Edgar Filing: CAL MAINE FOODS INC

Unassociated Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR FISCAL YEAR ENDED May 31, 2008

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

Commission file number: 000-04892

CAL-MAINE FOODS, INC.

(Exact name of registrant as specified in its charter)

Delaware		64-0500378
(State or other Jurisdiction of		(I.R.S. Employer Identification No.)
Incorporation or Organization)

3320 Woodrow Wilson Avenue, Jackson, Mississippi 39209

(Address of principal executive offices) (Zip Code)

(601) 948-6813

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:

Title of each Class:		Name of exchange on which registered:
Common Stock, $0.01 par value per share		The NASDAQ Global Market

Securities registered pursuant to Section 12 (g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act.

Yes ¨ No x

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

Yes ¨ No x

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

Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨

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

Yes ¨ No x

The aggregate market value, as reported by the NASDAQ Global Market, of the registrant’s Common Stock, $0.01 par value, held by non-affiliates at December 1, 2007, which was the date of the last business day of the registrant’s most recently completed second fiscal quarter, was $330,278,900

As of July 30, 2008, 21,317,091 shares of the registrant’s Common Stock, $0.01 par value, and 2,400,000 shares of the registrant’s Class A Common Stock, $0.01 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The information called for by Part III of the Form 10-K is incorporated herein by reference from the registrant’s Definitive Proxy Statement which will be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

TABLE OF CONTENTS

Item		Page Number

	Part I

1.	Business	4
1A.	Risk Factors	12
1B.	Unresolved Staff Comments	16
2.	Properties	16
3.	Legal Proceedings	17
4.	Submission of Matters to a Vote of Security Holders	18

	Part II

5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	19
6.	Selected Financial Data	20
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
7A.	Quantitative and Qualitative Disclosures About Market Risk	30
8.	Financial Statements and Supplementary Data	30
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	60
9A.	Controls and Procedures	60
9B.	Other Information	60

	Part III

10.	Directors and Executive Officers of the Registrant	61
11.	Executive Compensation	61
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	61
13.	Certain Relationships and Related Transactions	61
14.	Principal Accountant Fees and Services	61

	Part IV

15.	Exhibits and Financial Statement Schedules	62

	Signatures	67

PART I

ITEM 1.

BUSINESS

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.

Factors currently influencing demand:

	-	industry advertising campaigns successfully promoting the health benefits of eggs;

	-	positive announcements from the medical community highlighting eggs as a good source of protein;

	-	increased consumption resulting from the factors noted above as well as the reduced level of cholesterol in eggs; and

	-	increased demand from the foodservice channel.

Factors currently influencing supply:


	-	the living space requirements for newly hatched layers will increase for 2008 according to guidelines put in place in 2002 by the United Egg Producers, in conjunction with the Food Marketing Institute, both industry trade associations;

	-	the process to bring new shell egg production capacity online has become more complex than in the past, increasing the time it takes to bring new capacity to market.

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.

The shell egg industry remains highly fragmented but is characterized by a growing concentration of producers. In 2007, 65 producers with one million or more layers owned 89% of the 284 million total U.S. layers, compared to 56 producers with one million or more layers owning 64% of the 232 million total U.S. layers in 1990, and 61 producers with one million or more layers owning 56% of the 248.0 million total U.S. layers in 1985. We believe that a continuation of that concentration trend may result in the reduced cyclicality of shell egg prices, but no assurance can be given in that regard. A continuation of this trend could also create greater competition among fewer producers.

Patents and Trade names. We own the trade names Farmhouse, Rio Grande and Sunups. We do not own any patents or proprietary technologies. We produce and market Egg-Land's Best(TM) eggs under license agreements with EB. We own a 25.9% non-voting equity interest in EB.

Government Regulation. Our facilities and operations are subject to regulation by various federal, state and local agencies, including, but not limited to, the United States Food and Drug Administration (“FDA”), the USDA, Environmental Protection Agency, Occupational Safety and Health Administration and corresponding state agencies. The applicable regulations relate to grading, quality control, labeling, sanitary control and waste disposal. Our shell egg facilities are subject to periodic USDA inspections. Our feed production facilities are subject to FDA regulation and inspections. In addition, we maintain our own inspection program to assure compliance with our own standards and customer specifications. We do not know of any major capital expenditures necessary to comply with such statutes and regulations; however, there can be no assurance that we will not be required to incur significant costs for compliance with such statutes and regulations in the future.

Environmental Regulation. Our operations and facilities are subject to various federal, state and local environmental laws and regulations governing, among other things, the generation, storage, handling, use, transportation, disposal and remediation of hazardous materials. Under these laws and regulations, we are also required to obtain permits from governmental authorities, including, but not limited to, wastewater discharge permits. We have made and will continue to make capital and other expenditures relating to compliance with existing environmental, health and safety laws and regulations and permits. We do not currently know of any major capital expenditures necessary to comply with such laws and regulations; however, because environmental, health and safety laws and regulations are becoming increasingly more stringent, including those relating to animal wastes and wastewater discharges, there can be no assurance that we will not be required to incur significant costs for compliance with such laws and regulations in the future. In addition, under certain circumstances, we may incur costs associated with our contract producers' failure to comply with laws and regulations, including environmental laws and regulations.

Employees. As of May 31, 2008, we had a total of approximately 1,800 employees of whom 1,600 worked in egg production, processing and marketing, 100 were engaged in feed mill operations and 100 were administrative employees, including officers, at our executive offices. Approximately 5% of our personnel are part-time. None of our employees are covered by a collective bargaining agreement. We consider our relations with employees to be good.

ITEM 1A.

RISK FACTORS

We are subject to numerous risks and uncertainties, including the following:

Market prices of wholesale shell eggs are volatile and changes in these prices and costs can adversely impact our results of operations.

Our operating results are significantly affected by wholesale shell egg market prices, which fluctuate widely and are outside of our control. Small increases in production or small decreases in demand can have a large adverse effect on shell egg prices. Shell egg prices have experienced an upward trend since 2002 and rose to historical highs in late 2003 and early 2004. In the early fall of 2004, the demand trend related to the popular diets faded dramatically. During the time of increased demand, the egg industry had geared up to produce more eggs, resulting in an oversupply of eggs. In March 2005, the egg industry took action to better align the size of laying flocks with current demand needs. Current U.S. Department of Agriculture statistics indicate a reduced flock size that is now more in line with current demand. There can be no assurance that shell egg prices will remain at or near current levels and that the supply of shell eggs will remain level in the future.

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 shell egg production during the spring and early summer. Shell egg prices tend to increase with the start of the school year and are highest prior to holiday periods, particularly Thanksgiving, Christmas and Easter. Consequently, we generally experience lower sales and net income in our first and fourth fiscal quarters ending in August and May, respectively. As a result of these seasonal and quarterly fluctuations, comparisons of our sales and operating results between different quarters within a single fiscal year are not necessarily meaningful comparisons.

Changes in consumer demand for shell eggs can negatively impact our business.

As discussed above, demand for shell eggs has increased in recent years as a result of a number of factors. We believe that increased fast food restaurant consumption, favorable reports from the medical community regarding the health benefits of shell eggs, reduced shell egg cholesterol levels, high protein diet trends and industry advertising campaigns have all contributed to the increase in shell egg demand. However, there can be no assurance that the demand for shell eggs will not decline in the future. Adverse publicity relating to health concerns and changes in the perception of the nutritional value of shell eggs, as well as movement away from high protein diets, could adversely affect demand for shell eggs, which would have a material adverse effect on our future results of operations and financial condition.

Feed costs are volatile and changes in these costs can adversely impact our results of operations.

Feed costs represent the largest element of our shell egg production (farm) cost, ranging from 52% to 64% of total farm annual cost in each of the last five fiscal years. Although feed ingredients are available from a number of sources, we have little, if any, control over the prices of the ingredients that we purchase, which are affected by various demand and supply factors and have experienced significant fluctuations in the past. Prices for corn and soybean meal, essential feed ingredients, are higher this year as compared to last year. However, there are wide swings in corn and soybean meal prices because of irregular weather patterns in the Midwest and widely varying forecast projections for the 2008 fall harvest season in September and October. Increasing demands for the use of corn and soybean in the production of renewable energy such as ethanol are also putting upward pressure on the price of these feed ingredients. Increases in feed costs which are not accompanied by increases in the selling price of shell eggs will have a material adverse effect on the results of our operations.

Due to the cyclical nature of our business, our financial results from year to year may fluctuate.

The shell egg industry has traditionally been subject to periods of high profitability followed by periods of significant loss. In the past, during periods of high profitability, shell egg producers have tended to increase the number of layers in production with a resulting increase in the supply of shell eggs, which generally has caused a drop in shell egg prices until supply and demand return to balance. As a result, our financial results from year to year may vary significantly.

We purchase approximately 21% of the shell eggs we sell from outside producers and our ability to obtain such eggs at prices and in quantities acceptable to us could fluctuate.

We produce approximately 79% of the total number of shell eggs sold by us and purchase the remaining amount from outside producers. As the wholesale price for shell eggs increases, our cost to acquire shell eggs from outside producers also increases. There can be no assurance that we will be able to continue to acquire shell eggs from outside producers in quantities and prices that are satisfactory and our inability to do so may have a material adverse affect on our business and profitability.

