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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

Commission file number 0-16130

Northland Cranberries, Inc.
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code:   (715) 424-4444

Securities registered pursuant to Section 12(b) of the Act:   None

Securities registered pursuant to Section 12(g) of the Act:   Class A Common Stock, $.01 par value

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of February 28, 2003:

$3,434,145

Number of shares issued and outstanding of each of the registrant’s classes of common stock as of November 25, 2003:

Class A Common Stock, $.01 par value: 91,548,580 shares

PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED HEREIN BY REFERENCE:

Proxy Statement for 2004 annual meeting of shareholders (to be filed with the Commission under Regulation 14A within 120 days after the end of the registrant’s fiscal year and, upon such filing, to be incorporated by reference into Part III, to the extent indicated therein).

PART I

Special Note Regarding Forward-Looking Statements

        We make certain “forward-looking statements” in this Form 10-K, such as statements about our future plans, goals and other events which have not yet occurred. We intend that these statements will qualify for the safe harbors from liability provided by the Private Securities Litigation Reform Act of 1995. You can generally identify these forward-looking statements because we use words such as we “believe,” “anticipate,” “expect” or similar words when we make them. Forward-looking statements include, among others, statements about actions by our competitors, sufficiency of our working capital, potential operational improvements and our efforts to improve profitability, sales and marketing strategies, expected levels of trade and marketing spending, anticipated market share and sales of our branded products, cranberry concentrates and other products, and disposition of significant litigation. These forward-looking statements involve risks and uncertainties and the actual results could differ materially from those discussed in the forward-looking statements. These risks and uncertainties include, without limitation, risks associated with (i) our ability to reinvigorate our Northland and Seneca brand names, distribution capabilities and branded products market share and generate increased levels of branded product sales; (ii) the level of cranberry inventory held by industry participants; (iii) the development, market share growth and consumer acceptance of our branded juice products; (iv) the resolution of certain litigation related to claims asserted by us against our principal competitor regarding what we believe to be anticompetitive tactics and unlawful monopolization within the cranberry products industry; (v) agricultural factors affecting our crop and the crop of other North American growers; (vi) our ability to comply with the terms and conditions of, and to satisfy our responsibilities under, our credit facilities and other debt agreements; and (vii) our ability to identify, evaluate and successfully execute any strategic alternatives. You should consider these risks and factors and the impact they may have when you evaluate our forward-looking statements. We make these statements based only on our knowledge and expectations on the date of this Form 10-K. We disclaim any duty to update these statements or other information in this Form 10-K based on future events or circumstances. Please read this entire Form 10-K to better understand our business and the risks associated with our operations. Specifically, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of our current financial condition and our debt and equity restructuring.

Item 1.  Business.

General; History

        We are a vertically integrated grower, handler, processor and marketer of cranberries, value-added cranberry products, and branded cranberry and other fruit beverages. As of November 25, 2003, we owned or operated 20 cranberry producing marshes with 1,963 planted acres in Wisconsin. We also maintain multi-year crop purchase contracts with 45 independent cranberry growers to purchase all of the cranberries harvested from an aggregate of up to 1,794 contracted acres.

        Our products include:

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        We began our business in 1987 as a cranberry grower and member of the Ocean Spray Cranberries, Inc. marketing cooperative (“Ocean Spray”). In 1993, we left Ocean Spray and introduced Northland brand fresh cranberries. In October 1995, we introduced our family of Northland 100% juice cranberry blends. By June 1997, we had successfully achieved national distribution. In fiscal 1999, we acquired the juice division of Seneca Foods Corporation, including the right to produce and sell nationwide Seneca brand products, the TreeSweet and Awake brand names, as well as additional processing, distribution and receiving facilities. In fiscal 2000, we sold our private label juice business, which we acquired in July 1998 from Minot Food Packers, Inc., to Cliffstar Corporation. In June 2001, we sold our bottling and packaging facility in Mountain Home, North Carolina, to Clement Pappas NC, Inc. In June 2001, we also sold our private label and food service cranberry sauce business to Clement Pappas and Company, Inc.

        In November 2001 we consummated a series of transactions with Sun Northland, LLC (an affiliate of Sun Capital Partners, Inc., a private equity investment firm headquartered in Boca Raton, Florida), and with members of our then-current bank group and our new secured lenders, Foothill Capital Corporation and Ableco Finance, LLC, that resulted in the restructuring of our debt and equity capital structure and a change in control of the company. As a result of the restructuring, Sun Northland, LLC owns approximately 77.3% of our fully-diluted shares of Class A Common Stock and controls approximately 94% of our total voting power.

