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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net pension cost consisted of the following

		(in thousands)
		2002		2001		2000
Cost of benefits earned during the year		$1,055		$827		$746
Interest cost on projected benefit obligation		1,312		1,142		1,025
Actual return on plan assets		1,127		1,372		(1,059)
Deferral of unrecognized (loss) gain on plan assets		(2,286)		(2,609)		40
Amortization of unrecognized (gain) loss		8		(88)		(95)
Amortization of transition asset (15.2 years)		(76)		(76)		(76)
Amortization of unrecognized prior service costs		41		36		36
Net pension cost		$1,181		$604		$617

The 1987 transition asset is being amortized using the straight-line method over the average remaining service period of active plan participants at the date of adoption of the plan. At November 1, 2002, 1.93 years of amortization remained. The discount rate in determining the projected benefit obligation was 6.75% for fiscal year 2002 and 7% for fiscal year 2001 and 7.75% for fiscal year 2000. The expected long-term rate of return used in determining the projected benefit obligation for fiscal years 2002, 2001 and 2000 was 8%. The assumed rate of future compensation increases for fiscal year 2002 was 3.75% and 4.00% for fiscal years 2001 and 2000.

Plan assets are primarily invested in marketable equity securities, corporate and government debt securities and real estate and are administered by an investment management company. Adverse investment results were experienced during fiscal year 2002. In addition, the discount rate used to value the projected benefit obligation was lowered to 6.75% compared to 7% in the prior fiscal year. These factors resulted in an additional minimum liability that has been recorded as a reduction of shareholder’s equity in the accompanying balance sheet.

The funded status of the plan is as follows:

			(in thousands)
			2002		2001		2000
Plan assets at
	fair market value		$13,898		$14,464		$15,323
Actuarial present value of
	benefit obligations:
	Accumulated benefits based
	on current salary levels,
	including vested benefits of
	$17,770, $15,272 and $13,184		19,259		16,523		14,166
Additional benefits based on
	estimated future salary levels		2,766		2,321		849
Projected benefit obligation			22,025		18,844		15,015
Projected benefit obligation
	in excess of plan assets		(8,127)		(4,380)		308
Unrecognized prior service costs			199		162		197
Unrecognized loss (gain) on
	plan assets		5,295		1,972		(2,829)
Unrecognized net transition asset			(143)		(219)		(294)
Additional accrued minimum liability			(2,584)		—		—
Accrued pension cost			$(5,360)		$ (2,465)		$(2,618)

In fiscal year 1991, the Company adopted a non-qualified supplemental retirement plan for certain key employees. Benefits provided under the plan are equal to 60% of the employee’s final average earnings, less amounts provided by the Company’s defined benefit pension plan and amounts available through Social Security. Total annual benefits are limited to $120 for each participant in the plan. Effective January 1, 1991 the Company adopted a deferred compensation savings plan for certain key employees. Under this arrangement, selected employees contribute a portion of their annual compensation to the plan. The Company contributes an amount to each participant’s account by computing an investment return equal to Moody’s Average Seasoned Bond Rate plus 2%. Employees receive vested amounts upon death, termination or attainment of retirement age. Total benefit expense recorded under these plans for fiscal years 2002, 2001 and 2000 were $377, $393 and $351 respectively. Benefits payable related to these plans and included in other non-current liabilities in the accompanying financial statements were $4,214 and $5,018 at November 1, 2002 and November 2, 2001, respectively. In connection with this arrangement the Company is the beneficiary of life insurance policies on the lives of certain key employees. The aggregate cash surrender value of these policies, included in non-current assets, was $8,541 and $7,649 at November 1, 2002 and November 2, 2001, respectively.

The Company provides an incentive compensation plan for certain key executives, which is based upon the Company’s pretax income and return on shareholders’ equity. The payment of these amounts is generally deferred over a five-year period. The total amount payable related to this arrangement was $3,718 and $5,168 at November 1, 2002 and November 2, 2001, respectively. Future payments are approximately $1,579, $1,147, $624, $299 and $69 for fiscal years 2003 through 2007, respectively.

Postretirement health care benefits in the approximate amount of $320 and $330 are included in non-current liabilities at November 1, 2002 and November 2, 2001, respectively.

The Company’s 1999 Stock Incentive Plan (“the Plan”) was approved by the Board of Directors on January 11, 1999 and 275,000 options were granted on April 29, 1999. Under the Plan, the maximum aggregate number of shares which may be optioned and sold is 900,000 shares of common stock, subject to adjustment upon changes in capitalization or merger. Generally, options granted under the plan vest in annual installments over four years following the date of grant (as determined by the Board of Directors) subject to the optionee’s continuous service. Options expire ten years from the date of grant with the exception of an incentive stock option granted to an optionee who owns stock representing more than 10% of the voting power of all classes of stock of the Company, in which case the term of the option is five years. Options generally terminate three months after termination of employment or one year after termination due to permanent disability or death. Options are generally granted at a fair market value determined by the Board of Directors subject to the following:

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