Our acquisition growth strategy subjects us to various risks.

We plan to pursue a growth strategy which includes acquisitions of other companies engaged in the production and sale of shell eggs. Acquisitions can require capital resources and divert management's attention from our existing business. Acquisitions also entail an inherent risk that we could become subject to contingent or other liabilities, including liabilities arising from events or conduct prior to our acquisition of a business that were not known to us at the time of acquisition. We may also incur significantly greater expenditures in integrating an acquired business than we had anticipated at the time of its purchase. We cannot assure you that we:

will identify suitable acquisition candidates;

can consummate acquisitions on acceptable terms; or

can successfully integrate any acquired business into our operations or successfully manage the operations of any acquired business.

No assurance can be given that companies acquired by us in the future will contribute positively to our results of operations or financial condition. In addition, federal anti-trust laws require regulatory approval of acquisitions that exceed certain threshold levels of significance.

The consideration we pay in connection with any acquisition also affects our financial results. If we pay cash, we could be required to use a portion of our available cash to consummate the acquisition. To the extent we issue shares of our Common Stock, existing stockholders may be diluted. In addition, acquisitions may result in the incurrence of debt.

Our largest customers have historically accounted for a significant portion of our net sales volume. Accordingly, our business may be adversely affected by the loss of, or reduced purchases by, one or more of our large customers.

For the fiscal years 2008, 2007, and 2006, two affiliated customers, Wal-Mart Stores and Sam’s Clubs, on a combined basis, accounted for 36.5%, 36.9%, and 36.6% of our net sales, respectively. Our top 10 customers accounted for 66.5%, 67.4%, and 66.8% of net sales during those periods. Although we have established long-term relationships with many of our customers, we do not have contractual relationships with any of our major customers for the sale of our shell eggs. If, for any reason, one or more of our larger customers were to purchase significantly less of our shell eggs in the future or were to terminate their purchases from us, and we are not able to sell our shell eggs to new customers at comparable levels, it would have a material adverse effect on our business, financial condition and results of operations.

Failure to comply with applicable governmental regulations, including environmental regulations, could harm our operating results, financial condition and reputation.

We are subject to federal and state regulations relating to grading, quality control, labeling, sanitary control and waste disposal. As a fully-integrated shell egg producer, our shell egg facilities are subject to United States Department of Agriculture, the USDA, and Food and Drug Administration, the FDA, regulation and various state and local health and agricultural agencies. Our shell egg processing facilities are subject to periodic USDA inspections. Our feed production facilities are subject to FDA regulation and inspections.

Our operations and facilities are also subject to various federal, state and local environmental, health and safety laws and regulations governing, among other things, the generation, storage, handling, use, transportation, disposal and remediation of hazardous materials. Under these laws and regulations, we are also required to obtain permits from governmental authorities, including, but not limited to wastewater discharge permits.

If we fail to comply with any applicable law or regulation or permit, or fail to obtain any necessary permits, we could be subject to significant fines and penalties or other sanctions, our reputation could be harmed and our operating results and financial condition could be materially and adversely affected. In addition, because these laws and regulations are becoming increasingly more stringent, there can be no assurances that we will not be required to incur significant costs for compliance with such laws and regulations in the future.

Our business is highly competitive.

The production and sale of fresh shell eggs, which have accounted for virtually all of our net sales in recent years, is intensely competitive. We compete with a large number of competitors that may prove to be more successful than we are in marketing and selling shell eggs. We cannot provide assurance that we will be able to compete successfully with any or all of these companies. In addition, increased competition could result in price reductions, greater cyclicality, reduced margins and loss of market share, which would negatively affect our business, results of operations and financial condition.

Pressure from animal rights groups regarding the treatment of animals may subject us to additional costs to conform our practices to comply with developing standards or subject us to marketing costs to defend challenges to our current practices and protect our image with our customers.

We and many of our customers are facing pressure from animal rights groups, such as People for the Ethical Treatment of Animals, or PETA, and the Humane Society of the United States, to require that any companies that supply food products operate their business in a manner that treats animals in conformity with certain standards developed by these animal rights groups. As a result, we are reviewing and changing our operating procedures with respect to our flock of hens to meet some or all of these treatment standards. The treatment standards require, among other things, that we provide increased cage space for our hens and modify beak trimming and forced molting practices (the act of putting chickens into a regeneration cycle). Changing our procedures and infrastructure to conform to these guidelines has resulted and will continue to result in additional costs to our internal production of shell eggs, including cost increases from housing and feeding the increased flock population resulting from the modification of molting practices, and the cost for us to purchase shell eggs from our outside suppliers. While some of these increased costs have been passed on to our customers, we cannot provide assurance that we can continue to pass on these costs, or any additional costs we will face, in the future.

We are dependent on our management team, and the loss of any key member of this team may adversely affect the implementation of our business plan in a timely manner.

Our success depends largely upon the continued services of our senior management team, including Fred R. Adams, Jr., our Chairman and Chief Executive Officer. The loss or interruption of Mr. Adams' services or those of one or more of our other executive officers could adversely affect our ability to manage our operations effectively and/or pursue our growth strategy. We have not entered into any employment or non-compete agreements with any of our executive officers nor do we carry any significant key-man life insurance on any such persons.

Agricultural risks could harm our business.

Our shell egg production activities are subject to a variety of agricultural risks. Unusual or extreme weather conditions, disease and pests can materially and adversely affect the quality and quantity of shell eggs we produce and distribute. If a substantial portion of our production facilities are affected by any of these factors in any given quarter or year, our business, financial condition and results of operations could be materially and adversely affected.

We have invested in auction rate securities, the market for which is currently illiquid. Funds associated with certain of our auction rate securities may not be accessible for an undetermined period of time.

We are exposed to risk related to our investments in auction rate securities. Liquidity for these securities is typically provided by an auction process that resets the applicable interest rate at pre-determined intervals, usually on average every 7-35 days. Because of the short interest rate reset period, we have historically recorded them on our consolidated balance sheet as current investment securities available-for-sale. The liquidity of these securities has been negatively impacted by the uncertainty in the credit markets and the exposure of these securities to the financial condition of bond insurance companies. These securities had been subject to auction processes for which there had been insufficient bidders on the scheduled rollover dates. We will not be able to liquidate any of our auction rate securities until a future auction is successful, a buyer is found outside of the auction process or the notes are redeemed. An auction failure, which is not a default in the underlying debt instrument, occurs when there are more sellers than buyers at a scheduled interest rate auction date and parties desiring to sell their securities are unable to do so. If the credit market does not improve, auctions for our invested amounts may continue to fail. If an auction fails for securities in which we have invested, we may be unable to liquidate some or all of our auction rate securities at par, should we need or desire to access the funds invested in those securities. In the event we need or desire to access these funds, we will not be able to do so until a future auction on these investments is successful or a buyer is found outside the auction process. If a buyer is found but is unwilling to purchase the investments at par, we may incur a loss. Furthermore, if the issuers of the auction rate securities are unable to successfully complete future auctions and their credit ratings deteriorate, we may be required to adjust the carrying value of these investments by recording an impairment charge.

There is no assurance as to when the market for auction rate securities will stabilize. The fair value of our auction rate securities could change significantly based on market conditions and continued uncertainties in the credit markets. If conditions in the credit markets deteriorate further causing additional auctions to fail, the funds associated with these auction rate securities may also not be accessible for an undetermined period of time, and we may be required to record losses or an impairment charge on our auction rate securities portfolio in future quarters, which may harm our financial condition.

We are controlled by a principal stockholder.

Fred R. Adams, Jr., our Chairman of the Board and Chief Executive Officer, and his spouse own 33.8% of the outstanding shares of our Common Stock, which has one vote per share, and Mr. Adams owns 81.3% and his son-in-law, Adolphus B. Baker, our president, chief operating officer and director, owns 18.7% of the outstanding shares of Class A Common Stock, which has ten votes per share. Mr. Baker and his spouse also own 1.7% of the outstanding shares of our Common Stock. As a result, currently Mr. Adams and his spouse possess 58.9%, and Messrs. Adams and Baker and their spouses possess 69.6%, of the total voting power represented by the outstanding shares of our Common Stock and Class A Common Stock. These stockholdings include shares of our Common Stock accumulated under our employee stock ownership plan for the respective accounts of Messrs. Adams and Baker.

The Adams family intends to retain ownership of a sufficient amount of Common Stock and Class A Common Stock to assure its continued ownership of over 50% of the combined voting power of our outstanding shares of capital stock. Such ownership will make an unsolicited acquisition of us more difficult and discourage certain types of transactions involving a change of control of our company, including transactions in which the holders of Common Stock might otherwise receive a premium for their shares over then current market prices. In addition, certain provisions of our Certificate of Incorporation require that our Class A Common Stock be issued only to Fred R. Adams, Jr. and members of his immediate family, and that if shares of the Class A Common Stock, by operation of law or otherwise, are deemed not to be owned by Mr. Adams or a member of his immediate family, the voting power of any such shares shall be automatically reduced to one vote per share. The Adams family controlling ownership of our capital stock may adversely affect the market price of our Common Stock.

