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Management's Discussion of Results of Operations (Excerpts)

For purposes of readability, Zenith attempts to strip out all tables in excerpts from the Management Discussion. That information is contained elsewhere in our articles. The idea of this summary is simply to review how well we believe Management does its reporting. Also, this highlights what Management believes is important.

In our Decision Matrix at the end of each article, a company with 0 to 2 gets a "-1", and 3 to 5 gets a "+1."

On a scale of 0 to 5, 5 being best, Zenith rates this company's Management's Discussion as a 5.


Risks, uncertainties and other factors 
include, but are not limited to,

(1) Changes in the market price for the Company’s finished products and feed 
grains, both of which may fluctuate substantially and exhibit cyclical 
characteristics typically associated with commodity markets.

(2) Changes in economic and business conditions, monetary and fiscal policies 
or the amount of growth, stagnation or recession in the global or U.S. 
economies, any of which may affect the value of inventories, the collectability 
of accounts receivable or the financial integrity of customers, and the ability 
of the end user or consumer to afford protein.

(3) Changes in the political or economic climate, trade policies, laws and 
regulations or the domestic poultry industry of countries to which the Company 
or other companies in the poultry industry ship product, and other changes that 
might limit the Company’s or the industry’s access to foreign markets.

(4) Changes in laws, regulations, and other activities in government agencies 
and similar organizations applicable to the Company and the poultry industry 
and changes in laws, regulations and other activities in government agencies 
and similar organizations related to food safety.

(5) Various inventory risks due to changes in market conditions, including, but 
not limited to, the risk that market values of live and processed poultry 
inventories might be lower than the cost of such inventories, requiring a 
downward adjustment to record the value of such inventories at the lower of 
cost or market as required by generally accepted accounting principles.

(6) Changes in and effects of competition, which is significant in all markets 
in which the Company competes, and the effectiveness of marketing and 
advertising programs. The Company competes with regional and national firms, 
some of which have greater financial and marketing resources than the Company.

(7) Changes in accounting policies and practices adopted voluntarily by the 
Company or required to be adopted by accounting principles generally accepted 
in the United States.

(8) Disease outbreaks affecting the production, performance and/or 
marketability of the Company’s poultry products, or the contamination of its 
products.

(9) Changes in the availability and cost of labor and growers.

(10) The loss of any of the Company’s major customers.

(11) Inclement weather that could hurt Company flocks or otherwise adversely 
affect its operations, or changes in global weather patterns that could affect 
the supply of feed grains.

(12) Failure to respond to changing consumer preferences and negative media 
campaigns.

(13) Failure to successfully and efficiently start up and run a new plant or 
integrate any business the Company might acquire.

(14) Unfavorable results from currently pending litigation and proceedings, or 
litigation and proceedings that could arise in the future.

GENERAL The Company’s poultry operations are integrated through its control of 
all functions relative to the production of its chicken products, including 
hatching egg production, hatching, feed manufacturing, raising chickens to 
marketable age (“grow out”), processing, marketing and distribution. The 
Company’s prepared chicken product line includes approximately 80 institutional 
and consumer packaged chicken items that it sells nationally, primarily to 
distributors and food service establishments. A majority of the prepared 
chicken items are made to the specifications of food service users. Consistent 
with the poultry industry, the Company’s profitability is substantially 
affected by the market prices for its finished products and feed grains, both 
of which may fluctuate substantially and exhibit cyclical characteristics 
typically associated with commodity markets. Other costs, excluding feed 
grains, related to the profitability of the Company’s poultry operations, 
including hatching egg production, hatching, growing, and processing cost, are 
responsive to efficient cost containment programs and management practices. In 
February 2015, the Company began initial operations at a new poultry processing 
complex in Palestine, Texas. The complex consists of a feed mill, hatchery, 
poultry processing plant and wastewater facility with the capacity to process 
1.25 million chickens per week. During the third quarter of fiscal 2017, the 
Palestine processing plant processed approximately 136.8 million pounds of 
dressed poultry meat, as compared to approximately 93.7 million pounds during 
the third quarter of fiscal 2016. On March 12, 2015, the Company announced the 
selection of St. Pauls and Robeson County, North Carolina, for the construction 
of a new poultry processing complex. The completed complex consists of a 
hatchery, processing plant, waste water treatment facility, and an expansion of 
the Company's existing feed mill in Kinston, North Carolina. Construction began 
in July 2015, and initial operations of the new complex began during the first 
quarter of fiscal 2017. At full capacity, the new complex will process 1.25 
million chickens per week. During the third quarter of fiscal 2017, the St. 
Pauls processing plant processed approximately 76.4 million pounds of dressed 
poultry meat, as compared to 46.2 million pounds during the second quarter of 
fiscal 2017 and 4.0 million pounds during the first quarter of fiscal 2017.

On March 16, 2017, the Company announced the selection of sites in Lindale, 
Mineola and Smith County, Texas, for the construction of a new poultry 
processing complex. The completed complex will consist of a hatchery, feed 
mill, processing plant and waste water treatment facility. The Company entered 
the initial phases of this project during the third quarter of fiscal 2017, 
construction is expected to commence during the fourth quarter of fiscal 2017, 
and initial operations of the new complex are expected to begin during the 
first calendar quarter of 2019. At full capacity, the complex will process 1.25 
million chickens per week. Before the complex can become operational, we will 
need to obtain the necessary licenses and permits, enter into construction 
contracts, enter into contracts with a sufficient number of independent 
contract poultry producers to house the live inventory and hire and train our 
workforce. See "The construction and potential benefits of our new facilities 
are subject to risks and uncertainties" in the Risk Factors section of our 
Annual Report on Form 10-K for the fiscal year ended October 31, 2016.

The Company entered into a new revolving credit facility on April 28, 2017 to, 
among other things, increase the available credit to $900.0 million from $750.0 
million. The facility has annual capital expenditure limitations of $100.0 
million, $105.0 million, $110.0 million, $115.0 million, $120.0 million and 
$125.0 million for fiscal years 2017 through 2022, respectively, and permits up 
to $15.0 million of the unused capital expenditure limitation from fiscal year 
2016 to be carried over to the fiscal year 2017; thereafter, up to $20.0 
million of the unused limitation for any fiscal year starting with fiscal year 
2017 may be carried over to the next fiscal year. The facility also permits 
capital expenditures up to $200.5 million on the construction of a new poultry 
complex in and around Tyler, Texas, up to $210.0 million on the construction of 
a potential additional new poultry complex, up to $15.0 million on expansion of 
the Company's existing prepared chicken facility in Flowood, Mississippi, up to 
$60.0 million on a potential new prepared chicken facility, and up to $70.0 
million on the purchase of three new aircraft. Under the facility, the Company 
may not exceed a maximum debt to total capitalization ratio of 50%. The Company 
has a one-time right, at any time during the term of the agreement, to increase 
the maximum debt to total capitalization ratio then in effect by five 
percentage points in connection with the construction of any of the three 
aforementioned new complexes for the four fiscal quarters beginning on the 
first day of the fiscal quarter during which the Company gives written notice 
of its intent to exercise this right. The Company has not exercised this right. 
The facility also sets a minimum net worth requirement that at July 31, 2017, 
was $954.2 million. The credit is unsecured and, unless extended, will expire 
on April 28, 2022. As of July 31, 2017, and May 24, 2017, the Company had no 
outstanding draws under the facility, and had approximately $19.7 million 
outstanding in letters of credit, leaving $880.3 million of borrowing capacity 
available under the facility. For more information about the facility, see Item 
1.01 of our Current Report on Form 8-K filed May 4, 2017, which is incorporated 
herein by reference.

