| 
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -
THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(in thousands):
The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All intercompany transactions have been eliminated.
Use of estimates
and assumptions
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, employee healthcare and pension benefits 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.
Concentrations
of credit risk
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 carrying amount of cash equivalents, accounts and other receivables, accounts payable and accrued liabilities approximate fair market value due to the short maturity of these instruments. 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 14.6% of revenues in fiscal year 2003.
Business
segments
The Company and its subsidiaries operate in one business segment - the processing and/or distributing of refrigerated, frozen and snack food products.
Fiscal year
The Company maintains its accounting records on a 52-53 week fiscal basis. Fiscal years 2001, 2002 and 2003 include 52 weeks each.
Revenues
Revenues are recognized upon passage of title to the customer typically upon product shipment or delivery to customers. Products are primarily delivered to customers through its own fleet or through a company owned Direct Store Delivery System. These costs, $6,877, $6,755 and $6,025 for 2003, 2002 and 2001, respectively, are included in Selling, general and administrative expenses in the accompanying statements.
Cash equivalents
The Company considers all investments with original maturities of three months or less to be cash equivalents. Cash equivalents include treasury bills of $10,193 at October 31, 2003 and $9,287 at November 1, 2002.
Inventories
Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market.
Property,
plant and equipment
Property, plant and equipment are carried at cost less accumulated depreciation. Major renewals and betterments are charged to the asset accounts while the cost of maintenance and repairs is charged to income as incurred. When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the respective accounts and the resulting gain or loss is credited or charged to income. Depreciation is computed on the straight-line basis over 10 to 20 years for buildings and improvements, 5 to 10 years for machinery and equipment and 3 to 5 years for transportation equipment.
The Company assesses the recoverability of its long-lived assets on an annual basis or whenever adverse events or changes in circumstances or business climate indicate that expected undiscounted future cash flows related to such long-lived assets may not be sufficient to support the net book value of such assets. If undiscounted cash flows are not sufficient to support the recorded assets, the Company recognizes an impairment to reduce the carrying value of the applicable long-lived assets to their estimated fair value.
Income taxes
Deferred taxes are provided for items whose financial and tax bases differ. A valuation allowance is provided against deferred tax assets when it is expected that it is more likely than not that the related asset will not be fully realized.
Stock-based
compensation
Statement of Financial Accounting Standards (SFAS No. 123), “Accounting for Stock-Based Compensation,” encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans based on the fair market value of options granted. The Company has chosen to account for stock based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, compensation for stock options is measured as the excess, if any, of the fair market value of the Company's stock price at the date of grant as determined by the Board of Directors over the amount an employee must pay to acquire the stock.
The following balances are reflected as of Oct. 31, 2003:
Options Outstanding
|
Options Exercisable
|
Exercise
price
|
Shares
|
Weighted
average
remaining
life
(years)
|
Weighted
average
exercise
price
|
Shares
|
Weighted
average
exercise
price
|
| $10 |
250,000 |
5.5 |
$10 |
250,000 |
$10 |
The Company adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123 (“FAS 123”). As permitted by FAS 123, the Company measures compensation cost in accordance with APB 25. Had compensation cost for the Company's Stock Option Plan been determined based on the fair value of the options consistent with FAS 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share amounts):
| |
|
2003
|
2002
|
2001
|
| Net income as reported |
$1,210 |
$1,138 |
$6,244 |
| |
Pro forma |
1,136 |
991 |
6,007 |
| Basic earnings Per Share |
|
|
|
| |
As reported |
.12 |
.11 |
.59 |
| |
Pro forma |
.11 |
.09 |
.57 |
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10) |