Based on Mr. Adams' beneficial ownership of our outstanding capital stock, we are a "controlled company," as defined in Rule 4350(c) (5) of the listing standards of the NASDAQ Global Market on which our shares of Common Stock are quoted. Accordingly, we are exempt from certain requirements of NASDAQ's corporate governance listing standards, including the requirement to maintain a majority of independent directors on our board of directors and the requirements regarding the determination of compensation of executive officers and the nomination of directors by independent directors.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

Not applicable

ITEM 2.

PROPERTIES

We operate farms, processing plants, hatcheries, feed mills, warehouses, offices and other properties located in Alabama, Arkansas, Florida, Georgia, Kansas, Kentucky, Louisiana, Mississippi, New Mexico, North Carolina, Ohio, South Carolina, Tennessee, Texas and Utah. The facilities currently include two breeding facilities, two hatcheries, five wholesale distribution centers, 17 feed mills, 33 shell egg production facilities, 21 pullet growing facilities, and 31 processing and packing facilities. We also own interests in two egg products facilities and one spent hen processing facility, which are consolidated in our financial statements. Most of our operations are conducted from properties we own.

Presently, we own approximately 19,000 acres of land in various locations throughout our geographic market area. We have the ability to hatch 21.2 million pullet chicks annually, grow 15 million pullets annually, house 27 million laying hens and control the production of an aggregate total of 28 million layers. We also own or control mills that can produce 590 tons per hour of feed, and processing facilities capable of processing 10,400 cases of shell eggs per hour (with each case containing 30 dozen shell eggs). Our facilities are well-maintained and operate at a high level of efficiency. Typically, we insure our facilities for replacement value.

Over the past five fiscal years, our capital expenditures, excluding acquisitions of shell egg production and processing facilities from others, have totaled an aggregate amount of approximately $86.7 million. The Company’s facilities currently are maintained in good operable condition and are insured to an extent the Company deems adequate.

ITEM3.

LEGAL PROCEEDINGS

Chicken Litter Litigation.

On May 2, 2005, Cal-Maine Farms, Inc. (“Cal-Maine Farms”), one of our subsidiaries, was added as a defendant in an ongoing action styled Leslie Carroll, et al. v. Alpharma, Inc., et al. in the Circuit Court of Washington County, Arkansas. There are approximately 80 plaintiffs in the action. The plaintiffs complain of a wide variety of medical problems which they attribute to the use of chicken manure and litter throughout Washington County, Arkansas. The theory of liability is the same as in the McWhorter case previously reported in our filings with the Securities and Exchange Commission and summarized below. An answer has been filed, and discovery has begun, but no trial date has been set. At this stage it is impossible to evaluate the potential exposure, if any, of Cal-Maine Farms to damages in this suit.

On February 3, 2004, Cal-Maine Farms was served with process in a civil complaint filed in the Circuit Court of Washington County, Arkansas, on behalf of Keith McWhorter and Patsy McWhorter, individually and as next friends and guardians of Hunter McWhorter. Other defendants include Alpharma Inc., Alpharma Animal Health Co., Cargill Incorporated, George’s Farms, Inc., Peterson Farms, Inc., Simmons Foods, Inc., Simmons Poultry Farms, Inc., and Tyson Foods, Inc. Each of the other poultry defendants is engaged in the broiler business. The Alpharma defendants produce additives for broiler feed. One individual was originally named as a defendant, but has been dismissed.

Both the McWhorter and Carroll suits allege that the plaintiffs have suffered medical problems resulting from living near land upon which “litter” from the defendants’ flocks was spread as fertilizer. The Carroll suit focuses on a feed ingredient that contains arsenic and is alleged to be in the litter that was spread. We do not use this particular feed ingredient in our shell egg production feed formulation. The McWhorter suit focuses on mold and fungi allegedly created by the application of litter. Both suits address conditions alleged to exist in Washington County. Both suits seek unspecified actual damages and request unspecified punitive damages. An answer has been filed on behalf of Cal-Maine Farms and some initial discovery has taken place. At this stage it is impossible to evaluate the potential exposure, if any, of Cal-Maine Farms to damages in these suits.

A number of other similar cases were filed by the same attorneys at the same time the McWhorter and Carroll cases were filed. The plaintiffs’ attorneys selected a test case which they prosecuted first. No Cal-Maine company was a defendant in that case, but the issues were the same as in the McWhorter and Carroll cases. Summary judgment was entered for the poultry defendants in that test case. The Arkansas Supreme has now reversed that entry of summary judgment. That test case has been scheduled for trial in 2009. Neither the McWhorter nor Carroll case has been scheduled for trial.

State of Oklahoma Watershed Pollution Litigation.

On June 18, 2005, the State of Oklahoma filed suit, in the United States District Court for the Northern District of Oklahoma, against a number of companies, including Cal-Maine Foods, Inc. and Cal-Maine Farms, Inc. We and Cal-Maine Farms filed our joint answer and motion to dismiss the suit on October 3, 2005. The State of Oklahoma claims that through the disposal of chicken litter the defendants have polluted the Illinois River Watershed. This watershed provides water to eastern Oklahoma. The Complaint seeks injunctive relief and monetary damages. The parties participated in a series of mediation meetings without success. Cal-Maine Foods, Inc. no longer operates in the watershed. Accordingly, we do not anticipate that Cal-Maine Foods, Inc. will be materially affected by the request for injunctive relief. Cal-Maine Foods, Inc. owns ninety percent of a new corporation, Benton County Foods, LLC, which is an ongoing commercial shell egg operation within the Illinois River Watershed. Benton County Foods, LLC is not a defendant in the litigation.

Some dispositive motions have been filed jointly by all defendants. Some of those motions were rejected by the Court, and others were left unresolved after oral arguments. Other dispositive motions will be filed. We are not able at present to give an opinion regarding the ultimate resolution of the action.

In February, 2008, a hearing was had on the plaintiff’s motion for preliminary injunctive relief. The principal relief sought was a moratorium on litter application in the watershed. The district court has not yet ruled on the motion.

The presiding judge has appointed a fellow district court judge to act as a settlement judge. That judge has initiated settlement discussions. Three settlement meetings have taken place, but thus far have not been productive.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year.

PART II.

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our Common Stock is traded on the NASDAQ Global Market under the symbol “CALM”. The last reported sale price for our Common Stock on July 30, 2008 was $38.02 per share. The following table sets forth the high and low daily sale prices and dividends per share for four quarters of fiscal 2007 and fiscal 2008.

			Sales Price				Dividends
Fiscal Year Ended	Fiscal Quarter		High		Low

June 2, 2007		First Quarter	$	7.58	$	6.29	$	0.0125
		Second Quarter		8.45		6.14	$	0.0125
		Third Quarter		14.49		7.91	$	0.0125
		Fourth Quarter		14.07		11.33	$	0.0125

May 31, 2008		First Quarter	$	22.73	$	13.04	$	0.0125
		Second Quarter		28.75		19.59	$	0.0125
		Third Quarter		35.90		20.75	$	0.8038
		Fourth Quarter		40.75		26.60	$	0.5138

There is no public trading market for the Class A Common Stock all the outstanding shares of which are owned by Fred R. Adams, Jr., Chairman of the Board of Directors and Chief Executive Officer of the Company (81.3%) and his son-in-law Adolphus Baker, President, Chief Operating Officer and Director of the Company (18.7%).

STOCKHOLDERS

At August 1, 2008, there were approximately 290 record holders of our Common Stock and approximately 19,300 beneficial owners whose shares were held by nominees or broker dealers.

DIVIDENDS

We have paid cash dividends on our Common Stock since 1998. The annual dividend rate of $0.05 per share of Common Stock, or $0.0125 per quarter, was paid in each of the fiscal quarters shown in the table above, through the second quarter of fiscal 2008. We have also paid cash dividends on our Class A Common Stock at a rate equal to 95% of the annual rate on our Common Stock. Effective November 30, 2007, the Company’s Board of Directors approved the adoption of a variable dividend policy to replace the Company’s fixed dividend policy. Commencing with the third quarter of fiscal 2008 Cal-Maine began to pay a dividend to shareholders of its Common Stock and Class A Common Stock on a quarterly basis for each quarter for which the Company reports net income computed in accordance with generally accepted accounting principles in an amount equal to one-third (1/3) of such quarterly income. The amount of the dividend payable on each share of Class A Common Stock is in an amount equal to 95% of the amount paid on each share of Common Stock. Dividends are paid to shareholders of record as of the sixtieth day following the last day of such quarter, and are payable on the fifteenth day following the record date. Following a quarter for which the Company does not report net income, the Company shall not pay a dividend for a subsequent profitable quarter until the Company is profitable on a cumulative basis computed from the date of the last quarter for which a dividend was paid.

RECENT SALES OF UNREGISTERED SECURITIES

No sales of securities without registration under the Securities Act of 1933 occurred during our fiscal year ended May 31, 2008.

ITEM 6.

SELECTED FINANCIAL DATA

The per share data shown in the following table has been adjusted to reflect the 2-for-1 split of our Common Stock effective April 14, 2004, as if the split had occurred at the beginning of fiscal year 2004.