EXECUTIVE OVERVIEW OF RESULTS The Company's margins improved significantly 
during the third quarter of fiscal 2017, when compared to the same period a 
year ago, reflecting higher average sales prices and slightly lower feed costs 
per pound of chicken processed. Driving our third quarter results were improved 
market prices for products sold to food service customers, continued strong 
demand for chicken at retail grocery stores, stable demand from the export 
markets, and increased volume. Demand from food service customers improved 
compared to the third quarter of fiscal 2016, primarily from local chain 
concepts and restaurants that focus on chicken wings. As a result, market 
prices for boneless skinless breast meat, tenders and jumbo wings moved higher 
during the third quarter of fiscal 2017, when compared to the second quarter of 
fiscal 2017. We believe that the counter-seasonal increase in market prices for 
jumbo wings is also driven by the growing number of wing-focused restaurants. 
While overall prices paid for feed grains were higher during the third quarter 
of fiscal 2017 as compared to the same period a year ago, feed formulation 
changes and improved broiler performance offset the higher prices. As a result, 
the average feed cost in broiler flocks processed was lower by 1.3%. The 
Company has priced substantially all of its grain needs through October 2017. 
Based on these prices, the Company expects costs of feed grains to be 
approximately $25.6 million higher during fiscal 2017 as compared to fiscal 
2016.

RESULTS OF OPERATIONS Net sales for the third quarter ended July 31, 2017 were 
$931.9 million as compared to $728.0 million for the third quarter ended July 
31, 2016, an increase of $203.9 million, or 28.0%. Net sales of poultry 
products for the third quarter ended July 31, 2017 and 2016, were $888.1 
million and $678.4 million, respectively, an increase of $209.8 million, or 
30.9%. The increase in net sales of poultry products resulted from a 13.3% 
increase in the average sales price of poultry products sold and a 15.6% 
increase in the pounds of poultry products sold. During the third quarter of 
fiscal 2017, the Company sold 1,068.8 million pounds of poultry products, up 
from 924.6 million pounds during the third quarter of fiscal 2016. The 
increased pounds of poultry products sold resulted from a 13.5% increase in the 
number of head processed. The new St. Pauls processing facility, which began 
initial operations in January 2017, processed approximately 9.2 million head 
during the third quarter of fiscal 2017, or 6.2% of the Company's total head 
processed during the period, and sold approximately 76.1 million pounds of 
poultry products during the third quarter of fiscal 2017, or 7.1% of the 
Company's total poultry pounds sold during the quarter. The Palestine 
processing facility, which began initial operations during February 2015, 
processed approximately 16.3 million head during the third quarter of fiscal 
2017, or 11.0% of the Company's total head processed during the period, and 
sold approximately 136.9 million pounds of poultry products during the third 
quarter of fiscal 2017, or 12.8% of the Company's total poultry pounds sold 
during the period. By comparison, the Palestine facility processed 
approximately 11.1 million head during the third quarter of fiscal 2016, or 
8.5% of the Company's total head processed during the period, and sold 
approximately 93.9 million pounds of poultry products during the third quarter 
of fiscal 2016, or approximately 10.2% of the Company's total poultry pounds 
sold during the period. Overall, market prices for poultry products increased 
during the third quarter of fiscal 2017 as compared to the same quarter of 
fiscal 2016. When compared to the third quarter of fiscal 2016, Urner Barry 
average market prices for boneless breast meat, jumbo wings and bulk leg 
quarters increased by 24.8%, 40.2% and 15.9%, respectively, while average 
market prices for tenders decreased by 2.6%. Average market prices for chicken 
products sold to retail grocery store customers remained relatively strong 
during the third quarter of fiscal 2017, and continue to reflect good demand. 
Net sales of prepared chicken products for the third quarter ended July 31, 
2017 and 2016 were $43.8 million and $49.6 million, respectively, or a decrease 
of 11.8%. This decrease resulted from a 12.1% decrease in the pounds of 
prepared chicken products sold, partially offset by a 0.3% increase in the 
average sales price of prepared chicken products sold. During the third quarter 
of fiscal 2017, the Company sold 21.3 million pounds of prepared chicken 
products, down from 24.2 million pounds during the third quarter of fiscal 
2016. Net sales for the first nine months of fiscal 2017 were $2,422.3 million 
as compared to $2,025.2 million for the first nine months of fiscal 2016, an 
increase of $397.0 million, or 19.6%. Net sales of poultry products for the 
first nine months of fiscal 2017 and 2016 were $2,293.9 million and $1,886.9 
million, respectively, an increase of $407.0 million or 21.6%. The increase in 
net sales of poultry products resulted from a 13.2% increase in the pounds of 
poultry products sold and a 7.4% increase in the average sales price of poultry 
products. During the first nine months of fiscal 2017, the Company sold 3,071.6 
million pounds of poultry products, up from 2,713.8 million pounds during the 
first nine months of fiscal 2016. The increased pounds of poultry products 
resulted from a 11.5% increase in the number of head processed and a 1.0% 
increase in the average live weight of poultry processed. During the first nine 
months of fiscal 2017, the new St. Pauls processing facility, which began 
initial operations in January 2017, processed approximately 15.2 million head, 
or 3.7% of the Company's total head processed during the period, and sold 
approximately 132.5 million pounds of poultry products, or 4.3% of the 
Company's total poultry pounds sold during the period. During the first nine 
months of fiscal 2017, the Palestine processing facility, which began initial 
operations during February 2015, processed approximately 46.6 million head, or 
11.2% of the Company's total head processed during the period, and sold 
approximately 401.7 million pounds of poultry products, or 13.1% of the 
Company's total poultry pounds sold during the period. By comparison, during 
the first nine months of fiscal 2016, the Palestine facility processed 
approximately 26.8 million head, or 7.1% of the Company's total head processed 
during the period, and sold approximately 229.6 million pounds of poultry 
products, or 8.5% of the Company's total poultry pounds sold during the period. 
Overall, market prices for poultry products increased during the first nine 
months of fiscal 2017 as compared to the same period during fiscal 2016. When 
compared to the first nine months of fiscal 2016, Urner Barry average market 
prices for boneless breast meat, tenders, jumbo wings and bulk leg quarters 
increased by 10.7%, 4.0%, 18.9% and 20.7%, respectively. Average market prices 
for chicken products sold to retail grocery store customers remained relatively 
strong during the first nine months of fiscal 2017, and continue to reflect 
good demand. Net sales of prepared chicken products for the nine months ended 
July 31, 2017 and 2016 were $128.4 million and $138.3 million, respectively, or 
a decrease of 7.2%. This decrease resulted from a 6.9% decrease in the pounds 
of prepared chicken products sold and a 0.4% decrease in the average sales 
price of prepared chicken products sold. During the first nine months of fiscal 
2017, the Company sold 64.2 million pounds of prepared chicken products, down 
from 68.9 million pounds during the first nine months of fiscal 2016. Cost of 
sales for the third quarter of fiscal 2017 was $692.6 million as compared to 
$598.6 million during the third quarter of fiscal 2016, an increase of $94.0 
million, or 15.7%. Cost of sales of poultry products during the third quarter 
of fiscal 2017, as compared to the third quarter of fiscal 2016, was $651.3 
million and $554.7 million, respectively, which represents a 1.6% increase in 
the average cost of sales of poultry products. As illustrated in the table 
below, which for comparative purposes includes poultry products sold to the 
Company's prepared chicken plant, and excludes poultry products processed and 
sold under our agreement with House of Raeford Farms as described in "Note 
(2)," the increase in the average cost of sales of poultry products resulted 
from a $0.0211 per pound increase in other costs of sales of poultry products 
and a decrease in the cost of feed per pound of broilers processed of $0.0032, 
or 1.3%.

