our Condensed Consolidated Statements of Income expressed as a percentage of net sales.

NET SALES

Year- to-date, approximately 94% of our net sales consist of shell egg sales and approximately 5% was for sales of egg products, with the 1% balance consisting of sales of incidental feed and feed ingredients. Net sales for the thirteen-week period ended November 29, 2008 were $238.3 million, an increase of $14.6 million compared to net sales of $223.7 million for the thirteen-week period ended December 1, 2007. The Zephyr acquisition accounted for $10.7 million of the increase. Excluding the Zephyr acquisition, on a comparable basis, net sales increased $3.9 million or 1.7%, for the second fiscal 2009 quarter. Total dozens of eggs sold increased and egg selling prices increased in the current thirteen-week period as compared to the same comparable thirteen-week period in fiscal 2008. Dozens sold for the current thirteen-week period, including 8.3 million dozen sold by the Zephyr acquisition, were 185.2 million dozen, an increase of 12.9 million dozen, or 7.5% as compared to the similar thirteen-week period of fiscal 2008. On a comparable basis, excluding the Zephyr acquisition, dozens sold increased 2.7%. In the current thirteen-week period domestic demand for shell eggs was relatively level as compared to a year ago. During this quarter there was good demand for eggs at the retail level, but a declining demand for eggs from the institutional and food service sectors. Our net average selling price per dozen for the thirteen-week period ended November 29, 2008 was $1.209, compared to $1.183 for the thirteen-week period ended December 1, 2007, an increase of 2.2%. Based on the Urner Barry wholesale quotation for shell eggs, average shell egg selling prices actually decreased for the thirteen-week period ending November 29, 2008 as compared to the same period in fiscal 2008. Due to the increased percentage of specialty shell egg sales as a percentage of our total shell egg sales, our net average selling price per dozen increased this quarter as compared to last year. The net average selling price per dozen is the blended price for all sizes and grades of shell eggs, including non-graded egg sales, breaking stock and undergrades.

Our shell egg sales which represent approximately 94% of our net sales, includes the sale of specialty shell eggs. Specialty shell eggs include reduced cholesterol, cage free and organic eggs. In the thirteen weeks ended November 29, 2008, specialty shell eggs represented approximately 18.1% of our shell egg dollar sales, as compared to 14.0% for the same thirteen-week period last year. For the thirteen weeks ended November 29, 2008, specialty shell eggs represented 14.2% of the total dozen eggs sold, as compared to 11.7% for the same thirteen-week period last year.

Our egg product sales represent approximately 5% of our net sales. For the thirteen weeks ended November 29, 2008, egg product sales were $11.7 million, an increase of $1.9 million, or 19.4%, as compared to $9.8 million for the same thirteen- week period last year.

Net sales for the twenty-six week period ended November 29, 2008 were $445.2 million, an increase of $42.9 million, or 10.7% compared to net sales of $402.3 million for the fiscal 2008 twenty-six week period. Excluding the net sales of the Zephyr acquisition of $17.7 million, on a comparable basis, sales have increased $25.2 million, or 6.3%. Dozens sold for the current twenty-six week period, which include 14.3 million by the Zephyr acquisition, were 355.8 million compared to 336.2 million for the same twenty-six week period in fiscal 2008, an increase of 19.6 million dozen, or 5.8%. On a comparable basis, excluding the Zephyr acquisition, dozens sold have increased 1.6%. As in the current quarter, favorable egg market conditions resulted in an increase to our net average shell egg selling prices. For the current fiscal 2009 twenty-six week period, our net average selling price per dozen was $1.173, compared to $1.077 per dozen for the same period last year, an increase of $.096 per dozen, or 8.9%.