	Fiscal Years Ended
	May 31 2008			June 2 2007			June 3 2006			May 28 2005			May 29 2004
	52 wks			52 wks			53 wks			52 wks			52 wks
	(Amounts in thousands, except per share and operating data)
Statement of Operations Data:
Net sales	$	915,939		$	598,128		$	477,555		$	375,266		$	572,331
Cost of sales		617,383			479,504			415,338			339,833			396,704
Gross profit		298,556			118,624			62,217			35,433			175,627
Selling, general and administrative		74,919			60,394			57,702			47,758			69,305
Operating income (loss)		223,637			58,230			4,515			(12,325	)		106,322
Other income (expense):
Interest expense (net of non cash interest expense & interest income)		(3,152	)		(4,993	)		(5,582	)		(4,222	)		(6,527	)
Interest expense - non cash		(942	)		(882	)		(1,284	)		-			-
Equity in income (loss) of affiliates		6,324			1,699			(757	)		(88	)		5,923
Non-controlling interest		(175	)		286			165			-			-
Other (net)		5,699			1,921			1,465			1,227			524
		7,754			(1,969	)		(5,993	)		(3,083	)		(80	)
Income (loss) before income tax		231,391			56,261			(1,478	)		(15,408	)		106,242
Income tax expense (benefit)		79,530			19,605			(465	)		(5,050	)		39,800
Net income (loss)	$	151,861		$	36,656		$	(1,013	)	$	(10,358	)	$	66,442
Net income (loss) per common share:
Basic	$	6.41		$	1.56		$	(0.04	)	$	(0.43	)	$	2.78
Diluted	$	6.40		$	1.55		$	(0.04	)	$	(0.43	)	$	2.73

Cash dividends declared per share *	$	1.34		$	0.05		$	0.05		$	0.05		$	0.05

Weighted average shares outstanding:
Basic		23,677			23,526			23,496			23,834			23,874
Diluted		23,733			23,599			23,496			23,834			24,342
Balance Sheet Data:
Working capital	$	121,550		$	80,552		$	60,800		$	73,587		$	92,949
Total assets		501,236			364,568			317,118			269,534			301,559
Total debt (including current maturities)		97,150			112,852			103,912			82,994			90,031
Total stockholders’ equity		275,680			155,739			119,775			121,855			140,165

Operating Data:
Total number of layers at period ended (thousands)		21,853			23,181			23,276			18,164			20,318
Total shell eggs sold (millions of dozens)		678.5			685.4			683.1			575.4			605.2

*Class A shares paid at 95% of the common stock dividend rate.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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".

RESULTS OF OPERATIONS

The following table sets forth, for the years indicated, certain items from our consolidated statements of operations expressed as a percentage of net sales.

	Percentage of Net Sales Fiscal Years Ended
	May 31, 2008			June 2, 2007			June 3, 2006

Net sales		100.00	%		100.00	%		100.00	%
Cost of sales		67.4			80.2			87.0
Gross profit		32.6			19.8			13.0
Selling, general & administrative expenses		8.2			10.1			12.1
Operating income (loss)		24.4			9.7			0 .9
Other income (expense)		0.9			(0.3	)		(1.2	)
Income (loss) before taxes		25.3			9.4			(0.3	)
Income tax expense (benefit)		8.7			3.3			(0.1	)
Net income (loss)		16.6	%		6.1	%		(0.2	)%

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.

Capital Resources and Liquidity. Our working capital at May 31, 2008 was $121.6 million compared to $80.6 million at June 2, 2007. Our current ratio was 2.18 at May 31, 2008 as compared with 2.06 at June 2, 2007. Our need for working capital generally is highest in the first and second fiscal quarters ending in August and November. During the first quarter shell egg prices are normally at seasonal lows. In the second quarter, we usually build inventory balances in anticipation of the holiday season. Seasonal borrowing needs frequently are higher during these periods than during other fiscal periods. We have a $40 million line of credit with three banks, $2.7 million of which was utilized as a standby letter of credit at May 31, 2008. Our long-term debt at that date, including current maturities, totaled $97.2 million, as compared to $112.9 million at June 2, 2007.

For the fiscal year ended May 31, 2008, $158.4 million in net cash was provided by operating activities. This compares to $59.7 million of net cash provided for the fiscal year ended June 2, 2007. In fiscal 2008, $31.7 million was used for purchases of property, plant and equipment, which includes $14.6 million in expenditures in connection with construction of our facilities in Farwell, TX. Net cash of $2.7 million was used for investments and $531,000 received on notes receivable. In fiscal 2008, we received $2.5 million from the disposal of property, plant and equipment. As part of our stock option plan, approximately $626,000 was received for sales of common stock from the treasury, and $19.7 million was used for payments of dividends on our common stock. Payments of $15.7 million were made on long-term debt. In accord with the Hillandale, LLC purchase agreement, we made payments of $12.5 million on our long-term purchase obligation. The net result was an increase in cash and cash equivalents of approximately $79.8 million.

For the fiscal year ended June 2, 2007, $59.7 million in net cash was provided by operating activities. This compares to $20.9 million of net cash provided for the fiscal year ended June 3, 2006. In fiscal 2007, $12.1 million was used for acquisition of businesses; $23.5 million was used for purchases of property, plant and equipment. Net cash of $14.5 million was used for investments and $251,000 received on notes receivable. In fiscal 2007, we received $503,000 from the disposal of property, plant and equipment. As part of our stock option plan, approximately $262,000 was received for sales of common stock from the treasury, and $1.2 million was used for payments of dividends on our common stock. Proceeds from long-term borrowings of $29.5 million were received and payments of $31.2 million were made on long-term debt. In accord with the Hillandale, LLC purchase agreement, we made a payment of $6.1 million on our long-term purchase obligation. The net result was an increase in cash and cash equivalents of approximately $1.7 million.

Substantially all trade receivables and inventories collateralize our revolving line of credit and 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 May 31, 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, 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 early payment of $5.7 million was paid on the purchase obligation. We have recorded the obligation to acquire the remaining 24% at its estimated present value of $20.0 million at May 31, 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. During fiscal 2008, the company revised the estimated purchase obligation upward for the remaining 24% interest to be acquired in Hillandale, LLC, based on the effect of the expected earnings increase on the book value of the membership units. This additional cost exceeded the estimated fair value of net assets acquired by $9,257 which has been assigned to goodwill on our consolidated balance sheets.

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 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 May 31, 2008 capital expenditures related to construction of this complex were $14.6 million. The remaining future capital expenditures will be funded by cash flows from operations, existing lines of credit and additional long-term borrowings.

As of May 31, 2008, we were a guarantor of approximately $4.2 million of long-term debt of Delta Egg Farm, LLC, an unconsolidated affiliate located in Delta, Utah. Delta Egg Farm, LLC is constructing an organic egg production and distribution facility near Chase, Kansas. 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. With the inclusion of the original amount of debt for which we were a guarantor at May 31, 2008, we are currently a guarantor of approximately $7.5 million of long-term debt of Delta Egg Farm, LLC.

At May 31, 2008, the Company held auction rate securities (“ARS”) with a cost of $42.3 million and an estimated fair value of $40.8 million. These securities may be purchased or sold through an auction process in short term intervals, which on average range from 7-35 days, whereby the interest rate on the security is reset. A variety of financial market related credit issues challenged the liquidity within this investment arena, and resulted in a number of failed auction sell orders. We have designated these investments as available-for-sale securities and have accounted for them in accordance with the standards of Statement of Financial Accounting Standards SFAS No.115, "Accounting For Certain Investments: Debt and Equity Securities." At May 31, 2008, we determined that cost did not approximate fair value and recorded an unrealized loss in accumulated other comprehensive loss as a separate component of stockholders’ equity. The determination was also made that these assets should be reclassified as noncurrent available-for-sale securities. We are not certain how long we may be required to hold each security. However, given our current cash position, liquid cash equivalents, cash flow from operations and our borrowing capacity under our line of credit, we believe the current and near term illiquidity of the auction rate securities will not adversely affect management’s ability to achieve its operating goals. Subsequent to our fiscal year ending May 31, 2008, we did liquidate one ARS at par value for $4.5 million with accrued interest after this security was called on July 10, 2008 by the original issuer.

We currently have a $1.6 million deferred tax liability due to a subsidiary's change from a cash basis to an accrual basis taxpayer on May 29, 1988. The Taxpayer Relief Act of 1997 provides that this liability is payable ratably over the 20 years beginning in fiscal 1999. However, such taxes will be due in their entirety in the first fiscal year in which there is a change in ownership control so that we no longer qualify as a family farming corporation. We are currently making annual payments of approximately $150,000 related to this liability. However, while these current payments reduce cash balances, payment of the $1.6 million deferred tax liability would not impact our consolidated statement of operations or stockholders' equity, as these taxes have been accrued and are reflected on our consolidated balance sheet. See Note 10 of Notes to Consolidated Financial Statements.

Looking forward, we believe that our current cash balances, borrowing capacity, utilization of our revolving line of credit, and cash flows from operations are sufficient to fund our current and projected capital needs.

Off-Balance Sheet Arrangements

We have no existing off-balance sheet arrangements as defined under Securities and Exchange Commission regulations.

