2001 compared to 2000

Sales in fiscal year 2001 (52 weeks) remained essentially flat when compared to sales of the prior year (53 weeks). Average weekly sales increased approximately 2% in fiscal 2001 compared to the prior 53-week year. The sales increase is primarily a result of increased selling prices and changes in product mix.

Cost of products sold remained essentially flat when compared to the prior year. The gross margin was approximately 37% in 2001 and 2000. Commodity costs over the course of the 2001 fiscal year were generally comparable to fiscal year 2000.

Selling, general and administrative expenses increased $2,335 (5.9%) when compared to the prior 53-week year. Higher costs related to advertising and product promotions, fuel and insurance were the primary contributors to these increases. Interest income also declined significantly which adversely impacted these costs.

The Company’s capital expansion projects remained at levels consistent with the prior year. The effective tax rate remained consistent with the prior year at 38%.

2000 compared to 1999

Sales in fiscal year 2000 increased $17,274 (12.8%) when compared to sales of the prior year, primarily as a result of increased unit sales volume.

Cost of products sold increased by $14,726 (18.2%) when compared to the prior year. The gross margin was approximately 37% in 2000. Costs for pork commodity products increased in 2000 compared to the historical lows experienced during 1999. Flour costs continued to be favorable in 2000.

Selling, general and administrative expenses increased $4,098 (11.6%) when compared to the prior year. This increase was generally consistent with the overall increase in sales.

The Company’s capital expansion projects remained at levels consistent with the prior year. The effective tax rate remained consistent with the prior year at 38%.

LIQUIDITY AND CAPITAL RESOURCES (in thousands)

Net cash provided by operating activities was $3,812 and $4,308 in fiscal years 2002 and 2001, respectively. Gross accounts receivable balances increased $3,134 in 2002 and $915 in 2001. The primary reason for the increase in 2002 was the bankruptcy of a significant customer not yet written off ($2.7 million) and slower collections. Inventories decreased $1,603 in fiscal year 2002 due to lower business levels and lower valuations due to favorable commodity cost trends. Inventories increased $974 in 2001 due to higher unit quantities and values. Accounts payable decreased $1,766 in 2002 consistent with lower inventories and lower levels of capital project and business activity. The current portion of non-current liabilities increased $1,466 in 2002. Adverse pension investment results will require the Company to significantly increase its contributions to the pension plan. Included in the current portion of non-current liabilities is $941 related to the anticipated contribution required in fiscal 2003. Non-current liabilities decreased $2,844 due to pension contributions of $1,812 (including the $941 reclassified as current), current required contributions to the supplemental executive retirement plan of $686 and a $346 reduction in non-current incentive compensation payable. Off-setting these decreases was the booking of a minimum pension liability in the amount of $2,585 as a result of adverse investment results and a lower discount rate being applied to the accumulated benefit obligation. The net tax effected amount of this liability is included in shareholders’ equity as “Accumulated Comprehensive Income (loss)”.

The Company’s capital improvement expenditures decreased in 2002 compared to the prior year. Significant projects in process ($985) at November 1, 2002 included a new spiral freezer for our Dallas processing facility ($507) and equipment to fully automate packaging processes in its Chicago facility ($110). Cash and cash equivalents decreased $2,669 in 2002 and $5,327 in 2001. The decreases were primarily a result of capital expenditures in the amounts of $3,767 and $4,590 in 2002 and 2001, respectively; common stock repurchases of $2,151 in 2001, and higher inventory and refundable income tax balances in 2001. Working capital decreased $3,412 in 2002 and $444 in 2001. Working capital decreased primarily as a result of non-current obligations becoming current primarily the Company’s defined benefit pension plan and supplemental executive retirement plans which historically were classified as non-current liabilities. Also contributing to this decrease was cash used in operations of $2,669. The overall change in working capital in fiscal 2001 was insignificant. The Company has remained free of interest-bearing debt for sixteen consecutive years. The Company maintains a line of credit with Bank of America that expires April 30, 2004. Under the terms of this line of credit, the Company may borrow up to $2,000 at an interest rate equal to the bank’s reference rate, unless the Company elects an optional interest rate. The borrowing agreement contains various covenants, the more significant of which require the Company to maintain certain levels of shareholders’ equity and working capital. The Company was in compliance with all provisions of the agreement during the 2002 fiscal year and there were no borrowings under this line of credit during such period. Management is of the opinion that the Company’s strong financial position and its capital resources are sufficient to provide for its operating needs and capital expenditures for fiscal 2003.

Critical Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the respective reporting periods. Actual results could differ from those estimates. Amounts estimated related to liabilities for self-insured Workers’ Compensation and Employee Healthcare are especially subject to inherent uncertainties and these estimated liabilities may ultimately settle at amounts not originally estimated. Management believes its current estimates are reasonable and based on the best information available at the time.

The Company’s credit risk is diversified across a broad range of customers and geographic regions. Losses due to credit risk have historically been immaterial although losses in fiscal year 2002 were significant. The provision for losses on accounts receivable is based on historical trends and current collectibility risk. The Company has significant amounts receivable with a few large, well known customers which, although historically secure, could be subject to material risk should these customers’ operations suddenly deteriorate. The Company monitors these customers closely to minimize the risk of loss. One customer comprised 12.5% of revenues in fiscal year 2002.

Revenues are recognized upon passage of title to the customer typically upon product shipment or delivery to customers. Products are delivered to customers through its own fleet or through a company owned Direct Store Delivery System.

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