STOCK COMPENSATION PLANS

3 Months Ended

Jan. 31, 2022

Share-based Payment Arrangement [Abstract]

Refer to Note 10 and Note 11 of the Company’s October 31, 2021 audited financial statements in the Company's 2021 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 months ended January 31, 2022 was $8.4 million, as compared to total stock based compensation expense of $2.7 million for the three months ended January 31, 2021.

During the three months ended January 31, 2022, participants in the Company’s Management Share Purchase Plan ("MSPP") elected to receive a total of 3,443 shares of restricted stock at an average price of $190.64 per share instead of a specified percentage of their cash compensation, and the Company issued 824 matching restricted shares. During the three months ended January 31, 2022, the Company recorded compensation expense for the MSPP shares, included in the total stock based compensation expense above, of $58,000, as compared to $75,000 during the three months ended January 31, 2021.

Pursuant to the Agreement and Plan of Merger with Walnut Sycamore Holdings LLC, a Delaware limited liability company (“Parent”), Sycamore Merger Sub LLC, a Delaware limited liability company and an indirect wholly owned subsidiary of Parent (“Merger Sub”), and solely for purposes of certain provisions specified therein, Wayne Farms LLC, a Delaware limited liability company (the “Merger Agreement”), no new cash compensation reduction elections under the MSPP may be made after August 8, 2021, and no participants may increase their cash compensation reduction elections under the MSPP after August 8, 2021.

During fiscal 2020 and 2021, 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, there is an additional one-year period during which the participant must remain employed by the Company before the shares are paid out. If the Company's average return on equity and average return on sales meet or 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, 2020 totaled 87,350. During the first quarter of fiscal 2022, the Company determined that achievement of the applicable performance based criteria for the November 1, 2020 agreements is probable at a level between threshold and target for the return on equity criteria and at a level between target and maximum for the return on sales criteria. Accordingly, the quarter ended January 31, 2022 includes compensation expense of $5,137,000, included in the total stock based compensation expense above, related to the agreements executed on November 1, 2020, as compared to no compensation expense related to those same agreements recorded during the quarter ended January 31, 2021. As of January 31, 2022, the aggregate number of shares estimated to be awarded related to the performance share agreements entered into on November 1, 2020 totaled 88,924 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 nine months of the performance period ending October 31, 2022, and due to potential forfeitures. The Company will recognize the remaining unearned compensation related to these agreements over the remaining service period, which ends on October 31, 2023. Had the Company determined that it was probable that the maximum amount of those outstanding awards from the agreements entered into on November 1, 2020 would be earned, an additional $3.5 million of compensation expense would have been accrued as of January 31, 2022.

The Company also has performance share agreements in place with certain officers and key employees that were entered into on November 1, 2019. The target number of shares specified in those agreements totaled 56,575. The Company has determined that shares covered by these agreements have been earned at a level between the threshold and target for the portion dependent upon return on equity criteria and at a level between target and maximum for the portion dependent upon return on sales criteria. Accordingly, the quarter ended January 31, 2022 includes compensation expense of $881,000 related to those agreements, included in the total stock based compensation expense above, as compared to no compensation expense related to those agreements recorded during the quarter ended January 31, 2021. There was no compensation expense recorded during the first quarter of fiscal 2021 related to these agreements, because the Company first determined it was probable that some portion of these shares would be earned during the third quarter of fiscal 2021. As of January 31, 2022, the aggregate number of shares estimated to be awarded related to the performance share agreements entered into on November 1, 2019 totaled 60,682 shares. Since the performance period for these agreements has ended, the actual number of shares that will be awarded can change only due to potential forfeitures during the remaining nine months of the service period ending October 31, 2022. The Company will recognize the remaining unearned compensation related to these agreements over the remaining service period.

Typically, the Company would have also entered into performance share agreements dated November 1, 2021, with its officers and key employees, but covenants in the Merger Agreement prohibited the Company from doing so.

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


		Three Months Ended
Date of Performance Share Agreement	Number of shares issued (actual (a) or estimated (e))	January 31, 2022		January 31, 2021
November 1, 2019	60,682 (e)	881		—
November 1, 2020	88,924 (e)	5,137		—
Total performance share compensation expense		$	6,018	$	—

The Company 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 January 31, 2022 related to all unvested restricted stock grants totaled 223,767. During the three months ended January 31, 2022, the Company recorded compensation expense, included in the total stock based compensation expense above, of $2.3 million related to restricted stock grants, as compared to $2.6 million during the three months ended January 31, 2021. The Company had $13.2 million in unrecognized share-based compensation expense as of January 31, 2022, which will be recognized over a weighted average remaining vesting period of approximately 1 year, 8 months. Typically, the Company would have made new restricted stock grants to its officers and key employees effective on November 1, 2021, but covenants in the Merger Agreement prohibited the Company from doing so.