2. Acquisition

Effective March 1, 2014, the Company purchased our joint venture partner’s 50% interest in Delta Egg Farm, LLC (“Delta Egg”) for $17.0 million. The Company previously owned 50% of Delta Egg through a joint venture with Sunbest Foods of Iowa, a Moark, LLC affiliate. The purchase price was funded from our available cash balances. In conjunction with the acquisition, the Company recognized a non-recurring, non-cash gain of $4.0 million for the excess in purchase price over the carrying value of the 50% investment in the unconsolidated joint venture. This gain was recorded in “Other Income” in the Company’s Consolidated Statements of Income. The gain is non-taxable, and therefore resulted in a $1.5 million reduction to the Company’s income tax expense for fiscal 2014. Additionally, the Company recorded a $3.3 million decrease to deferred income tax liabilities related to the outside basis of our equity investment in Delta Egg. Delta Egg’s assets include a feed mill and a production complex with capacity for approximately 1.2 million laying hens near Delta, Utah, as well as an organic complex with capacity for approximately 400,000 laying hens near Chase, Kansas.

The following table presents fair value of the assets and liabilities of Delta Egg as of the acquisition date (in thousands):



Fair Value of Assets and Liabilities:

Cash and cash equivalents	$	5,452
Investment securities available for sale		1,973
Inventories		7,033
Property, plant, and equipment		24,767
Other intangible assets		911
Goodwill		4,779
Other current assets		2,824
Current liabilities		(3,677)
Long-term debt		(5,301)
Deferred income taxes		(4,761)
Fair value of assets and liabilities acquired	$	34,000

The acquired intangible assets are made up of a right of use intangible of $191,000 (5-year useful life) and water rights of $720,000 (indefinite useful life). The goodwill arising from the acquisition consists largely of the synergies and economies of scale expected from the acquisition, and none of it is expected to be deductible for income tax purposes. Trade receivables of $2.8 million were acquired, fair value approximated the carrying value at the time of acquisition.

On August 10, 2012, the Company purchased substantially all of the commercial egg assets of Pilgrim’s Pride Corporation (“PPC”) for approximately $16.3 million in cash at closing, plus contingent cash consideration of up to $2.5 million. The assets acquired included two production complexes with capacity for approximately 1.4 million laying hens and Pilgrim’s Pride’s 13.6% interest in Texas Egg Products, LLC (“TEP”), which gave us a majority ownership interest in TEP.

On November 15, 2012, the Company acquired the commercial egg assets of Maxim Productions Co. Inc. (“MPC”). The Company acquired the Maxim assets for approximately $64.9 million consisting of approximately $58.6 million in cash and 114,103 shares of common stock. The assets included a feed mill, two production complexes with capacity for 3.5 million laying hens and a pullet grow out facility, and Maxim’s 21.8% interest in TEP, which gave us a 72.1% interest in TEP. The Maxim acquisition included an earn-out contingency of $4.4 million, the fair value of which is remeasured at each reporting date until the contingency is settled in the second quarter of fiscal year 2016.

The results of the Company’s operation of these assets are included in the Company’s consolidated financial statements since the respective dates of acquisition. Included in the Company’s consolidated financial statements for fiscal 2014 are revenues and net income from Delta Egg of $4.7 million and $1.3 million, respectively. Prior to the acquisition date the Company’s 50% share of net income was recorded “Equity in income of affiliates”.

The fair value measurements were primarily based on significant inputs that are not observable in the markets. Projected cash flows are discounted at a required market rate of return that reflects the relative risk of achieving the cash flows for the time value of money. Investment securities are valued based on certain level 2 inputs since observable inputs for these securities, such as yields, credit risks, default rates and volatility, exist. The market approach, which indicates value for a subject asset based on available market pricing for comparable assets, was utilized for inventory. The market approach indicates value based on financial multiples available for similar entities and adjustments for lack of control or lack of marketability that market participants would consider in determining fair value. The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was utilized for the fair value of certain property, plant and equipment. The cost to replace given assets reflects the estimated reproduction or replacement cost of the asset, less an allowance for loss in value due to depreciation. Goodwill on business combination recognizes the difference in the fair value of the assets acquired and liabilities assumed, net of the acquisition price.

The following unaudited pro forma information was prepared assuming the acquisition of the commercial egg assets of PPC and MPC had taken place at the beginning of fiscal year 2012. In preparing pro forma information, various assumptions were made; therefore, the Company does not imply that the future results will be indicative of the following pro forma information (in thousands):


	Year Ended
	June 1, 2013		June 2, 2012
Net sales	$	1,344,279	$	1,241,475
Net income attributable to Cal-Maine Foods, Inc.	$	50,053	$	93,449

Net income per share attributable to Cal-Maine Foods, Inc.:
Basic net income per share	$	2.09	$	3.91
Diluted net income per share	$	2.08	$	3.90