Fiscal 2003

        In fiscal 2003 we improved profitability and significantly strengthened our financial condition. We reduced our long-term debt by approximately $28 million and, as of the end of fiscal 2003, held approximately $9 million in cash and cash equivalents. We achieved this primarily as a result of an improvement in net operating profits and the conversion of a note receivable to cash in connection with the settlement of litigation with Cliffstar Corporation relating to the sale of our private label juice business in March 2000. (See Item 3. Legal Proceedings). Steps we took during the year, which we believe helped us to compete in the marketplace in fiscal 2003, included:

        Our costs to manufacture branded products continued to increase during fiscal 2003 due to our facilities not being utilized to capacity. As a result, we took several steps during the fiscal year to reduce costs and improve cash flows from operations, including:

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        These steps helped us to be profitable in fiscal 2003 and achieve (i) an increase in gross margins due primarily to reductions in depreciation costs and other overhead; (ii) lower overall operating expenses; and (iii) more efficient trade spending due to continuing changes in our promotional and pricing strategies.

        On November 19, 2003, we also announced that we have retained Stephens Inc. of Little Rock, Arkansas, to serve as our financial advisor and assist us in evaluating various strategic alternatives, including, without limitation, potential acquisitions, mergers, joint ventures, licensing arrangements or investments in or potential sale of the company, as well as remaining an independent public company. We intend to work with Stephens to evaluate the means through which we can build on our financial performance in fiscal 2003, continue to grow the Northland brand and maximize shareholder value.

        In fiscal 2003, we did not have revenues from any one customer that exceeded 10% of our total net revenues. In fiscal 2001, we had revenues from one customer, Nestle USA, of approximately $12.9 million, or 10.2% of our total net revenues. In October 2002, Nestle USA transferred production and packing of bottled beverages from us to our principal competitor, Ocean Spray Cranberries, Inc.

        As of August 31, 2003, we were in compliance with all of our debt arrangements.

Branded Products

        Products

        Our family of Northland 100% juice cranberry blends is our primary branded product. We introduced Northland 100% juice cranberry blends in late 1995 in an effort to offer consumers an alternative to the Ocean Spray brand and achieved national distribution in the summer of 1997. As of September 7, 2003, our Northland 100% juice cranberry blends were available in all 50 states and in supermarkets nationwide that account for approximately 68.6% of total grocery sales. We currently produce and sell eight flavors of Northland 100% juice cranberry blends, including traditional cranberry, cranberry apple, cranberry raspberry, cranberry grape, cranberry peach, cranberry cherry, cranberry blackberry, and cranberry blueberry. We have two plastic bottle sizes, 46 and 64 ounce, available for general distribution.

        Northland 100% juice cranberry blends are also available in two can sizes. The 5.5 ounce can is sold in the foodservice market and used as a sampling device. The 46 ounce can is sold to retail grocery accounts in markets where the Northland brand is approved for participation in the Women, Infants and Children program administered by the United States Department of Agriculture.

        We also produce and sell several varieties of Seneca juice products, including apple, grape and cranberry shelf-stable juice blends and frozen juice concentrates. The Seneca cranberry products are designed to compete against other non-premium drink brands.

        We also sell citrus juice products under the TreeSweet label. TreeSweet products are now sold in 64 ounce plastic, 5.5 aluminum and 46 ounce tin sizes. We also sell frozen orange-flavored concentrate under the Awake brand.

        Our foodservice business manufactures and markets juice products in industry-specific packaging to businesses and public institutions such as restaurants, hotels, schools and hospitals. We offer our foodservice products in a variety of sizes and packages under the Northland, Seneca and TreeSweet brands.

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        We also grow and package Northland brand fresh cranberries and primarily sell them in 12-ounce plastic bags to food retailers and wholesalers during the fall. We also currently sell sweetened dried cranberries to industrial and ingredient customers. In conjunction with our fall 2003 sales of Northland brand fresh cranberries, we offered Northland Crandies brand sweetened dried cranberries, both chocolate coated and non-coated, for sale to consumers through retail produce departments. We intend to continue to expand our sweetened dried cranberries business in fiscal 2004.

        Marketing

        Our principal consumer marketing strategy for our family of Northland 100% juice cranberry blends involves educating consumers on the health benefits of cranberry juice with 27% cranberry content. Research suggests that regular consumption of 27% cranberry juice helps to maintain a healthy urinary tract. Northland is the only 100% juice blend that combines 27% cranberry juice with other natural and healthy fruit juices in every flavor. Although not required to do so, we disclose the cranberry content on each Northland label to educate consumers about the premium nature of our products. We also use media advertising to educate consumers about the difference between juice drinks (juice and water typically sweetened with high fructose corn syrup) and 100% juice blends, which are naturally sweetened with other fruit juices, such as apple and grape.