Poultry Cost of Sales

On April 17, 2017, the Company announced that it had agreed to process chickens 
grown by House of Raeford Farms at the Company's processing facility located in 
St. Pauls, North Carolina. House of Raeford Farms, a private company 
headquartered in Rose Hill, North Carolina, operates poultry grow-out 
operations and processing facilities in four southeastern states. The House of 
Raeford Farms Teachey, North Carolina, facility was severely damaged by a fire 
in late February. Under the terms of the agreement, the Company will purchase, 
process and sell chickens grown by House of Raeford Farms through mid-December 
2017. During the third quarter of fiscal 2017, the Company processed and sold 
approximately 19.2 million pounds of chicken as a result of this agreement. For 
comparative purposes, those pounds and the associated direct and indirect costs 
have been excluded from the data set forth in this chart. Under this agreement, 
the Company estimates it will process approximately 26.3 million pounds during 
the fourth quarter of fiscal 2017 and 12.4 million pounds during the first 
quarter of fiscal 2018.

Other costs of sales of poultry products include labor, contract grower pay, 
packaging, freight and certain fixed costs, among other costs. During the third 
quarter of fiscal 2017, other costs of sales of poultry products also include 
approximately $8.2 million of expenses related to the Company's bonus award 
program, as compared to no such expenses during the third quarter of fiscal 
2016. During the third quarter of fiscal 2017, management determined that 
achievement of the applicable criteria required to earn a bonus in fiscal 2017 
is probable at a level between the threshold and maximum levels. These non-feed 
related costs of poultry products sold increased by $0.0211 per pound 
processed, or 6.1%, during this year’s third fiscal quarter compared to the 
same quarter a year ago, primarily attributable to the bonus accruals described 
above, along with relative inefficiencies at the Company's new St. Pauls, North 
Carolina facilities, which began initial operations during the first quarter of 
fiscal 2017, partially offset by increased efficiencies realized at the 
Company's Palestine, Texas facilities as the volume of pounds processed at that 
facility increased. A new facility's other costs of sales per pound processed 
will be higher compared to similar complexes until the complex reaches full 
capacity. Excluding the bonus accruals and St. Pauls facilities, other costs of 
sales would have increased by approximately $0.0100 per pound processed, or 
2.9%. Costs of sales of the Company’s prepared chicken products during the 
third quarter of fiscal 2017 were $41.2 million as compared to $43.8 million 
during the same quarter a year ago, a decrease of $2.6 million, or 5.9%, 
primarily attributable to a 12.1% decrease in the pounds of prepared chicken 
sold, partially offset by a 7.0% increase in the average costs per pound of 
prepared chicken sold. Cost of sales for the first nine months of fiscal 2017 
was $1,954.3 million as compared to $1,731.9 million during the first nine 
months of fiscal 2016, an increase of $222.4 million, or 12.8%. Cost of sales 
of poultry products during the first nine months of fiscal 2017, as compared to 
the first nine months of fiscal 2016, was $1,838.7 million and $1,608.5 
million, respectively, which represents a 1.0% increase in the average cost of 
sales of poultry products. As illustrated in the table below, which for 
comparative purposes includes poultry products sold to the Company's prepared 
chicken plant, and excludes poultry products processed and sold under our 
agreement with House of Raeford Farms as described in "Note (2)," the increase 
resulted from a $0.0106 per pound increase in other costs of sales of poultry 
products, partially offset by a decrease in the cost of feed per pound of 
broilers processed of $0.0049, or 1.9%.

Poultry Cost of Sales

On April 17, 2017, the Company announced that it had agreed to process chickens 
grown by House of Raeford Farms at the Company's processing facility located in 
St. Pauls, North Carolina. House of Raeford Farms, a private company 
headquartered in Rose Hill, North Carolina, operates poultry grow-out 
operations and processing facilities in four southeastern states. The House of 
Raeford Farms Teachey, North Carolina, facility was severely damaged by a fire 
in late February. Under the terms of the agreement, the Company will purchase, 
process and sell chickens grown by House of Raeford Farms through mid-December 
2017. During the nine months ended July 31, 2017, the Company processed and 
sold approximately 36.3 million pounds of chicken as a result of this 
agreement. For comparative purposes, those pounds and the associated direct and 
indirect costs have been excluded from the data set forth in this chart. Under 
this agreement, the Company estimates it will process approximately 26.3 
million pounds during the fourth quarter of fiscal 2017 and 12.4 million pounds 
during the first quarter of fiscal 2018.

Other costs of sales of poultry products include labor, contract grower pay, 
packaging, freight and certain fixed costs, among other costs. During the first 
nine months of fiscal 2017, other costs of sales of poultry products also 
include approximately $8.2 million of expenses related to the Company's bonus 
award program, as compared to no such expenses during the third quarter of 
fiscal 2016. During the third quarter of fiscal 2017, management determined 
that achievement of the applicable criteria required to earn a bonus in fiscal 
2017 is probable at a level between the threshold and maximum levels. These 
non-feed related costs of poultry products sold increased by $0.0106 per pound 
processed, or 3.1%, during the first nine months of fiscal 2017 as compared to 
the same period a year ago, primarily attributable to bonus accruals described 
above, along with relative inefficiencies at the Company's new St. Pauls, North 
Carolina facilities, which began initial operations during the first quarter of 
fiscal 2017, partially offset by increased efficiencies realized at the 
Company's Palestine, Texas facilities as the volume of pounds processed at that 
facility increased. A new facility's other costs of sales per pound processed 
will be higher compared to similar complexes until the complex reaches full 
capacity. Excluding the bonus accruals and St. Pauls facilities, other costs of 
sales would have increased by approximately $0.0030 per pound processed, or 
0.9%. Costs of sales of the Company’s prepared chicken products during the 
first nine months of fiscal 2017 were $115.6 million as compared to $123.4 
million during the same period a year ago, a decrease of $7.8 million, or 6.3%, 
primarily attributable to a 6.9% decrease in the pounds of prepared chicken 
sold, partially offset by a 0.6% increase in the average costs per pound of 
prepared chicken sold. The Company recorded the value of live broiler 
inventories on hand at July 31, 2017 at cost. When market conditions are 
favorable, the Company values the broiler inventories on hand at cost, and 
accumulates costs as the birds are grown to a marketable age subsequent to the 
balance sheet date. In periods where the Company estimates that the cost to 
grow live birds in inventory to a marketable age, process, and distribute those 
birds will be higher in the aggregate than the anticipated sales price, the 
Company will make an adjustment to lower the value of live birds in inventory 
to the market value. No such charge was required at July 31, 2017 or July 31, 
2016. Selling, general and administrative ("SG&A") costs during the third 
quarter of fiscal 2017 were $62.0 million, an increase of $17.5 million 
compared to the $44.6 million during the third quarter of fiscal 2016. SG&A 
costs during the nine months ended July 31, 2017 were $151.7 million, an 
increase of $36.8 million compared to the $114.9 million during the nine months 
ended July 31, 2016.