Contractual Obligations

The following table summarizes future estimated cash payments, in thousands, to be made under existing contractual obligations. Further information on debt obligations is contained in Note 7, and on lease obligations in Note 6, of Notes to Consolidated Financial Statements. The table includes the obligation incurred by us for the Hillandale acquisition, which is subject to change, because the exact amounts of which are to be determined under the terms of the Agreement. At the closing of the Hillandale transaction on October 12, 2005, we purchased 51% of the Units of Membership in Hillandale, LLC. 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%. We will incur costs for our purchase of the remaining 24% of the Units of Membership over the remaining two years, which will culminate with us having a 100% equity interest in Hillandale, LLC. 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 $9.4 million is included in other non-current liabilities in the accompanying consolidated balance sheet. This estimated obligation was adjusted during 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.

	Total		2009		2010		2011		2012		2013		Over 5 years
Long-term debt	$	97,150	$	11,470	$	11,700	$	9,517	$	7,854	$	7,960	$	48,649
Purchase obligation		19,956		10,358		9,598		-		-		-		-
Operating leases		7,404		2,453		2,041		1,258		727		687		238
Total	$	124,510	$	24,281	$	23,339	$	10,775	$	8,581	$	8,647	$	48,887

Impact of Recently Issued Accounting Standards.

We adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”), effective June 3, 2007. FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. We had no significant unrecognized tax benefits at the date of adoption or at May 31, 2008. Accordingly, we do not have any interest or penalties related to uncertain tax positions. However, if interest or penalties were to be incurred related to uncertain tax positions, such amounts would be recognized in income tax expense. Tax periods for all years after 2003 remain open to examination by the federal and state taxing jurisdictions to which we are subject.

In September 2006, the FASB issued FASB Statement No.157, "Fair Value Measurements" (“FAS 157”). FAS 157 establishes a single authoritative definition of fair value, sets out a framework for measuring fair value, and expands on required disclosures about fair value measurement. FAS 157 is effective for us on June 1, 2008 and will not have a significant impact on the Company’s consolidated financial statements.

In February 2007, the FASB issued FASB Statement No. 159, "Establishing the Fair Value Option for Financial Assets and Liabilities" (“FAS 159”), to permit all entities to choose to elect to measure eligible financial instruments at fair value. FAS 159 is effective for us on June 1, 2008 and will not have a significant impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued FASB Statement No. 141 (Revised 2007), or (R), “Business Combinations” (“FAS 141(R)”). FAS 141(R) retained the fundamental requirements in FAS 141 that the acquisition method of accounting (which FAS 141 called the purchase method) be used for all business combinations and for an acquirer to be identified or each business combination. FAS 141(R), which is broader in scope than that of FAS 141, which applied only to business combinations in which control was obtained by transferring consideration, applies the same method of accounting (the acquisition method) to all transactions and other events in which one entity obtains control over one or more other businesses. FAS 141(R) also makes certain other modifications to FAS 141. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, which will begin with our 2010 fiscal year. Earlier adoption is prohibited. The Company is currently assessing the effect FAS 141(R) may have on its consolidated results of operations and financial position.

In December 2007, the FASB issued FASB Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements- An amendment of ARB No. 51” (“FAS 160”). FAS 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Among other requirements, this statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. FAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, which will begin with our 2010 fiscal year. Earlier adoption is prohibited. The Company is currently assessing the effect FAS 160 may have on its consolidated results of operations and financial position.

Critical Accounting Policies. The preparation of financial statements in accordance with U.S. generally accepted accounting standards requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Management suggests that our Summary of Significant Accounting Policies, as described in Note 1 of the Notes to Consolidated Financial Statements, be read in conjunction with this Management’s Discussion and Analysis of Financial Condition and Results of Operations. We believe the critical accounting policies that most impact our consolidated financial statements are described below.

Allowance for Doubtful Accounts. In the normal course of business, we extend credit to our customers on a short-term basis. Although credit risks associated with our customers are considered minimal, we routinely review our accounts receivable balances and make provisions for probable doubtful accounts. In circumstances where management is aware of a specific customer’s inability to meet its financial obligations to us (e.g. bankruptcy filings), a specific reserve is recorded to reduce the receivable to the amount expected to be collected. For all other customers, we recognize reserves for bad debts based on the length of time the receivables are past due, generally 100% for amounts more than 60 days past due.

Inventories. Inventories of eggs, feed, supplies and livestock are valued principally at the lower of cost (first-in, first-out method) or market. If market prices for eggs and feed grains move substantially lower, we would record adjustments to write-down the carrying values of eggs and feed inventories to fair market value. The cost associated with flock inventories, consisting principally of chick purchases, feed, labor, contractor payments and overhead costs, are accumulated during the growing period of approximately 22 weeks. Capitalized flock costs are then amortized over the productive lives of the flocks, generally one to two years. Flock mortality is charged to cost of sales as incurred. High mortality from disease or extreme temperatures would result in abnormal adjustments to write-down flock inventories. Management continually monitors each flock and attempts to take appropriate actions to minimize the risk of mortality loss.

Long-Lived Assets. Depreciable long-lived assets are primarily comprised of buildings and improvements and machinery and equipment. Depreciation is provided by the straight-line method over the estimated useful lives, which are 15 to 25 years for buildings and improvements and 3 to 12 years for machinery and equipment. An increase or decrease in the estimated useful lives would result in changes to depreciation expense. When property and equipment are retired, sold, or otherwise disposed of, the asset's carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations. We continually reevaluate the carrying value of our long-lived assets, for events or changes in circumstances, which indicate that the carrying value may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) are less than the carrying amount of the asset, an impairment loss is recognized to reduce the carrying value of the long-lived asset to the estimated fair value of the asset.

Investment in Affiliates. We have invested in other companies engaged in the production, processing and distribution of shell eggs and egg products. Our ownership percentages in these companies range from less than 20% to 50%. Therefore, these investments are recorded using the cost or the equity method, and accordingly, not consolidated in our financial statements. Changes in the ownership percentages of these investments might alter the accounting methods currently used. Our investment in these companies amounted to $12.2 million at May 31, 2008. The combined total assets and total liabilities of these companies were approximately $35 million and $10 million, respectively, at May 31, 2008. We are a guarantor of approximately $4.2 million of long-term debt of one of the affiliates.

Goodwill. At May 31, 2008, our goodwill balance represented 2.7% of total assets and 4.9% of stockholders’ equity. Goodwill relates to the fiscal 1999 acquisition of Hudson Brothers, Inc., the fiscal 2006 acquisition of Hillandale Farms, LLC, and the fiscal 2007 acquisition of Green Forest Foods, LLC. We adopted, as of June 3, 2001, Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142). Under SFAS 142, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually or more frequently if impairment indicators arise, for impairment. An impairment loss would be recorded if the recorded goodwill exceeds its implied fair value. We have only one operating segment, which is our sole reporting unit. Accordingly, goodwill is tested for impairment at the entity level. Significant adverse industry or economic changes, or other factors not anticipated could result in an impairment charge to reduce recorded goodwill.

Income Taxes. We determine our effective tax rate by estimating our permanent differences resulting from differing treatment of items for tax and accounting purposes. We are periodically audited by taxing authorities. Any audit adjustments affecting permanent differences could have an impact on our effective tax rate.

Forward Looking Statements. The foregoing statements contain forward-looking statements which involve risks and uncertainties and our actual experience may differ materially from that discussed above. Factors that may cause such a difference include, but are not limited to, those discussed in “Factors Affecting Future Performance” below, as well as future events that have the effect of reducing our available cash balances, such as unanticipated operating losses or capital expenditures related to possible future acquisitions. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management’s analysis only as the date hereof. We assume no obligation to update forward-looking statements.

Factors Affecting Future Performance. Our future operating results may be affected by various trends and factors which are beyond our control. These include adverse changes in shell egg prices and in the grain markets. Accordingly, past trends should not be used to anticipate future results and trends. Further, our prior performance should not be presumed to be an accurate indication of future performance.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Our interest expense is sensitive to changes in the general level of U.S. interest rates. We maintain certain of our debt as fixed rate in nature to mitigate the impact of fluctuations in interest rates. Under our current policies, we do not use interest rate derivative instruments to manage our exposure to interest rate changes. A 1% adverse move (decrease) in interest rates would adversely affect the net fair value of our debt by $4.5 million at May 31, 2008.

We are exposed to risk related to our investments in auction rate securities. Liquidity for these securities is typically provided by an auction process that resets the applicable interest rate at pre-determined intervals, usually on average every 7-35 days. Because of the short interest rate reset period, we have historically recorded them as current available-for-sale securities. The liquidity of these securities has been negatively impacted by the uncertainty in the credit markets and the exposure of these securities to the financial condition of bond insurance companies. These securities had been subject to auction processes for which there had been insufficient bidders on the scheduled rollover dates. We will not be able to liquidate any of our auction rate securities until a future auction is successful, a buyer is found outside of the auction process or the notes are redeemed. An auction failure, which is not a default in the underlying debt instrument, occurs when there are more sellers than buyers at a scheduled interest rate auction date and parties desiring to sell their securities are unable to do so. If the credit market does not improve, auctions for our invested amounts may continue to fail. If an auction fails for securities in which we have invested, we may be unable to liquidate some or all of our auction rate securities at par, should we need or desire to access the funds invested in those securities. In the event we need or desire to access these funds, we will not be able to do so until a future auction on these investments is successful or a buyer is found outside the auction process. If a buyer is found but is unwilling to purchase the investments at par, we may incur a loss. Furthermore, if the issuers of the auction rate securities are unable to successfully complete future auctions and their credit ratings deteriorate, we may be required to adjust the carrying value of these investments by recording an impairment charge.

