Income Taxes

The effective income tax rate was 58.2%. The increase in effective rate relates to the reduction of tax reserves in the current fiscal year and significant non-taxable gains on life insurance policies. The Company released a portion of tax reserves for state tax estimates during fiscal 2005 as the amount is no longer probable or reasonably estimated in accordance with Statement of Financial
Accounting Standards (SFAS No. 5), “Accounting for Contingencies”. The Company provides tax reserves for federal, state, local and international exposures relating to audit results, tax planning initiatives and compliance responsibilities. The development of these reserves requires judgments about tax issues, potential outcomes and timing, and is a subjective estimate. Although the outcome
of these tax audits is uncertain, in management’s opinion adequate provisions for income taxes have been made for potential liabilities emanating from these reviews. Actual outcomes may differ materially from these estimates.

Fiscal Year ended October 29, 2004 compared to Fiscal Year Ended October 31, 2003

Sales

Sales in fiscal 2004 increased $1,614 (1.2%) when compared to the prior year. Sales in the Company’s frozen food segment declined 3.3%, as a result of lower unit volume partially offset by increased average unit selling prices. Promotional spending as a percentage of sales increased to 8.6% compared to 7.2% in the prior year contributing to the sales decline in the frozen food division.
Sales in the Company’s refrigerated and snack food products segment increased 3.5% primarily as a result of higher unit selling prices on level unit volumes.

Gross Margin

The gross margin declined to 34.5% compared to the prior year at 36.7%. Increased meat ingredient costs were the principal reason for this decline. When combining all divisions, net-selling prices increased approximately 5% on a unit volume decline of approximately 1.1 % compared to the prior fiscal year.

Selling, General and Administrative

Selling, general and administrative expenses decreased $48 (0.1%) when compared to the prior year. Rising payroll, workers’ compensation insurance, fuel and finished goods storage costs were offset by a significant reduction in the provision for doubtful accounts receivable and the combined impact of aggressive cost control programs instituted by management. The Company recorded
an asset impairment reserve against the net book value of machinery and equipment of $54 in fiscal year 2004 and no asset impairment reserve in the prior year.

Gain on Sale of Equity Securities

The Company sold 14,014 shares of stock received as a result of the bankruptcy of a significant customer on July 26, 2004. This transaction resulted in a pre-tax gain of $553.

Income Taxes

The effective income tax rate was 38% in 2004, consistent with the prior year.