STOCK COMPENSATION PLANS

Refer to Note 8 and Note 9 of the Company’s October 31, 2017 audited financial statements in the Company's 2017 Annual Report on Form 10-K for further information on our employee benefit plans and stock based compensation plans, respectively. Total stock based compensation expense during the three and nine months ended July 31, 2018 was $3.1 million and $13.7 million, respectively, as compared to total stock based compensation expense of $4.0 million and $13.4 million for the three and nine months ended July 31, 2017, respectively.

During the nine months ended July 31, 2018, participants in the Company’s Management Share Purchase Plan ("MSPP") elected to receive a total of 8,749 shares of restricted stock at an average price of $127.93 per share instead of a specified percentage of their cash compensation, and the Company issued 2,101 matching restricted shares. During the three and nine months ended July 31, 2018, the Company recorded compensation expense for the MSPP shares, included in the total stock based compensation expense above, of $46,000 and $211,000, respectively, as compared to $99,000 and $297,000 during the three and nine months ended July 31, 2017, respectively.

During fiscal 2018, 2017 and 2016, the Company entered into performance share agreements that grant certain officers and key employees the right to receive shares of the Company's common stock, subject to the Company's achievement of certain performance measures. The performance share agreements specify a target number of shares that a participant can receive based upon the Company's average return on equity and average return on sales, as defined, during a two-year performance period beginning November 1 of each performance period. Although the performance share agreements have a two-year performance period, they are subject to an additional one-year period during which the participant must remain employed by the Company before they are paid out. If the Company's average return on equity and average return on sales exceed certain threshold amounts for the performance period, participants will receive 50 percent to 200 percent of the target number of shares, depending upon the Company's level of performance. Accruals for performance shares begin during the period management determines that achievement of the applicable performance based criteria is probable at some level. In estimating the probability of the number of shares that will be awarded, the Company considers, among other factors, current and projected grain costs and chicken volumes and pricing, as well as the amount of the Company's commitments to procure grain at a fixed price throughout the performance period. Due to the high level of volatility of these commodity prices and the impact that the change in pricing can have on the Company's results, the Company's assessment of probability can change from period to period and can result in a significant revision to the amounts accrued related to the arrangements, as the accruals are adjusted using the cumulative catch-up method of accounting.

The target number of shares specified in the performance share agreements executed on November 1, 2017 totaled 53,850. As of July 31, 2018, the Company could not determine that achievement of the applicable performance based criteria is probable due to the uncertainties discussed above, and therefore recorded no compensation expense related to those agreements.

The Company also has performance share agreements in place with certain officers and key employees that were entered into on November 1, 2016. During the quarter ended January 31, 2018, the Company determined that achievement of the applicable performance based criteria for the November 1, 2016 agreements is probable at a level between the target and maximum levels. Accordingly, because the accrual is made using the cumulative catch-up method, the three and nine months ended July 31, 2018 include compensation expense of $0.4 million and $5.2 million, respectively, as compared to no compensation expense recorded during the three and nine months ended July 31, 2017 related to the agreements entered into on November 1, 2016. As of July 31, 2018, the aggregate number of shares estimated to be awarded related to the performance share agreements entered into on November 1, 2016 totaled 97,763 shares. The actual number of shares that can be awarded for those agreements could change materially from that estimate due to the Company's actual performance during the remaining three months of the performance period ending October 31, 2018, and due to potential forfeitures. The Company will recognize the remaining unearned compensation related to these shares over the remaining service period.

The Compensation Committee of the Company's Board of Directors has determined that the performance share agreements entered into on November 1, 2015 have been earned at a level between the target and maximum levels, subject to the satisfaction of the additional one-year service period ending on October 31, 2018. Accordingly, the three and nine months ended July 31, 2018 include compensation expense of $0.8 million and $2.5 million, respectively, related to those agreements, as compared to compensation expense of $1.2 million and $5.7 million, respectively, during the three and nine months ended July 31, 2017. Because managment's initial determination of probability was made during the three months ended January 31, 2017, and because the accrual is made using the cumulative catch-up method, the compensation expense recorded during the first three quarters of fiscal 2017 related to the agreements entered into on November 1, 2015 was greater than that recorded during the first three quarters of fiscal 2018. As of July 31, 2018, the aggregate number of shares estimated to be awarded related to the performance share agreements entered into on November 1, 2015 totaled 145,469 shares. Since the performance period for those agreements has ended, the actual number of shares that will be awarded can change only due to potential forfeitures during the remaining three months of the service period ending October 31, 2018. The Company will recognize the remaining unearned compensation related to these shares over the remaining service period.

Had the Company determined that it was probable that the maximum amount of those outstanding awards from the agreements entered into on November 1, 2016 and November 1, 2017 would be earned, an additional $1.8 million and $4.0 million, respectively, would have been accrued as of July 31, 2018.

The Company's compensation cost related to performance share agreements is summarized as follows (in thousands, except number of shares):



		Three months ended				Nine months ended
Date of Performance Share Agreement	Number of shares issued (actual (a) or estimated (e))	July 31, 2018		July 31, 2017		July 31, 2018		July 31, 2017
November 1, 2014	102,193 (a)	$	—	$	722	$	—	$	2,065
November 1, 2015	145,469 (e)	843		1,249		2,517		5,733
November 1, 2016	97,763 (e)	379		—		5,224		—
November 1, 2017 (1)	—	—		—		—		—
Total compensation cost		$	1,222	$	1,971	$	7,741	$	7,798

Note (1) - As of July 31, 2018, the Company could not determine that achievement of the applicable performance-based criteria is probable for the agreements entered into on November 1, 2017 due to the uncertainties discussed above, and therefore recorded no compensation expense related to those agreements.

On November 1, 2017, the Company granted 53,850 shares of restricted stock to certain officers and key management employees. The restricted stock had a grant date fair value of $148.23 per share and will vest on November 1, 2021. On February 15, 2018, the Company granted an aggregate of 11,400 shares of restricted stock to all of its non-employee directors. The restricted stock had a grant date fair value of $131.61 per share and vests one, two or three years from the date of grant. The Company also has unvested restricted stock grants outstanding that were granted during prior fiscal years to its officers, key employees and outside directors. The aggregate number of shares outstanding at July 31, 2018 related to all unvested restricted stock grants totaled 282,156. During the three and nine months ended July 31, 2018, the Company recorded compensation expense, included in the total stock based compensation expense above, of $1.8 million and $5.7 million, respectively, related to restricted stock grants, as compared to $2.0 million and $5.3 million during the three and nine months ended July 31, 2017, respectively. The Company had $12.8 million in unrecognized share-based compensation costs as of July 31, 2018, which will be recognized over a weighted average remaining vesting period of approximately 1 year, 9 months.