For the twenty-six weeks ended November 29, 2008, specialty shell eggs represented approximately 17.7% of our shell egg dollar sales, as compared to 14.2% for the same twenty-six week period last year. For the twenty-six weeks ended November 29, 2008, specialty shell eggs represented 13.5% of the total dozen eggs sold, as compared to 10.8% for the same twenty-six week period last year. For the twenty-six weeks ended November 29, 2008, egg product sales were $21.9 million, an increase of $4.4 million, or 25.1%, as compared to $17.5 million for the same twenty-six week period last year.

COST OF SALES

Cost of sales consists of costs directly related to production and processing of shell eggs, including feed costs, and purchases of shell eggs from outside egg producers. Total cost of sales for the thirteen-week period ended November 29, 2008 was $180.3 million, an increase of $32.6 million, as compared to the cost of sales of $147.7 million for the thirteen-week period ended December 1, 2007. The Zephyr acquisition’s cost of sales accounted for $7.3 million of the increase. Excluding the Zephyr acquisition, on a comparable basis, cost of sales increased $25.3 million, or 17.1%. This increase is the result of higher costs of feed ingredients and costs of shell eggs purchased from outside producers. Due to the increase in the volume of eggs purchased from other egg producers, our outside egg purchase cost increased. Feed cost for the thirteen-week period ended November 29, 2008 was $.385 per dozen, an increase of 27.1%, as compared to cost per dozen of $.303 for the same thirteen-week period in fiscal 2008. Increases in feed cost are the result of higher market prices for corn and soybean meal, primary ingredients for the feed we use. Other operating costs have also increased from last fiscal year. Increases in our net average shell egg selling prices did not offset the increase in feed ingredients, costs of purchased eggs and other operating costs, which resulted in a net decrease in gross profit from 34.0% of net sales for the thirteen-week period ended December 1, 2007 to 24.3% of net sales for the thirteen-week period ended November 29, 2008.

For the twenty-six week period ended November 29, 2008, total cost of sales was $346.5 million, an increase of $65.8 million, or 23.4%, as compared to cost of sales of $280.7 million for the twenty-six week period ended December 1, 2007. The Zephyr acquisition’s cost of sales accounted for $13.4 million of the increase. Excluding the Zephyr acquisition, on a comparable basis, cost of sales increased $52.4 million, or 18.7%. The increase in cost of sales is the result of higher cost of eggs purchased from outside producers and an increase in the cost of feed ingredients. Feed cost for the current twenty-six week period was $.417 per dozen, compared to $.294 per dozen for the twenty-six week period ended December 1, 2007, an increase of 41.8%. Gross profit decreased to 22.2% of net sales for the twenty-six week period ended November 29, 2008 from 30.2% for the comparable twenty-six week period ended December 1, 2007.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses include costs of marketing, distribution, accounting and corporate overhead. Selling, general and administrative expense for the thirteen-week period ended November 29, 2008 was $14.9 million, a decrease of $2.1 million, or 12.4%, as compared to $17.0 million for the thirteen-week period ended December 1, 2007. In the thirteen-week period ended November 29, 2008, stock compensation expense decreased by $5.0 million, and franchise fees and promotional expenses pertaining to our increasing specialty egg business increased by $1.6 million. The calculation of the stock based compensation plans expense is dependent on the closing stock price of the Company’s common stock, which increased from $24.63 at December 1, 2007 to $25.21 at November 29, 2008, however our stock price did decline from the previous thirteen-week period this fiscal 2009 period. The common stock price decreased from $39.49 at August 30, 2008 to $25.21 at November 29, 2008. Our net delivery expense increased by $952,000 for the thirteen-week period ended November 29, 2008. As a percent of net sales, selling, general and administrative expense decreased from 7.6% for the thirteen-week period ended December 1, 2007 to 6.2% for the thirteen-week period ended November 29, 2008.