        In fiscal 2004, we intend to focus our marketing efforts on:

        Sales

        Industry-wide dollar sales of supermarket shelf-stable cranberry beverages were down nearly 2% during fiscal 2003 versus fiscal 2002. Total category dollar sales-grocery reached nearly $822 million for the 52 weeks ending September 7, 2003. Total category volume sales-grocery also declined 2% for the 52 weeks ending September 7, 2003. The supermarket shelf-stable cranberry beverage category is composed of cranberry drinks and 100% juice cranberry blends. According to industry data, sales of 100% juice cranberry blends accounted for approximately 21.8% of the cranberry category for the 52 weeks ending September 7, 2003, compared to 20.8% of the cranberry category on September 8, 2002.

        Our sales of branded products in fiscal 2003 accounted for approximately 58.7% of net revenues, compared to approximately 58.3% in fiscal 2002 and 68.0% in fiscal 2001. Availability of our Northland brand in supermarkets nationwide increased by over 10% during fiscal 2003. We expect that trend to continue and sales of our branded juice products to increase in fiscal 2004 by:

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        We expect that Crossmark, Inc. will continue to act as our broker for the Northland and Seneca brands throughout the United States in most channels of distribution during fiscal 2004. Crossmark employs over 10,000 people on a nationwide basis. We believe that its access to state of the art management systems will allow us to continue to focus on and improve implementation of our promotional programs. In addition, as a result of our agreement with Crossmark, Crossmark will continue to focus on the Northland and Seneca brands in the areas of field sales and sales information within each individual market region.

        Our branded juice sales efforts in fiscal 2003 were coordinated by our Vice President-Sales. In fiscal 2003, we reduced the number of our area sales directors from seven to six in response to continuing consolidation within the grocery industry. In addition to their experience with our branded products to date, our sales staff personnel have prior sales experience working for companies such as ConAgra, Inc., H.J. Heinz Company, Campbell’s Soup Company, Sara Lee, Veryfine Products, Inc., The Quaker Oats Company, Birds Eye Foods, Inc., The Dial Corporation, Fort Howard Corporation and Ralston Purina. Between our personnel and those within Crossmark, the organization has current or past experience with nearly every major branded grocery manufacturer in the country.

        Competition

        Ocean Spray dominates the shelf-stable cranberry juice and drinks market. Based on industry data, nationwide retail supermarket bottled shelf-stable cranberry beverage sales were approximately $822 million for the 52-weeks ending September 7, 2003, showing a slight decline versus the previous year. The shelf-stable cranberry beverage market is significantly larger if you include all sales channels as opposed to just supermarkets.

        Ocean Spray dominates most of the markets in which we compete. Ocean Spray is an agricultural marketing cooperative comprised of over 700 member-growers located in the United States, Canada and elsewhere, accounting for over 70% of all cranberries grown in North America. After consulting with outside legal counsel, we believe Ocean Spray does not qualify for certain protections under federal antitrust law and we have commenced a lawsuit now pending in the United States District Court for the District of Massachusetts seeking injunctive relief and damages based on, among other things, what we believe to be its unlawful monopolization of the cranberry products industry.

        Northland 100% juice cranberry blends compete with:

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        Our Northland branded juice products are 100% juice cranberry blends, which contain 27% cranberry juice in every flavor. Our competitors’ products typically consist of less than 100% juice, and in several instances, contain significantly less than 27% cranberry juice content. For example, many of Ocean Spray’s cranberry juice blends contain from 6% to 21% juice with the remainder being water and sweeteners such as high fructose corn syrup. Like Ocean Spray, other competitors’ juices often use sugar or corn syrup additives as sweeteners. We believe that we should have an advantage over our competitors due to the perceived health and other benefits of our 100% juice products. We also believe that we should have an advantage because we are currently the only major manufacturer of 100% juice blends with an entire product line that contains 27% cranberry juice, a formulation that studies suggest is beneficial to human health. The success of our branded juice products will continue to depend on the opportunities we have to convince consumers to think highly of our products’ quality and taste compared to that of our competitors’ products.

        Northland 100% juice cranberry blends are premium-priced products because of their quality. Our products compete mainly with other premium-priced branded cranberry beverages, but also with private label products, which are usually lower-priced.