Selling, General and Administrative Costs (in thousands)

The majority of the $17.5 million increase in SG&A costs during the third 
quarter of fiscal 2017 as compared to the same period a year ago resulted from 
increases in bonus, ESOP, marketing, legal, trainee and all other SG&A 
expenses, partially offset by a decrease in start-up expenses. The increases in 
both the ESOP and bonus accruals, payouts of which are based on profitability, 
are the results of management determining that it is probable that fiscal 2017 
earnings will be at levels that will allow payouts of both incentives. The 
increase in legal expenses is primarily attributable to our ongoing defense of 
the litigation described in "Part II Other Information, Item 1. Legal 
Proceedings" of this Form 10-Q. The increase in marketing expenses is the 
result of an advertising campaign launched during the third quarter of fiscal 
2016, the increase in trainee expense is attributable to an increase in trainee 
staff, and the increase in all other SG&A expenses is the result of a net 
increase in various other categories of SG&A costs. The change in start-up 
expense in any particular period relates to the stage of the start-up process 
in which a facility under construction is in during the period. 
Non-construction related expenses, such as labor, training and office-related 
expenses for a facility under construction are recorded as start-up expense 
until the facility begins operations. As a facility moves closer to actual 
start-up, the expenses incurred for labor, training, etc. increase. As a 
result, amounts classified as start-up expenses will increase period over 
period until the facility begins production. Once production begins, the 
expenses from that point forward are recorded as costs of goods sold.

Selling, General and Administrative Costs (in thousands)