We are a party to no other market risk sensitive instruments requiring disclosure.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management’s Report on Internal Control Over Financial Reporting

The following sets forth, in accordance with Section 404(a) of the Sarbanes-Oxley Act of 2002 and Item 308 of the Securities and Exchange Commission’s Regulation S-K, the report of management on our internal control over financial reporting.

1. Our management is responsible for establishing and maintaining adequate internal control over financial reporting. “Internal control over financial reporting” is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, together with other financial officers, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

2. Our management, in accordance with Rule 13a-15(c) under the Securities Exchange Act of 1934 and with the participation of our Chief Executive Officer and Chief Financial Officer, together with other financial officers, evaluated the effectiveness of our internal control over financial reporting as of May 31, 2008. The framework on which management’s evaluation of our internal control over financial reporting is based is the “Internal Control - Integrated Framework” published in 1992 by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission.

3. We maintain documentation providing reasonable support for management’s assessment of the effectiveness of our internal control over financial reporting. Management’s documentation includes:

The design of controls over all relevant assertions related to all significant accounts and disclosures in the financial statements;

Information about how significant transactions are initiated, authorized, recorded, processed and reported;

Sufficient information about the flow of transactions to identify the points at which material misstatements due to error or fraud could occur;

Controls designed to prevent or detect fraud, including who performs the controls and the related segregation of duties;

Controls over the period-end financial reporting process;

Controls over safeguarding of assets; and

The results of management’s testing and evaluation.

4. Management has determined that our internal control over financial reporting as of May 31, 2008 is effective and that there is no material weakness in our internal control over financial reporting as of that date. In that connection, a “material weakness,” is a significant deficiency, or a combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected. A “significant deficiency” is a control deficiency or a combination of control deficiencies, that adversely affects our ability to initiate, authorize, record, process, or report external financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of our financial statements that is more than inconsequential will not be prevented or detected. A “control deficiency” exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. It is noted that internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives, but rather reasonable assurance of achieving such objectives.

5. The attestation report of Moore Stephens Frost on management’s assessment of our internal control over financial reporting, which includes that firm’s opinion on management’s assessment of the effectiveness of internal control over financial reporting and opinion on the effectiveness of internal control over financial reporting, is set forth below.

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

Board of Directors and Stockholders

Cal-Maine Foods, Inc. and Subsidiaries

Jackson, Mississippi

We have audited Cal-Maine Foods, Inc. and Subsidiaries internal control over financial reporting as of May 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Cal-Maine Foods, Inc. and Subsidiaries management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting in Item 8. Our responsibility is to express an opinion on company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing that the risks that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Cal-Maine Foods, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of May 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by Committee of Sponsoring Organizations of Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets and the related consolidated statements of operations, stockholders’ equity and cash flows of Cal-Maine Foods, Inc. and Subsidiaries, and our report dated July 31, 2008 expressed an unqualified opinion.

/s/ Moore Stephens Frost

Little Rock, Arkansas

July 31, 2008

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Cal-Maine Foods, Inc. and Subsidiaries

Jackson, Mississippi

We have audited the accompanying consolidated balance sheets of Cal-Maine Foods, Inc. and Subsidiaries as of May 31, 2008 and June 2, 2007, and the related consolidated statements of operations, stockholders’ equity and cash flows for the two years then ended. Our audit also included the financial statement schedule listed in the Index at Item 15(c). These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The consolidated financial statements of Cal-Maine Foods, Inc. and Subsidiaries as of June 3, 2006, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year ended June 3, 2006, were audited by other auditors whose report dated August 11, 2006, expressed an unqualified opinion on those statements.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cal-Maine Foods, Inc. and Subsidiaries as of May 31, 2008 and June 2, 2007, and the consolidated results of its operations and its cash flows for the two years then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Cal-Maine Foods, Inc. and Subsidiaries internal control over financial reporting as of May 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated July 31, 2008, expressed an unqualified opinion.

/s/ Moore Stephens Frost

Little Rock, Arkansas

July 31, 2008

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Cal-Maine Foods, Inc.

We have audited the consolidated statements of operations, stockholders’ equity, and cash flows of Cal-Maine Foods, Inc. and subsidiaries as of June 3, 2006. Our audit also included the financial statement schedule listed in the Index at Item 15(c). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above presents fairly, in all material respects, the consolidated results of operations and cash flows of Cal-Maine Foods, Inc. and subsidiaries at June 3, 2006, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Cal-Maine Foods Inc.’s internal control over financial reporting as of June 3, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 11, 2006 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

New Orleans, Louisiana

August 11, 2006

Cal-Maine Foods, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except for par value amounts)

	May 31 2008			June 2 2007
Assets
Current assets:
Cash and cash equivalents	$	94,858		$	15,032
Investments securities available-for-sale		-			39,500
Receivables:
Trade receivables, less allowance for doubtful accounts of $313 in 2008 and $150 in 2007		44,793			37,096
Other		3,137			1,084
		47,930			38,180

Inventories		76,766			62,208
Prepaid expenses and other current assets		4,711			1,390
Total current assets		224,265			156,310

Other assets:
Investments securities available-for-sale		40,754			-
Other investments		13,421			7,898
Goodwill		13,452			4,195
Other		2,851			2,575
		70,478			14,668
Property, plant and equipment, less accumulated depreciation		206,493			193,590
Total assets	$	501,236		$	364,568

Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable	$	35,691		$	27,978
Accrued dividends payable		12,186			-
Accrued wages and benefits		9,111			7,273
Accrued expenses and other liabilities		10,964			9,800
Current maturities of purchase obligation		10,358			5,435
Current maturities of long-term debt		11,470			13,442
Deferred income taxes		12,935			11,830
Total current liabilities		102,715			75,758

Long-term debt, less current maturities		85,680			99,410
Non-controlling interests in consolidated entities		1,687			1,894
Purchase obligation, less current maturities		9,598			9,867
Other noncurrent liabilities		4,120			2,150
Deferred income taxes		21,756			19,750
Total liabilities		225,556			208,829

Commitments and contingencies – See Notes 5 and 6

Stockholders' equity:
Common stock, $.01 par value Authorized shares - 60,000 in 2008 and 2007 Issued 35,130 shares in 2008 and 2007 with 21,317 and 21,193 shares outstanding respectively		351			351
Class A common stock, $.01 par value Authorized shares - 2,400 in 2008 and 2007 Issued and outstanding shares - 2,400 in 2008 and 2007		24			24
Paid-in capital		29,697			29,043
Retained earnings		267,616			147,667
Common stock in treasury–13,813 shares in 2008 and 13,937 in 2007		(21,156	)		(21,346	)
Accumulated other comprehensive loss		(852	)		-
Total stockholders' equity		275,680			155,739
Total liabilities and stockholders' equity	$	501,236		$	364,568

See accompanying notes.

Cal-Maine Foods, Inc. and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per share amounts)

	Fiscal years ended
	May 31			June 2			June 3
	2008			2007			2006
Net sales	$	915,939		$	598,128		$	477,555
Cost of sales		617,383			479,504			415,338
Gross profit		298,556			118,624			62,217
Selling, general and administrative		74,919			60,394			57,702
Operating income		223,637			58,230			4,515

Other income (expense):
Interest expense		(7,712	)		(6,987	)		(7,949	)
Interest income		3,618			1,112			1,083
Equity in income (loss) of affiliates		6,324			1,699			(757	)
Non-controlling interest		(175	)		286			165
Other, net		5,699			1,921			1,465
		7,754			(1,969	)		(5,993	)
Income (loss) before income taxes		231,391			56,261			(1,478	)
Income tax expense (benefit)		79,530			19,605			(465	)
Net income (loss)	$	151,861		$	36,656		$	(1,013	)

Net income (loss) per share:
Basic	$	6.41		$	1.56		$	(0.04	)
Diluted	$	6.40		$	1.55		$	(0.04	)
Weighted average shares outstanding:
Basic		23,677			23,526			23,496
Diluted		23,733			23,599			23,496

See accompanying notes.