For the twenty-six weeks ended November 29, 2008, selling, general and administrative expense was $37.6 million, an increase of $1.9 million, or 5.3% as compared to $35.7 million for the same period in fiscal 2008. In the twenty-six weeks ended November 29, 2008, franchise fees and promotional expenses pertaining to our increasing specialty egg business increased by approximately $2.7 million. In the current twenty-six week period, stock compensation expense decreased by approximately $4.0 million, and administrative payroll expenses increased approximately $956,000. A significant portion of the increase in payroll expense is due to the inclusion of the Zephyr acquisition. Our net delivery expense increased by $2.2 million for the twenty-six week period ended November 29, 2008. As a percent of net sales, selling, general and administrative expense decreased from 8.9% for the twenty-six weeks of fiscal 2008 to 8.4% for the current comparable period in fiscal 2009.

OPERATING INCOME

As a result of the above, operating income was $43.1 million for the second quarter ended November 29, 2008, as compared to operating income of $59.0 million for the second quarter of fiscal 2008. As a percent of net sales, the current fiscal 2009 quarter had an 18.1% operating income, compared to 26.4% for the comparable period in fiscal 2008.

For the twenty-six weeks ended November 29, 2008, operating income was $61.1 million, compared to operating income of $85.9 million for the comparable period in fiscal 2008. As a percent of net sales, the current fiscal 2009 period had 13.8% operating income, compared to 21.3% operating income for the same period in fiscal 2008.

OTHER INCOME (EXPENSE)

Other income or expense consists of costs or income not directly charged to, or related to, operations such as interest expense and equity in income from affiliates. Other expense for the thirteen-week period ended November 29, 2008 was $992,000, which is a decrease of $3.4 million from other income of $2.4 million for same thirteen-week period of fiscal 2008. This net decrease for the current thirteen-week period was primarily the result of a $165,000 decrease in net interest expense and a $3.5 million decrease in other income. Although we had higher average long-term borrowing balances this was offset by our higher invested cash balances, which decreased net interest expense. Other income decreased due to decreased equity in income of affiliates, and last year we recorded a significant gain on the sale of fixed assets. As a percent of net sales, other expense was .4% for the thirteen-weeks ended November 29, 2008, compared to other income of 1.1% for the comparable period last year.

For the twenty-six weeks ended November 29, 2008, other expense was $1.6 million, which is a decrease of $4.3 million from other income of $2.7 million for the comparable period in fiscal 2008. For the current fiscal 2009 twenty-six week period, net interest expense decreased by $595,000. Similar to the current thirteen-week period, we had higher average long-term borrowing balances, which were offset by our higher invested cash balances, which decreased net interest expense. Other income decreased $4.8 million from decreases in the equity in income of affiliates, and last year we recorded a significant gain on the sale of fixed assets. As a percent of net sales, other expense was .4% for the current fiscal 2009 twenty-six week period, as compared to other income of .7% for the comparable period in fiscal 2008.

INCOME TAXES

As a result of the above, our pre-tax income was $42.1 million for the thirteen-week period ended November 29, 2008, compared to pre-tax income of $61.4 million for last year’s comparable period. For the current thirteen-week period, income tax expense of $14.9 million was recorded with an effective tax rate of 35.3% as compared to an income tax expense of $21.2 million with an effective rate of 34.6% for last year’s comparable thirteen-week period.

For the twenty-six week period ended November 29, 2008, pre-tax income was $59.5 million, compared to pre-tax income of $88.6 million for the comparable period in fiscal 2008. For the current fiscal 2009 twenty-six week period, income tax expense of $21.1 million was recorded with an effective tax rate of 35.5%, as compared to an income tax expense of $30.5 million with an effective rate of 34.4% for last year’s comparable period. Our effective tax rate differs from the federal statutory income tax rate of 35% due to state income taxes and certain items included in income for financial reporting purposes that are not included in taxable income or loss for income tax purposes, including tax exempt interest income, certain stock option expense and the minority ownership interest in the profits and losses of Hillandale, LLC for income tax purposes.