The majority of the $36.8 million increase in SG&A costs during the first nine 
months of fiscal 2017 as compared to the same period a year ago resulted from 
increases in marketing, bonus, ESOP, legal and all other SG&A expenses. The 
increases in both the ESOP and bonus accruals, payouts of which are based on 
profitability, are the results of management determining that it is probable 
that fiscal 2017 earnings will be at levels that will allow payouts of both 
incentives. The increase in legal expenses is primarily attributable to our 
ongoing defense of the litigation described in "Part II Other Information, Item 
1. Legal Proceedings" of this Form 10-Q. The increase in marketing expenses is 
the result of an advertising campaign launched during the third quarter of 
fiscal 2016, and the increase in all other SG&A expenses is the result of a net 
increase in various other categories of SG&A costs. The Company’s operating 
income for the three and nine months ended July 31, 2017 was $177.3 million and 
$316.3 million, respectively, as compared to an operating income for the three 
and nine months ended July 31, 2016 of $84.9 million and $178.4 million, 
respectively. The increase in operating income for the three months ended July 
31, 2017, as compared to the same period a year ago, resulted primarily from 
higher average selling prices and a 14.9% increase in pounds sold during the 
same comparative period. The increase in operating income for the nine months 
ended July 31, 2017, as compared to the same period a year ago, resulted 
primarily from higher average selling prices and a 12.7% increase in pounds 
sold during the same comparative period. Interest income during the third 
quarter and first nine months of fiscal 2017 was $0.3 million and $0.8 million, 
respectively, as compared to $0.1 million during the third quarter and first 
nine months of fiscal 2016. The increase is due to the timing of the Company's 
funding of its investment accounts. During the third quarter of fiscal 2016, 
the Company began investing excess cash in short-term, highly-liquid investment 
accounts, so the first nine months of fiscal 2016 reflect interest earned 
during one quarter. Comparatively, the first nine months of fiscal 2017 reflect 
interest earned during three quarters. Interest expense during the third 
quarter and first nine months of fiscal 2017 was $0.5 million and $1.4 million, 
respectively, as compared to $0.4 million and $1.3 million, respectively, 
during the same period a year ago. The Company’s effective tax rates for the 
three and nine months ended July 31, 2017 were 34.6% and 34.5%, respectively, 
as compared to 35.3% and 36.3%, respectively, for the three and nine months 
ended July 31, 2016. The Company's effective tax rates for the three and nine 
months ended July 31, 2017 include approximately 0.4% and 0.5%, respectively, 
in discrete favorable benefits recognized during the third quarter of fiscal 
2017, some of which was related to the Company's adoption of ASU 2016-09, 
Improvements to Employee Share-Based Payment Accounting. Due to the adoption of 
this standard, the Company's effective tax rate going forward could be more 
volatile, as it will depend on whether any shares from the Company's equity 
compensation plans vested during a particular period, and the stock price 
differential between the date of the grant and the date of the vesting. 
Excluding the effects of vesting stock grants, the Company expects its 
effective tax rate for the fourth quarter of fiscal 2017 to be approximately 
35.0%. During the first fiscal quarter of 2016, the Company took advantage of 
legislation enacted during the quarter, which allowed for bonus depreciation to 
be taken on qualifying assets placed in service during the 2015 calendar year. 
The legislation, and the Company's election to accelerate depreciation on these 
items, resulted in a favorable impact on the Company's cash tax refund, but had 
an unfavorable effect on tax deductions that are based on levels of pre-tax 
income, most especially the Internal Revenue Code Section 199 Domestic 
Production Activities Deduction. Had the Company not elected to take advantage 
of the legislation, the effective tax rate for the first nine months of fiscal 
2016 would have been approximately 35.2%. As of July 31, 2017, the Company's 
long-term deferred income tax liability was $95.3 million as compared to $75.7 
million at October 31, 2016, an increase of $19.6 million. This increase is 
primarily attributable to the Company's decision to take bonus depreciation on 
qualifying assets placed in service during fiscal 2017. The value of assets 
placed in service during fiscal 2017 is significant due to the start-up of the 
Company's new St. Pauls, North Carolina facilities. During the three and nine 
months ended July 31, 2017, the Company’s net income was $115.8 million, or 
$5.09 per share, and $206.9 million, or $9.10 per share, respectively. For the 
three and nine months ended July 31, 2016, the Company’s net income was $54.7 
million, or $2.42 per share, and $113.0 million, or $5.01 per share, 
respectively. Liquidity and Capital Resources The Company’s working capital, 
calculated by subtracting current liabilities from current assets, at July 31, 
2017 was $630.3 million, and its current ratio, calculated by dividing current 
assets by current liabilities, was 3.9 to 1. The Company’s working capital and 
current ratio at October 31, 2016 were $465.1 million and 4.1 to 1. These 
measures reflect the Company’s ability to meet its short term obligations and 
are included here as a measure of the Company’s short term market liquidity. 
The Company’s principal sources of liquidity during fiscal 2017 include cash on 
hand, cash flows from operations, and funds available under the Company’s 
revolving credit facility. As described below, the Company is a party to a 
revolving credit facility dated April 28, 2017, with a maximum available 
borrowing capacity of $900.0 million. As of July 31, and August 23, 2017, the 
Company had no outstanding draws under the facility and had approximately $19.7 
million outstanding in letters of credit, leaving $880.3 million of borrowing 
capacity available under the facility. The Company’s cash position at July 31, 
2017 and October 31, 2016 consisted of $398.3 million and $234.1 million, 
respectively, in cash and short-term cash investments. The Company’s ability to 
invest cash is limited by covenants in its revolving credit agreement to short 
term investments. All of the Company’s cash at July 31, 2017 and October 31, 
2016 was held in bank accounts and highly-liquid investment accounts. There 
were no restrictions on the Company’s access to its cash, and such cash was 
available to the Company on demand to fund its operations. Cash flows provided 
by operating activities during the nine months ended July 31, 2017 and 2016, 
were $310.1 million and $195.0 million, respectively. Cash flows from operating 
activities increased by $115.1 million, resulting primarily from an increase in 
market prices for poultry products during the first nine months of fiscal 2017, 
as compared to the same period in fiscal 2016. Additionally, a reduction in 
cash bonuses paid to employees by the Company, which were $0.4 million during 
the first nine months of fiscal 2017, as compared to $30.4 million during the 
first nine months of fiscal 2016, benefited cash flows provided by operating 
activities. Partially offsetting the increases in operating cash flows outlined 
above was a net increase of $52.9 million in cash paid for income taxes during 
the first nine months of fiscal 2017, as compared to the same period in fiscal 
2016. During the first nine months of fiscal 2017, the Company paid 
approximately $58.5 million in income taxes compared to approximately $5.6 
million during the first nine months of fiscal 2016. Cash flows used in 
investing activities during the first nine months of fiscal 2017 and 2016 were 
$130.2 million and $125.6 million, respectively. The Company’s capital 
expenditures during the first nine months of fiscal 2017 were approximately 
$130.6 million, and included approximately $24.0 million related to progress 
payments made under purchase agreements for future delivery of new aircraft as 
described below and $25.4 million related to construction at the St. Pauls, 
North Carolina complex. Capital expenditures for the first nine months of 
fiscal 2016 were $126.1 million, including approximately $65.8 million for 
construction of the St. Pauls, North Carolina complex, and approximately $5.7 
million for construction of a new office building on the site of the Company's 
headquarters in Laurel, Mississippi. Cash flows used in financing activities 
during the nine months ended July 31, 2017 and 2016 were $15.8 million and 
$23.1 million, respectively. During the second quarter of fiscal 2016, the 
Company made the final of five $10.0 million annual installments on its Farm 
Credit Services term loan, and during the second quarter of fiscal 2017, the 
Company paid approximately $2.4 million in debt issuance costs to renegotiate 
its revolving credit facility described below. The Company made no change to 
the net outstanding borrowings under its revolving credit facility in either of 
the comparative periods. As of August 21, 2017, the Company’s capital budget 
for fiscal 2017, excluding operating leases, is approximately $195.7 million. 
The 2017 capital budget will be funded by cash on-hand, internally generated 
working capital, cash flows from operations and, as needed, funds available 
under the Company's revolving credit facility. The fiscal 2017 capital budget 
includes $29.0 million for commitments related to the purchase agreements for 
future delivery of aircraft described below, approximately $25.5 million for 
construction of the Company’s new St. Pauls, North Carolina complex, 
approximately $22.0 million for construction of the Company's new Tyler, Texas 
complex, and approximately $11.9 million for expansion at the Company's 
prepared chicken facility in Flowood, Mississippi. Excluding the budget for the 
aircraft commitments, new complex construction and the prepared chicken 
facility expansion, the fiscal 2017 capital budget is approximately $107.3 
million. These amounts are estimates and are subject to change as we move 
through fiscal 2017. On December 22, 2016, the Company entered into three 
separate purchase agreements for three new aircraft to be delivered over the 
next three calendar years. The new aircraft will replace aircraft currently 
owned by the Company that are scheduled to be retired and removed from service 
in the ordinary course of business. The agreements require that the Company 
make periodic payments, with final payments due upon delivery of each aircraft. 
During the first nine months of fiscal 2017, the Company made payments of $24.0 
million under the agreements, and expects to make an additional $5.0 million 
during the remaining three months of fiscal 2017. The Company expects to make 
payments of approximately $22.1 million and $14.1 million during fiscal 2018 
and 2019, respectively. The Company has a Form S-3 “shelf” registration 
statement on file with the Securities and Exchange Commission to register, for 
possible future sale, shares of the Company’s common and/or preferred stock at 
an aggregate offering price not to exceed $1.0 billion. The stock may be 
offered by the Company in amounts, at prices and on terms to be determined by 
the board of directors if and when shares are issued. On March 12, 2015, the 
Company announced selection of St. Pauls and Robeson County, North Carolina, 
for the construction of a new poultry processing complex. The completed complex 
consists of a hatchery, processing plant, waste water treatment facility, and 
an expansion of the Company's current feed mill in Kinston, North Carolina. 
Construction began in July 2015, and initial operations of the new complex 
began during the first quarter of fiscal 2017. At full capacity, the new 
complex will process 1.25 million chickens per week. As of July 31, 2017, the 
Company has spent approximately $161.1 million on the project, of which $25.4 
million was spent during the first nine months of fiscal 2017.

On March 16, 2017, the Company announced the selection of sites in Lindale, 
Mineola and Smith County, Texas, for the construction of a new poultry 
processing complex. The completed complex will consist of a hatchery, feed 
mill, processing plant and waste water treatment facility. The Company entered 
the initial phases of this project during the third quarter of fiscal 2017, 
construction is expected to commence during the fourth quarter of fiscal 2017, 
and initial operations of the new complex are expected to begin during the 
first calendar quarter of 2019. The Company estimates the total investment in 
the complex will be approximately $200.5 million, and as of July 31, 2017, it 
has spent approximately $7.6 million on the initial stages of the project. At 
full capacity, the new complex will process 1.25 million chickens per week. 
Before the complex can become operational, we will need to obtain the necessary 
licenses and permits, enter into construction contracts, enter into contracts 
with a sufficient number of independent contract poultry producers to house the 
live inventory and hire and train our workforce. See "The construction and 
potential benefits of our new facilities are subject to risks and 
uncertainties" in the Risk Factors section of our Annual Report on Form 10-K 
for the fiscal year ended October 31, 2016. The Company entered into a new 
revolving credit facility on April 28, 2017 to, among other things, increase 
the available credit to $900.0 million from $750.0 million. The facility has 
annual capital expenditure limitations of $100.0 million, $105.0 million, 
$110.0 million, $115.0 million, $120.0 million and $125.0 million for fiscal 
years 2017 through 2022, respectively, and permits up to $15.0 million of the 
unused capital expenditure limitation from fiscal year 2016 to be carried over 
to the fiscal year 2017; thereafter, up to $20.0 million of the unused 
limitation for any fiscal year starting with fiscal year 2017 may be carried 
over to the next fiscal year. The facility also permits capital expenditures up 
to $200.5 million on the construction of a new poultry complex in and around 
Tyler, Texas, up to $210.0 million on the construction of a potential 
additional new poultry complex, up to $15.0 million on expansion of the 
Company's existing prepared chicken facility in Flowood, Mississippi, up to 
$60.0 million on a potential new prepared chicken facility, and up to $70.0 
million on the purchase of three new aircraft. Under the facility, the Company 
may not exceed a maximum debt to total capitalization ratio of 50%. The Company 
has a one-time right, at any time during the term of the agreement, to increase 
the maximum debt to total capitalization ratio then in effect by five 
percentage points in connection with the construction of any of the three 
aforementioned new complexes for the four fiscal quarters beginning on the 
first day of the fiscal quarter during which the Company gives written notice 
of its intent to exercise this right. The Company has not exercised this right. 
The facility also sets a minimum net worth requirement that at July 31, 2017, 
was $954.2 million. The credit is unsecured and, unless extended, will expire 
on April 28, 2022. As of July 31, 2017 and August 23, 2017, the Company had no 
outstanding draws under the facility, and had approximately $19.7 million 
outstanding in letters of credit, leaving $880.3 million of borrowing capacity 
available under the facility. For more information about the facility, see Item 
1.01 of our Current Report on Form 8-K filed May 4, 2017, which is incorporated 
herein by reference. The Company regularly evaluates both internal and external 
growth opportunities, including acquisition opportunities and the possible 
construction of new production assets, and conducts due diligence activities in 
connection with such opportunities. The cost and terms of any financing to be 
raised in conjunction with any growth opportunity, including the Company’s 
ability to raise debt or equity capital on terms and at costs satisfactory to 
the Company, and the effect of such opportunities on the Company’s balance 
sheet, are critical considerations in any such evaluation.