Cal-Maine Foods, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity

(in thousands)

	Common Stock
					Class A		Class A		Treasury			Treasury			Paid In		Retained			Accum. Other
	Shares		Amount		Shares		Amount		Shares			Amount			Capital		Earnings			Comp. Loss			Total
Balance at May 28, 2005		35,130		351		2,400		24		14,043			(21,507	)		28,621		114,366			-			121,855

Cash dividends paid ($.05 per common share) *		-		-		-		-		-			-			-		(1,170	)		-			(1,170	)
Issuance of common stock from treasury		-		-		-		-		(4	)		24			79		-			-			103
Net loss for fiscal 2006		-		-		-		-		-			-			-		(1,013	)		-			(1,013	)

Balance at June 3, 2006		35,130		351		2,400		24		14,039			(21,483	)		28,700		112,183			-			119,775

Cash dividends paid ($.05 per common share) *		-		-		-		-		-			-			-		(1,172	)		-			(1,172	)
Issuance of common stock from treasury		-		-		-		-		(102	)		137			125		-			-			262
Vesting of stock based compensation		-		-		-		-		-			-			218		-			-			218
Net income for fiscal 2007		-		-		-		-		-			-			-		36,656			-			36,656

Balance at June 2, 2007		35,130		351		2,400		24		13,937			(21,346	)		29,043		147,667			-			155,739

Dividends **		-		-		-		-		-			-			-		(31,912	)		-			(31,912	)
Issuance of common stock from treasury		-		-		-		-		(124	)		190			436		-			-			626
Vesting of stock based compensation		-		-		-		-		-			-			218		-			-			218
Net income for fiscal 2008		-		-		-		-		-			-			-		151,861			-			151,861
Other comprehensive loss (net of tax $544)		-		-		-		-		-			-			-		-			(852	)		(852	)
Total comprehensive income																								151,009

Balance at May 31, 2008		35,130	$	351		2,400	$	24		13,813		$	(21,156	)	$	29,697	$	267,616		$	(852	)	$	275,680

**$.05 per common share for the 1^st and 2^nd quarters, one third of net income for the 3^rd and 4^th quarters.

*Class A shares paid at 95% of the common stock dividend rate.

See accompanying notes.

Cal-Maine Foods, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

	Fiscal year ended
	May 31			June 2			June 3
	2008			2007			2006
Cash flows from operating activities
Net income (loss)	$	151,861		$	36,656		$	(1,013	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		25,320			21,476			20,569
Deferred income taxes		3,659			1,205			985
Equity in (income) loss of affiliates		(6,324	)		(1,699	)		757
Gain (loss) on disposal of property, plant and equipment		(1,657	)		38			(1,108	)
Stock compensation expense, net of amounts paid		4,531			1,650			1,035
Interest on purchase obligation		942			882			1,284
Net change in non-controlling interest in consolidated entities		(207	)		975			(165	)
Change in operating assets and liabilities, net of effects from acquisitions
Receivables and other assets		(13,305	)		(8,097	)		3,244
Inventories		(14,558	)		47			2,136
Accounts payable, accrued expenses and other liabilities		8,154			6,591			(6,793	)
Net cash provided by operating activities		158,416			59,724			20,931

Cash flows from investing activities
Purchases of investments		(122,825	)		(43,250	)		(60,823	)
Sales of investments		120,175			28,750			71,207
Acquisition of businesses, net of cash acquired		-			(12,053	)		(23,756	)
Payments received on notes receivable and from investments		1,199			1,453			2,288
Purchases of property, plant and equipment		(31,686	)		(23,472	)		(12,372	)
Increase in notes receivable and investments		(668	)		(1,202	)		(2,048	)
Net proceeds from disposal of property, plant and equipment		2,470			503			2,638
Net cash used in investing activities		(31,335	)		(49,271	)		(22,866	)

Cash flows from financing activities
Long-term borrowings		-			29,500			28,000
Principal payments on long-term debt		(15,702	)		(31,204	)		(31,924	)
Payment of purchase obligation		(12,529	)		(6,102	)		-
Proceeds from issuance of common stock from treasury		626			262			103
Payments of dividends		(19,650	)		(1,172	)		(1,170	)
Net cash used in financing activities		(47,255	)		(8,716	)		(4,991	)
Increase (decrease) in cash and cash equivalents		79,826			1,737			(6,926	)
Cash and cash equivalents at beginning of year		15,032			13,295			20,221
Cash and cash equivalents at end of year	$	94,858		$	15,032		$	13,295

See accompanying notes.

Cal-Maine Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)

May 31, 2008

1. Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Cal-Maine Foods, Inc. and its subsidiaries (the "Company") and variable interest entities in which the Company is the primary beneficiary. All significant intercompany transactions and accounts have been eliminated in consolidation.

Business

The Company is engaged in the production, processing and distribution of shell eggs. The Company's operations are significantly affected by the market price fluctuation of its principal products sold, shell eggs, and the costs of its principal feed ingredients, corn and other grains.

Primarily all of the Company's sales are to wholesale egg buyers in the southeastern, southwestern, mid-western and mid-Atlantic regions of the United States. Credit is extended based upon an evaluation of each customer's financial condition and credit history and generally collateral is not required. Credit losses have consistently been within management's expectations. Two affiliated customers, on a combined basis, accounted for 36.5%, 36.9% and 36.6% of the Company's net sales in fiscal 2008, 2007 and 2006, respectively. Another customer accounted for 9.6%, 9.8% and 9.9% of the Company's net sales in fiscal 2008, 2007 and 2006, respectively.

Fiscal Year

The Company's fiscal year-end is on the Saturday nearest May 31, which was May 31, 2008 (52 weeks), June 2, 2007 (52 weeks), June 3, 2006 (53 weeks), for the most recent three fiscal years.

Reclassifications

Certain reclassifications have been made to the prior years’ financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or retained earnings.

Variable Interest Entities

Financial Accounting Standards Board Interpretation No. 46 (revised), Consolidation of Variable Interest Entities, ("FIN 46") requires variable interest entities ("VIEs”) to be consolidated if a party with ownership, contractual or other financial interest in the VIE (a variable interest holder) is obligated to absorb a majority of the risk of loss from the VIE's activities, is entitled to receive a majority of the VIE's residual returns (if no party absorbs a majority of the VIE's losses), or both. A variable interest holder that consolidates the VIE is called the primary beneficiary.

Beginning in the fourth quarter of fiscal 2007, the Company had variable interests in three entities in which it is the primary beneficiary and accordingly consolidates the statements of financial position, results of operations and cash flows of these entities pursuant to FIN 46. The Company has a 37% ownership interest in Texas Egg Products, LLC and leases to Texas Egg Products, LLC its operating facility. Texas Egg Products, LLC processes shell eggs into liquid and frozen egg products that are sold primarily to food manufacturers and to the food service industry.

The Company has a 43% ownership interest in Texas Egg, LLC and leases to Texas Egg, LLC its operating facility. Texas Egg, LLC has 70% ownership interest in South Texas Protein, LLC and subleases the facility to South Texas Protein, LLC. South Texas Protein, LLC is a spent hen processing facility in the start-up phase of its operations.

Total assets of the three VIEs for which the Company is the primary beneficiary totaled $2,851 for fiscal 2008 and $1,209 for fiscal 2007, net of elimination of intercompany balances.

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amount reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. We maintain bank accounts that are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100. At times, cash balances may be in excess of the FDIC insurance limit. The Company manages this risk through maintaining cash deposits and other highly liquid investments in high quality financial institutions.

Investment Securities Available-for-Sale

Investment securities available-for-sale consist of auction rate securities accounted for in accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” Available-for-sale securities are reported at fair value with unrealized gains and losses excluded from earnings and reported in shareholders’ equity. Due to the nature of the investments, the cost at June 2, 2007 approximated fair value. Consequently, accumulated other comprehensive income (loss) was not recognized as a separate component of stockholders’ equity. At May 31, 2008, we determined that cost did not approximate fair value and recorded an unrealized loss in accumulated other comprehensive loss as a separate component of stockholders’ equity.

Our auction rate securities are long-term debt obligations rated AAA at the date of purchase. The ratings on the auction rate securities take into account credit support through insurance policies guaranteeing each of the bonds’ payment of principal and accrued interest. In the past, the auction process allowed investors to obtain immediate liquidity if so desired by selling the securities at their face amounts. Liquidity for these securities has historically been provided by an auction process that resets interest rates on these investments on average every 7-35 days. However, as has been reported in the financial press, the disruptions in the credit markets adversely affected the auction market for these types of securities. Because auction sell orders have failed during this fiscal year as a result of recent liquidity disruptions, the Company believes that presentation of these securities as long-term investments is appropriate at May 31, 2008. Net unrealized holding losses on available-for-sale securities of $852, net of income taxes, are included in accumulated other comprehensive loss as of May 31, 2008

Trade Receivables

Trade receivables are comprised primarily of amounts owed to the Company from customers, which amounted to $44,793 at May 31, 2008 and $37,096 at June 2, 2007. Trade receivables are presented net of allowance for doubtful accounts of $313 at May 31, 2008 and $150 at June 2, 2007.

Allowance for Doubtful Accounts

In the normal course of business, we extend credit to our customers on a short-term basis. Although credit risks associated with our customers are considered minimal, we routinely review our accounts receivable balances and make provisions for probable doubtful accounts. In circumstances where management is aware of a specific customer's inability to meet its financial obligations to us (e.g. bankruptcy filings), a specific reserve is recorded to reduce the receivable to the amount expected to be collected. For all other customers, we recognize reserves for bad debts based on the length of time the receivables are past due, generally 100% for amounts more than 60 days past due.

Inventories

Inventories of eggs, feed, supplies and livestock are valued principally at the lower of cost (first-in, first-out method) or market.

The cost associated with flocks, consisting principally of chick purchases, feed, labor, contractor payments and overhead costs, are accumulated during a growing period of approximately 22 weeks. Flock costs are amortized over the productive lives of the flocks, generally one to two years.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation is provided by the straight-line method over the estimated useful lives, which are 15 to 25 years for buildings and improvements and 3 to 12 years for machinery and equipment. Repairs and maintenance are expensed as incurred. Expenditures that increase the value or productive capacity of assets are capitalized. When property and equipment are retired, sold, or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations. The Company capitalizes interest cost incurred on funds used to construct property, plant, and equipment. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset’s estimated useful life.