NET INCOME

Net income for the thirteen-week period ended November 29, 2008 was $27.2 million, or $1.15 per basic and $1.14 per diluted share, compared to net income of $40.2 million, or $1.70 per basic and $1.69 per diluted share for the same period last year.

For the twenty-six week period ended November 29, 2008, net income was $38.4 million or $1.62 per basic and $1.61 per diluted share, compared to a fiscal 2008 net income of $58.1 million, or $2.46 per basic and $2.45 per diluted share.

CAPITAL RESOURCES AND LIQUIDITY

Our working capital at November 29, 2008 was $87.9 million compared to $121.6 million at May 31, 2008. Our current ratio was 1.76 at November 29, 2008 as compared with 2.18 at May 31, 2008. Our need for working capital generally is highest in the last and first fiscal quarters ending in May and August, respectively, when egg prices are normally at seasonal lows. Seasonal borrowing needs frequently are higher during these quarters than during other fiscal quarters. We have a $40 million line of credit with three banks, $6.0 million of which was outstanding and $2.7 million of which was utilized as a standby letter of credit at November 29, 2008. Our long-term debt at November 29, 2008, including current maturities, amounted to $118.6 million, as compared to $97.2 million at May 31, 2008.

For the twenty-six weeks ended November 29, 2008, $40.3 million in net cash was provided by operating activities. This compares to net cash provided by operating activities of $58.9 million for the 26 weeks ended December 1, 2007. For the twenty-six weeks ended November 29, 2008, $7.2 million was used for the purchase of short-term investments, $10.5 million was provided from the sale of short-term investments, and net $341,000 was used for notes receivable and other investments. Approximately $268,000 was provided from disposal of property, plant and equipment, $15.1 million was used for purchases of property, plant and equipment and $12.4 million was used for an additional acquisition of the Hillandale business. We used $29.8 million for the acquisition of Zephyr Egg, LLC. We designated $60.7 million for the purchase of Tampa Farms, LLC. Approximately $16.0 million was used for payments of dividends on the common stock, and $4.5 million was used for principal payments on long-term debt. We received $248,000 from the issuance of common stock from the treasury through the exercise of stock options. Approximately $26.0 million was received from additional long-term borrowings. The net result of these activities was a decrease in cash and cash equivalents of $68.7 million since May 31, 2008.

For the twenty-six weeks ended December 1, 2007, $19.8 million was used for the purchase of short-term investments and $96,000 was used for notes receivable and investments. Approximately $2.1 million was provided from disposal of property, plant and equipment, $12.2 million was used for purchases of property, plant and equipment and $6.8 million was used for payment on the purchase obligation for Hillandale, LLC. Approximately $588, 000 was used for payments of dividends on the common stock, and $8.6 million was used for principal payments on long-term debt. We received $608,000 from the issuance of common stock from the treasury through the exercise of stock options. The net result of these activities was an increase in cash and cash equivalents of $13.5 million since June 2, 2007.

Substantially all trade receivables and inventories collateralize our revolving line of credit. Most of our property, plant and equipment collateralize our long-term debt under our loan agreements with our lenders. Unless otherwise approved by our lenders, we are required by provisions of these loan agreements to (1) maintain minimum levels of working capital (ratio of not less than 1.25 to 1) and net worth (minimum of $90.0 million tangible net worth adjusted for earnings); (2) limit capital expenditures less exclusions (not to exceed $60.0 million for any period of four consecutive fiscal quarters), lease obligations and additional long-term borrowings (total funded debt to total capitalization not to exceed 55%); and (3) maintain various cash-flow coverage ratios (1.25 to 1), among other restrictions. At November 29, 2008 we were in compliance with the provisions of all loan agreements. Under certain of the loan agreements, the lenders have the option to require the prepayment of any outstanding borrowings in the event we undergo a change in control.