Critical Accounting Estimates We consider accounting policies related to 
allowance for doubtful accounts, inventories, long-lived assets, accrued 
self-insurance, performance share plans, income taxes and contingencies to be 
critical accounting estimates. These policies are summarized in Management's 
Discussion and Analysis of Financial Condition and Results of Operations in our 
Annual Report on Form 10-K for the year ended October 31, 2016.

New Accounting Pronouncements During the quarter ended July 31, 2017, the 
Company early-adopted Accounting Standards Update ("ASU") 2016-09, Improvements 
to Employee Share-Based Payment Accounting. The provisions of this update that 
materially affected our consolidated financial statements, or could potentially 
materially affect them in the future, require all income tax effects of stock 
awards to be recognized in the statement of operations during the period the 
awards vest or are settled, rather than recording excess tax benefits or 
deficiencies in additional paid-in capital, and require the related amounts to 
be presented as operating activities on the statement of cash flows, rather 
than financing activities. During the period of adoption, the standard requires 
the Company to account for the transactions as if the standard had been adopted 
on the first day of the fiscal year in which it was adopted. As a result of 
adoption, our income tax expense for the nine months ended July 31, 2017, was 
reduced by approximately $952,000 from excess tax benefits, approximately 
$676,000 of which were previously recorded as additional paid-in-capital during 
our first quarter of fiscal 2017. The Company was required to apply that 
provision of the standard prospectively, but as if the adoption occurred as of 
the beginning of fiscal 2017. As a result, since $924,000 of the $952,000 
income tax benefit relates to transactions that occurred during the first half 
of fiscal 2017, that $924,000 is not reflected in the statement of operations 
for the three months ended July 31, 2017, but is reflected in the statement of 
operations for the nine months ended July 31, 2017. Additionally, excess tax 
benefits are now presented as operating activities on the statement of cash 
flows, rather than financing activities. The Company chose to apply that 
provision retrospectively, and as a result, reclassified approximately $3.9 
million of excess tax benefits recognized during the nine months ended July 31, 
2016, from financing activities to operating activities. Additional provisions 
from this guidance relate to accounting for forfeitures and the presentation of 
an employee's use of shares to satisfy the employer's statutory tax withholding 
obligations. Adoption of those two provisions did not have a material effect on 
our consolidated financial statements. The Company has elected to account for 
forfeitures as they occur, rather than estimating forfeitures when determining 
the amount of compensation cost to recognize each period. The Company will 
continue to present employees' use of shares to satisfy our statutory 
withholding obligations as financing activities on the statement of cash flows. 
In May 2017, the Financial Accounting Standards Board ("FASB") issued guidance 
amending the requirements related to accounting for changes to stock 
compensation awards. The guidance is effective for interim and annual periods 
beginning after December 15, 2017, our fiscal 2019. Early adoption is 
permitted. The impact this guidance will have on our consolidated financial 
statements will depend on the nature and extent of future changes, if any, to 
the terms and conditions of the Company's Stock Incentive Plan.

In March 2017, the FASB issued guidance requiring the service cost component of 
defined benefit pension plans and other post-retirement benefit plans to be 
reported in the same line item or items as other compensation costs arising 
from the services rendered by the pertinent employees during the period. The 
other components of net benefit cost are required to be reported outside of 
operating income. The guidance is effective for interim and annual periods 
beginning after December 15, 2017, our fiscal 2019. Early adoption is 
permitted. We do not expect adoption to have a material effect on our 
consolidated financial statements. In February 2016, the FASB issued guidance 
which is intended to increase transparency and comparability among companies by 
requiring an entity that is a lessee to recognize on the balance sheet the 
right-of-use assets and lease liabilities arising from all leases with terms, 
as defined by the guidance, of greater than twelve months. The guidance also 
requires disclosures of key information about the leasing arrangements. The 
guidance is effective for annual reporting periods and interim periods within 
those annual reporting periods beginning after December 15, 2018, our fiscal 
2020. Early adoption is permitted. The Company is currently evaluating the 
impact this guidance will have on our consolidated financial statements. In 
July 2015, the FASB issued guidance that requires an entity to measure 
inventory at the lower of cost or net realizable value. The guidance is 
effective for annual reporting periods and interim periods within those annual 
reporting periods beginning after December 15, 2016, our fiscal 2018. Early 
adoption is permitted and the prospective transition method should be applied. 
The Company is currently evaluating the impact this guidance will have on our 
consolidated financial statements. In May 2014, the FASB issued guidance 
changing the criteria for recognizing revenue, which was amended in 2015 to 
defer the effective date by one year. The guidance also modifies the related 
disclosure requirements, clarifies guidance for multiple-element arrangements 
and provides guidance for transactions that were not addressed fully in 
previous guidance. The guidance, as amended, is effective for annual reporting 
periods and interim periods within those annual reporting periods beginning 
after December 15, 2017, our fiscal 2019. Early adoption is permitted for 
annual reporting periods and interim periods within those annual reporting 
periods beginning after December 15, 2016. The Company is currently evaluating 
the impact this guidance will have on our consolidated financial statements. 
Although we are still evaluating the impact, we do not currently expect 
adoption to have a material effect on our consolidated financial statements, 
other than additional disclosure requirements.