Impairment of Long-Lived Assets

The Company reviews the carrying value of property, plant, and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where expected future cash flows (undiscounted and without interest charges) are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition, and other economic factors.

Intangible Assets

Included in other assets are loan acquisition costs which are amortized over the life of the related loan and franchise fees which are amortized over ten years.

Goodwill

Goodwill represents the excess of cost of business acquisitions over the fair value of the net identifiable assets acquired. Goodwill is reviewed for impairment annually or more frequently if impairment indicators arise.

Accrued Self Insurance

We use a combination of insurance and self-insurance mechanisms to provide for the potential liabilities for health and welfare, workers’ compensation, auto liability and general liability risks. Liabilities associated with our risks retained are estimated, in part, by considering claims experience, demographic factors, severity factors and other actuarial assumptions.

Dividends

Effective November 30, 2007, the Company’s Board of Directors approved the adoption of a variable dividend policy to replace the Company’s fixed dividend policy. Commencing with the third quarter of fiscal 2008, Cal-Maine pays a dividend to shareholders of its Common Stock and Class A Common Stock on a quarterly basis for each quarter for which the Company reports net income computed in accordance with generally accepted accounting principles in an amount equal to one-third (1/3) of such quarterly income. The amount of the dividend payable on each share of Class A Common Stock is in an amount equal to 95% of the amount paid on each share of Common Stock. Dividends are paid to shareholders of record as of the sixtieth day following the last day of such quarter, and are payable on the fifteenth day following the record date. Following a quarter for which the Company does not report net income, the Company shall not pay a dividend for a subsequent profitable quarter until the Company is profitable on a cumulative basis computed from the date of the last quarter for which a dividend was paid. As of May 31, 2008, we accrued a dividend payable of $12,186, applicable to the Company’s fourth quarter 2008 net income.

Revenue Recognition and Delivery Costs

The Company recognizes revenue only when all of the following criteria have been met:

	·	Persuasive evidence of an arrangement exists;
	·	Delivery has occurred;

	·	The fee for the arrangement is determinable; and
	·	Collectibility is reasonably assured.

Costs to deliver product to customers are included in selling, general and administrative expenses in the accompanying consolidated statements of operations and totaled $21,703, $21,105, and $24,560, in fiscal 2008, 2007 and 2006, respectively.

Advertising Costs

The Company expenses advertising costs as incurred. Total advertising costs were $778 in fiscal 2008, $745 in fiscal 2007, and $875 in fiscal 2006.

Income Taxes

Income taxes have been provided using the liability method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Stock Based Compensation

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) Statement No. 123 (revised 2004)(“SFAS No.123(R)”), "Share-Based Payment," which is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123(R) supersedes Accounting Principles Board (“APB”) Opinion No. 25, "Accounting for Stock Issued to Employees", and amends SFAS No. 95, "Statement of Cash Flows". SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, restricted stock and performance-based shares to be recognized in the income statement based on their fair values. SFAS No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. In the first quarter of fiscal 2007, The Company adopted SFAS No. 123(R) using the modified prospective method. Under the modified prospective method, compensation costs are recognized for all share-based payments granted after the adoption of SFAS No. 123(R) and for all awards granted to employees prior to the adoption date of SFAS No. 123(R) that remain unvested on the adoption date. Accordingly, no restatements were made to prior periods.

Prior to adoption of SFAS No. 123(R), the Company applied Accounting Principles Board (“APB”) No. 25 in accounting for employee stock compensation plans and generally recognized no compensation expense for employee stock options. Under the provisions of APB No. 25, the Company recognized a liability for Stock Appreciation Rights (“SARS”) and Tandem Stock Appreciation Rights (“TSARS”) (collectively, “Rights”) based upon the intrinsic value of vested SARS and TSARS at each period end. Under SFAS No. 123(R), the Company is required to recognize a liability for vested SARS and TSARS based upon their fair value at each period end using a Black-Scholes option pricing model and to record a cumulative effect adjustment for the change in method of accounting for such liability awards. The cumulative effect resulting from the adoption of SFAS No. 123(R) was insignificant and is included in stock based compensation expense for fiscal 2007.

Net Income (Loss) per Common Share

Basic net income (loss) per share is based on the weighted average common shares outstanding. Diluted net income (loss) per share includes any dilutive effects of options and warrants outstanding. Stock options representing approximately 85,000 common shares were excluded from the calculation of dilutive net loss per share for the year ended June 3, 2006 because the effect was anti-dilutive.

Impact of Recently Issued Accounting Standards

2. Acquisitions

The Company entered into an Agreement to Form a Limited Liability Company, Transfer Assets Thereto, and Purchase Units of Membership Therein, dated July 28, 2005, with Hillandale Farms, Inc. and Hillandale Farms of Florida, Inc. (together, "Hillandale"), and the Hillandale shareholders (the "Agreement"). Under the terms of the Agreement, the Company acquired 51% of the units of membership in Hillandale, LLC for cash of approximately $27,000 October 12, 2005. The remaining 49% of the units of membership in Hillandale, LLC will be acquired in essentially equal annual installments over a four-year period, with the purchase price of the units equal to their book value at the time of purchases as calculated in accordance with the terms of the Agreement. The total preliminary purchase price was estimated to be as follows :

Cash consideration paid to seller for 51% of Hillandale, LLC's membership units	$	27,006
Obligation to acquire 49% of Hillandale, LLC's membership units		25,947
		52,953
Less discount of preliminary purchase price to the present value as of July 28, 2005		(3,556	)
Total preliminary purchase price	$	49,397

The preliminary purchase price was allocated based upon the fair value of the assets acquired and liabilities assumed as follows:

Assets acquired:
Cash and cash equivalents	$	3,918
Receivables		7,181
Inventories		11,330
Prepaid and other assets		2,798
Property, plant and equipment		49,531
Total assets acquired		74,758
Liabilities assumed:
Accounts payable and accrued expenses		3,567
Notes payable and long-term debt		21,794
Total liabilities assumed		25,361
Net assets acquired	$	49,397

In October 2005, the Company paid substantially all of Hillandale, LLC’s notes payable and long-term debt and obtained a new $28,000 term loan from an insurance company secured by substantially all of the property, plant and equipment of Hillandale, LLC, and requires monthly principal payments of $150 plus interest beginning in January 2007 through November 2020.

In August 2006, in accordance with the Agreement, The Company purchased, for $6,102, an additional 13% of the units of membership of Hillandale, LLC based on the book value as of July 29, 2006. In August 2007, in accordance with the Agreement, The Company purchased, for $6,769, an additional 12% of the units of membership of Hillandale, LLC based on the book value as of July 28, 2007. During fiscal 2008, an early payment of $5,700 was paid on the purchase obligation. The Company’s obligation to acquire the remaining 24% of Hillandale, LLC is recorded at its present value of $19,956 as of May 31, 2008 of which $10,358 is included in current liabilities and $9,598 is included in other non-current liabilities in the accompanying consolidated balance sheet. The actual remaining purchase price may be higher or lower when the Hillandale Purchase is completed. The Company will purchase an additional 12% of Hillandale LLC based on the book value of the units of membership as of July 26, 2008.

During fiscal 2008, the Company revised the estimated purchase obligation upward for the remaining 24% interest to be acquired in Hillandale, LLC, based on the effect of the expected earnings increase on the book value of the membership units. This additional cost exceeded the estimated fair value of net assets acquired by $9,257 which has been assigned to goodwill on our consolidated balance sheets.

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

Hillandale, LLC's production facilities are principally located in Florida. Hillandale, LLC is a fully integrated shell egg producer with its own feed mills, hatchery, production, processing and distribution facilities.

Prior to the acquisition, the Company 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, the Company's membership in AEP was accounted for by the equity method. Effective with our acquisition of Hillandale, LLC, the Company acquired a majority of the membership interest in AEP. Accordingly, the financial statements of AEP have been consolidated with our financial statements beginning July 29, 2005. AEP, located in Georgia, processes shell eggs into liquid and frozen egg products that are sold primarily to food manufacturers and to the food service industry. AEP has contract shell egg production for approximately 50% of its shell egg requirements and purchases the balance from regional egg markets.

As of July 28, 2005, Hillandale, LLC owned a 50% ownership interest in Hillandale Farms, LLC that was accounted for by the equity method. On October 5, 2005, Hillandale, LLC acquired the other 50% interest in Hillandale Farms, LLC for $1,000. The purchase price was allocated to the assets acquired and liabilities assumed and resulted in approximately $900 of goodwill. Hillandale Farms, LLC is engaged in the production, processing and distribution of shell eggs.

The unaudited financial information in the table below summarizes the combined results of our operations and Hillandale, LLC, on a pro forma basis, as though we had been combined as of the beginning of the earliest period presented. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the earliest period presented.

	Fiscal Year Ended June 3 2006
Net sales	$	490,529
Net loss	$	(5,169	)
Basic net loss per share	$	(0.22	)
Diluted net loss per share	$	(0.22	)