Under the terms of our Agreement with Hillandale and the Hillandale shareholders, a new Florida limited liability company named Hillandale, LLC was formed. In fiscal 2006, we purchased 51% of the Units of Membership in Hillandale, LLC for cash of approximately $27.0 million, with the remaining Units to be acquired in essentially equal annual installments over a four-year period. The purchase price of the Units is equal to their book value as calculated in accordance with the terms of the Agreement. In fiscal 2007, we purchased, pursuant to the Agreement, an additional 13% of the Units of Membership for $6.1 million from our cash balances. In fiscal 2008, we purchased an additional 12% of the Units of Membership for $6.8 million from our cash balances. During fiscal 2008, an additional payment of $5.7 million was paid on the purchase obligation. In fiscal 2009, we purchased an additional 12% of the Units of Membership for $11.6 million from our cash balances. We have recorded the obligation to acquire the remaining 12% at its estimated present value of $11.2 million at November 29, 2008. The actual remaining purchase price may be higher or lower when the acquisitions are completed. Future funding is expected to be provided by our cash balances and borrowings under our existing credit facilities.

Capital expenditure requirements are expected to be for the normal repair and replacement of our facilities. In addition, we are constructing a new integrated layer production complex in the city of Farwell in west Texas to replace our Albuquerque, New Mexico complex, which has ceased egg production. The expected cost is approximately $30.0 million. Completion of this facility is estimated to be in January 2010. As of November 29, 2008 capital expenditures related to construction of this complex were $23.2 million. The remaining future capital expenditures will be funded by cash flows from operations, existing lines of credit and additional long-term borrowings.

Delta Egg Farm, LLC, an unconsolidated affiliate, is constructing an organic egg production and distribution facility near our Chase, Kansas location. The cost of construction is estimated to be approximately $13.0 million. In connection with this project, we are a pro rata guarantor, with the other Delta Egg Farm, LLC owners, of additional debt undertaken to fund construction of this facility. We are currently a guarantor of approximately $7.3 million of long-term debt of Delta Egg Farm, LLC.

On November 3, 2008, we agreed to accept Auction Rate Security Rights (the Rights) from UBS offered through a prospectus filed on October 7, 2008. The Rights permit us to sell, or put, our auction rate securities back to UBS at par value at any time during the period from June 30, 2010 through July 2, 2012. We expect to exercise our Rights and put our auction rate securities back to UBS on June 30, 2010, the earliest date allowable under the Rights.

As of November 29, 2008, we had the intent and ability to hold these securities until anticipated recovery. As a result, we had recognized the unrealized loss previously as a temporary impairment in other comprehensive income in stockholders’ equity.

By accepting the Rights, we can no longer assert that we have the intent to hold the auction rate securities until anticipated recovery. Therefore, we recognized an other-than-temporary impairment charge of approximately $4,713 in the second quarter of fiscal 2009. The charge was measured as the difference between the par value and market value of the auction rate securities on November 3, 2008, the date we accepted the Rights. However as we will be permitted to put the auction rate securities back to UBS at par value, we will account for the Rights as a separate asset that will be measured at its fair value, resulting in a gain of approximately $4,713 recorded on November 3, 2008, the date we accepted the Rights. As a result of our acceptance of the Rights, we have elected to classify the Rights and reclassify our investments in auction rate securities as trading securities, as defined by FAS No. 115, on the date of our acceptance of the Rights. As a result, we will be required to assess the fair value of these two individual assets and record changes each period until the Rights are exercised and the auction rate securities are redeemed. Although the Rights represent the right to sell the securities back to UBS at par, we will be required to periodically assess the economic ability of UBS to meet that obligation in assessing the fair value of the Rights. We will continue to classify the auction rate securities as long-term investments until June 30, 2009, one year prior to the expected settlement.

Investment securities classified as trading securities consists of securities accounted for in accordance with FAS 115. Trading securities are bought and held principally for the purpose of selling them. Unrealized holding gains and losses for trading securities are included in earnings.

We feel that the reclassification of our auction rate securities as trading is the most appropriate classification, based on management’s intent by accepting the Rights.







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