Quantitative and Qualitative Disclosures about Market Risk

The Company is a purchaser of certain commodities, primarily corn and soybean 
meal, for use in manufacturing feed for its chickens. As a result, the 
Company’s earnings are affected by changes in the price and availability of 
such feed ingredients. Feed grains are subject to volatile price changes caused 
by factors described below that include weather, size of harvest, 
transportation and storage costs and the agricultural policies of the United 
States and foreign governments. The price fluctuations of feed grains have a 
direct and material effect on the Company’s profitability. Generally, the 
Company commits to purchase feed ingredients for deferred delivery from one 
month to nine months after the time of the commitment. The grain purchases are 
made directly with our usual grain suppliers, which are companies in the 
business of regularly supplying grain to end users, and do not involve options 
to purchase. Such purchases occur when our chief operating decision maker 
concludes that market factors indicate that prices at the time the grain is 
needed are likely to be higher than current prices, or where, based on current 
and expected market prices for the Company’s poultry products, our chief 
operating decision maker believes the Company can purchase feed ingredients at 
prices that will allow the Company to earn a reasonable return for its 
shareholders. The Company sometimes purchases its feed ingredients for prompt 
delivery to its feed mills at market prices at the time of such purchases. 
Market factors considered by our chief operating decision maker in determining 
whether or not and to what extent to commit to buy grain for deferred delivery 
include: • Current market prices;

• Current and predicted weather patterns in the United States, South America, 
China and other grain producing areas, as such weather patterns might affect 
the planting, growing, harvesting and yield of feed grains;

• The expected size of the harvest of feed grains in the United States and 
other grain producing areas of the world as reported by governmental and 
private sources;

• Current and expected changes to the agricultural policies of the United 
States and foreign governments;

• The relative strength of United States currency and expected changes therein 
as it might affect the ability of foreign countries to buy United States feed 
grain commodities;

• The current and expected volumes of export of feed grain commodities as 
reported by governmental and private sources;

• The current and expected use of available feed grains for uses other than as 
livestock feed grains (such as the use of corn for the production of ethanol, 
which use is affected by the price of crude oil); and

• Current and expected market prices for the Company’s poultry products.

The Company purchases physical grain, not financial instruments such as puts, 
calls or straddles that derive their value from the value of physical grain. 
Thus, the Company does not use derivative financial instruments as defined in 
ASC 815, “Accounting for Derivatives for Instruments and Hedging Activities,” 
or any market risk sensitive instruments of the type contemplated by Item 305 
of Regulation S-K. The Company does not enter into any derivative transactions 
or purchase any grain-related contracts other than the physical grain contracts 
described above. Although the Company does not use derivative financial 
instruments as defined in ASC 815 or purchase market risk sensitive instruments 
of the type contemplated by Item 305 of Regulation S-K, the commodities that 
the Company does purchase for physical delivery, primarily corn and soybean 
meal, are subject to price fluctuations that have a direct and material effect 
on the Company’s profitability as mentioned above. During the third quarter of 
fiscal 2017, the Company purchased approximately 29.4 million bushels of corn 
and approximately 269,087 tons of soybean meal for use in manufacturing feed 
for its live chickens. A $1.00 change in the average market price paid per 
bushel for corn would have affected the Company’s cash outlays for corn by 
approximately $29.4 million in the third quarter of fiscal 2017. Likewise, a 
$10.00 change in the price paid per ton for soybean meal would affect the 
Company’s cash outlays by approximately $2.7 million. Although changes in the 
market price paid for feed grains affect cash outlays at the time the Company 
purchases the grain, such changes do not immediately affect cost of sales. The 
cost of feed grains is recognized in cost of sales, on a first-in-first-out 
basis, at the same time that the sales of the chickens that consume the feed 
grains are recognized. Thus, there is a lag between the time cash is paid for 
feed ingredients and the time the cost of such feed ingredients is reported in 
cost of goods sold. For example, corn delivered to a feed mill and paid for one 
week might be used to manufacture feed the following week. However, the 
chickens that eat that feed might not be processed and sold for another 48-62 
days, and only at that time will the costs of the feed consumed by the chicken 
become included in cost of goods sold.

During the third quarter of fiscal 2017, the Company’s average feed cost per 
pound of broilers processed totaled $0.2510 per pound. Feed costs per pound of 
broilers processed consist primarily of feed grains, but also include other 
feed ingredients such as vitamins, fat and mineral feed supplements. The 
average feed cost per pound is influenced not only by the price of feed 
ingredients, but also by the efficiency with which live chickens convert feed 
into body weight. Factors such as weather, poultry husbandry, quality of feed 
ingredients and the quality, size and health of the bird, among others, affect 
the quantity of feed necessary to mature chickens to the target live weight and 
the efficiency of that process. Generally, however, a $1.00 change in the 
average price paid per bushel of corn fed to a chicken during its life would 
have affected average feed cost per pound of broilers processed by $0.0273, 
based on the quantity of grain used during the third quarter of fiscal 2017. 
Similarly, a $10.00 change in the average price paid per ton of soybean meal 
would have influenced the average feed cost per pound of broilers processed by 
$0.0025 during the third quarter of fiscal 2017. The following table shows the 
impact of hypothetical changes in the price of corn and soybean meal on both 
the Company’s cash flow and cost of goods sold, based on quantities actually 
purchased in the third quarter of fiscal 2017:

Feed Ingredient Quantity Purchased during the Third Fiscal Quarter of 2017 
Hypothetical Price Change Impact on Cash Outlay Ultimate Impact on Feed Cost 
per Pound of broilers Processed Corn 29.4 million bushels $1.00 per bushel 
$29.4 million $0.0273/lb processed Soybean meal 269,087 tons $10.00 per ton 
$2.7 million $0.0025/lb processed

Typically, the Company’s interest expense is sensitive to changes in the 
general level of interest rates in the United States. At July 31, 2017, the 
Company had no outstanding debt on its balance sheet.


Legal Proceedings

Between September 2, 2016 and October 13, 2016, Sanderson Farms, Inc. and our 
subsidiaries were named as defendants, along with 13 other poultry producers 
and certain of their affiliated companies, in multiple putative class action 
lawsuits filed by direct and indirect purchasers of broiler chickens in the 
United States District Court for the Northern District of Illinois. The 
complaints allege that the defendants conspired to unlawfully fix, raise, 
maintain and stabilize the price of broiler chickens, thereby violating federal 
and certain states' antitrust laws, and also allege certain related state-law 
claims. The complaints also allege that the defendants fraudulently concealed 
the alleged anticompetitive conduct in furtherance of the conspiracy. The 
complaints seek damages, including treble damages for the antitrust claims, 
injunctive relief, costs and attorneys’ fees. As detailed below, the court has 
consolidated all of the direct purchaser complaints into one case, and the 
indirect purchaser complaints into two cases, one on behalf of commercial and 
institutional indirect purchaser plaintiffs and one on behalf of end-user 
consumer plaintiffs. On October 28, 2016, the direct and indirect purchaser 
plaintiffs filed consolidated, amended complaints, and on November 23, 2016, 
the direct and indirect purchaser plaintiffs filed second amended complaints. 
On December 16, 2016, the indirect purchaser plaintiffs separated into two 
cases. On that date, the commercial and institutional indirect purchaser 
plaintiffs filed a third amended complaint, and the end-user consumer 
plaintiffs filed an amended complaint. On January 27, 2017, the defendants 
filed motions to dismiss the amended complaints in all of the cases. These 
motions are now fully briefed and awaiting decision. The lawsuits are in the 
earliest stages and we intend to defend them vigorously; however, the Company 
cannot predict the outcome of these actions. If the plaintiffs were to prevail, 
the Company could be liable for damages, which could have a material, adverse 
effect on our financial position and results of operations. Sanderson Farms, 
Inc.; Joe F. Sanderson, Jr., the Chairman of the Registrant’s Board of 
Directors and its Chief Executive Officer; and D. Michael Cockrell, director 
and Chief Financial Officer, were named as defendants in a putative class 
action lawsuit filed on October 28, 2016, in the United States District Court 
for the Southern District of New York. On March 30, 2017, the lead plaintiff 
filed an amended complaint adding Lampkin Butts, director, Chief Operating 
Officer, and President, as a defendant, and on June 15, 2017, the lead 
plaintiff filed a second amended complaint. The complaint alleges that the 
defendants made statements in the Company's SEC filings and press releases, and 
other public statements, that were materially false and misleading in light of 
the Company's alleged, undisclosed violation of the federal antitrust laws 
described above. The complaint also alleges that the material misstatements 
were made in order to, among other things, “artificially inflate and maintain 
the market price of Sanderson Farms securities.” The complaint alleges the 
defendants thereby violated the Securities Exchange Act of 1934, as amended 
(the “Exchange Act”), including Section 10(b) of the Exchange Act and Rule 
10b-5 promulgated thereunder, and, for the individual defendants, Section 20(a) 
of the Exchange Act, and seeks damages, interest, costs and attorneys’ fees. On 
June 29, 2017, the defendants filed a motion to dismiss the amended complaint, 
and on August 15, 2017, the plaintiffs filed their response. The lawsuit is in 
an early stage and the defendants intend to defend it vigorously; however, the 
Company cannot predict the outcome of this action. If the plaintiffs were to 
prevail, the Company could be liable for damages, which could have a material, 
adverse effect on our financial position and results of operations. On January 
30, 2017, the Company received a letter from a putative shareholder demanding 
that the Company take action against current and/or former officers and 
directors of the Company for alleged breach of their fiduciary duties. The 
shareholder asserted that the officers and directors (i) failed to take any 
action to stop the alleged antitrust conspiracy described above, despite their 
alleged knowledge of the conspiracy, and (ii) made and/or caused the Company to 
make materially false and misleading statements by failing to disclose the 
alleged conspiracy. He also asserted that certain directors engaged in “insider 
sales” from which they improperly benefited. The shareholder also demanded that 
the Company adopt unspecified corporate governance improvements. On February 9, 
2017, pursuant to statutory procedures available in connection with demands of 
this type, the Company’s board of directors appointed a special committee of 
qualified directors to determine, after conducting a reasonable inquiry, 
whether it is in the Company’s best interests to pursue any of the actions 
asserted in the shareholder’s letter. On April 26, 2017, the special committee 
reported to the Company’s board of directors its determination that it is not 
in the Company’s best interests to take any of the demanded actions at this 
time, and that no governance improvements related to the subject matter of the 
demand are needed at this time. On May 5, 2017, the special committee’s counsel 
informed the shareholder’s counsel of the committee’s determination. As of the 
date of filing of this report, and to the Company’s knowledge, no legal 
proceedings related to the shareholder’s demand have been filed. However, we 
are voluntarily disclosing the existence of the shareholder demand for the sake 
of completeness, in light of its relationship to the putative antitrust and 
securities class action lawsuits described above. On January 27, 2017, 
Sanderson Farms, Inc. and our subsidiaries were named as defendants, along with 
four other poultry producers and certain of their affiliated companies, in a 
putative class action lawsuit filed in the United States District Court for the 
Eastern District of Oklahoma. On March 27, 2017, Sanderson Farms, Inc. and our 
subsidiaries were named as defendants, along with four other poultry producers 
and certain of their affiliated companies, in a second putative class action 
lawsuit filed in the United States District Court for the Eastern District of 
Oklahoma. The court ordered the suits consolidated into one proceeding, and on 
July 10, 2017, the plaintiffs filed a consolidated amended complaint. The 
consolidated amended complaint alleges that the defendants unlawfully conspired 
by sharing data on compensation paid to broiler farmers, with the purpose and 
effect of suppressing the farmers’ compensation below competitive levels. The 
consolidated amended complaint also alleges that the defendants unlawfully 
conspired to not solicit or hire the broiler farmers who were providing 
services to other defendants. The consolidated amended complaint seeks treble 
damages, costs and attorneys’ fees. The lawsuit is in its early stages, and we 
intend to defend it vigorously; however, the Company cannot predict the outcome 
of this action. If the plaintiffs were to prevail, the Company could be liable 
for damages, which could have a material, adverse effect on our financial 
position and results of operations. On February 21, 2017, Sanderson Farms, Inc. 
received an antitrust civil investigative demand from the Office of the 
Attorney General, Department of Legal Affairs, of the State of Florida. Among 
other things, the demand seeks information related to the Georgia Dock Index 
and other information on poultry and poultry products published by the Georgia 
Department of Agriculture and its Poultry Market News division. The Company is 
cooperating fully with the investigative demand, and we are unable to predict 
its outcome at this time. On June 22, 2017, the Company was named as a 
defendant in a lawsuit filed in the United States District Court for the 
Northern District of California. The complaint, which was brought by three 
non-profit organizations (the Organic Consumers Association, Friends of the 
Earth, and Center for Food Safety) alleged that the Company is violating the 
California Unfair Competition Law and the California False Advertising Law by 
representing that its poultry products are “100% Natural” products raised with 
“100% Natural” farming procedures. Among other things, the plaintiffs alleged 
that the Company’s products contain residues of human and animal antibiotics, 
other pharmaceuticals, hormones, steroids, and pesticides. Plaintiffs seek an 
order enjoining the Company from continuing its allegedly unlawful marketing 
program and requiring the Company to conduct a corrective advertising campaign; 
an accounting of the Company’s profits derived from the allegedly unlawful 
marketing practices; and attorneys’ fees, costs and interest. On August 2, 
2017, the Company moved to dismiss the lawsuit on various grounds. On August 
23, 2017, the plaintiffs filed an amended complaint, which includes 
substantially similar allegations as the original complaint. The Company 
disputes the allegations in the complaint and amended complaint, will 
vigorously defend itself in the litigation, and intends to move to dismiss the 
amended complaint in its motion filed on or before the September 13, 2017 due 
date; however, the Company cannot predict the outcome of this action. If the 
plaintiffs were to prevail, the Company's reputation and marketing program 
could be materially, adversely affected. The Company is involved in various 
other claims and litigation incidental to its business. Although the outcome of 
these matters cannot be determined with certainty, management, upon the advice 
of counsel, is of the opinion that the final outcome of currently pending 
matters, other than those discussed above, should not have a material effect on 
the Company’s consolidated results of operations or financial position. The 
Company recognizes the costs of legal defense for the legal proceedings to 
which it is a party in the periods incurred. After a considerable analysis of 
each case, the Company determines the amount of reserves required, if any. At 
this time, the Company has not accrued any reserve for any matters. Future 
reserves may be required if losses are deemed reasonably estimable and probable 
due to changes in the Company’s assumptions, the effectiveness of legal 
strategies, or other factors beyond the Company’s control. Future results of 
operations may be materially affected by the creation of reserves or by 
accruals of losses to reflect any adverse determinations in these legal 
proceedings.