        We also compete in the markets for frozen juice concentrate and shelf-stable canned fruit juices and drinks with our Seneca, Treesweet, and Awake branded products. Our principal competitors in the frozen juice concentrate market include several established brand names such as Welch’s, Tree Top, Minute Maid and Tropicana. Our principal competitors in the market for shelf-stable canned fruit juices and drinks include Welch’s, Mott’s, Tree Top, Minute Maid and many regional brands. Many of these competitors have greater brand name recognition and greater marketing and distribution resources than we do. We cannot be certain that we will be successful in competing against these competitors. Ocean Spray does not compete in the frozen juice concentrate market.

Industrial/Ingredients/International

        Products

        Our Industrial/Ingredients/International group manages both sales and procurement of the following products:

        In addition, the Industrial/Ingredients/International group also manages:

        Sales

        During fiscal 2003, cranberry concentrate continued to be our principal industrial/ingredients product in terms of sales dollars, accounting for approximately 28.7% of our net revenues compared to approximately 21.7% in fiscal 2002 and 11.4% in fiscal 2001. We realized significant sales dollar growth over the prior year’s results across the broad range of our industrial/ingredient cranberry-based product lines, primarily due to a series of price increases during the season for cranberry concentrate and our premium-sorted frozen whole and sliced cranberries. Our industrial/ingredient sales efforts in fiscal 2003 were coordinated by our Vice President-Industrial/Ingredient/International group and conducted primarily through our internal industrial/ingredient sales force as well as a limited network of independent brokers.

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        Competition

        Ocean Spray dominates the production and sale of cranberry concentrate and other cranberry ingredients in the United States and, through its control over the cranberry supply, we believe is able to effectively dictate market pricing and output for these products. We compete with Ocean Spray and regional suppliers for the sale of cranberry concentrate, non-cranberry concentrate blends, not-from-concentrate and single-strength cranberry juice, fresh cranberries and frozen whole and sliced cranberries to commercial and ingredient customers including, but not limited to, juice processors, bakeries, re-packagers, wholesale distributors and produce retailers and wholesalers. We believe our position as a vertically integrated grower, handler and processor of cranberries improves our ability to offer a long-term reliable supply of high quality cranberry products uniquely suited to the needs of our industrial, ingredient and fresh fruit trading partners.

        International

        International demand for cranberry products increased in fiscal 2003 compared to fiscal 2002, and we believe this trend will continue, in part, due to public awareness of research studies suggesting that the regular consumption of cranberry products may provide health benefits, including maintenance of a healthy urinary tract. With our company-owned processing facility strategically situated in Wisconsin and co-packers of branded products located on both coasts, we believe we have both qualitative and competitive advantages in providing cranberry products to customers throughout the world. Our sales of cranberry concentrate, customized non-cranberry blends and retail brands to international customers during fiscal 2003 were approximately $4.2 million, compared to approximately $2.5 million in fiscal 2002 and $1.6 million in fiscal 2001.

Manufacturing

        Receiving and Processing

        An important part of our business strategy is our ability to process our grown and purchased cranberries. We currently own and operate a processing facility located in the heart of the Wisconsin cranberry growing area in Wisconsin Rapids. We utilize a contract processor to press and concentrate the cranberries from our growers on the west coast. We utilize our manufacturing facilities in the various stages of processing cranberries. For example:

        Packaging and Bottling

        In a continuing effort to reduce costs and improve service to our customers, we have announced our intent to close our owned bottling plant in Jackson, Wisconsin and revised our manufacturing strategy for fiscal 2004. We intend to cease production at our Jackson, Wisconsin plant in November 2003 and close the facility in the second quarter of fiscal 2004. We have entered into agreements with third party contract packaging providers with plants located in New Jersey, North Carolina, Florida, Arkansas, California, and Washington. We believe this network of contract packaging providers will allow us to better service our customers throughout the country and help to reduce production and freight costs.

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        The contract packaging network will provide distribution services directly from the production location, minimizing the need for transfer of finished products to outside warehouses. We intend to produce PET and other shelf stable products at contracted facilities located in Seabrook, New Jersey, Springdale, Arkansas, Lake Wales, Florida, Ontario, California, and Mountain Home, North Carolina. Additionally, we utilize third party contract distribution warehouses located in Aurora, Colorado, and Kent, Washington, for distribution of shelf stable products to smaller, non-truckload customers in those areas. We intend to produce and distribute frozen concentrate products from third party contract packaging providers located in Prosser, Washington and Mountain Home, North Carolina. We also intend to utilize a third party frozen distribution warehouse in Indianapolis, Indiana. All production and distribution facilities are strategically located in high volume markets to minimize freight costs and maximize service levels.

        With the closure of the Jackson, Wisconsin facility we intend to discontinue providing contract packaging services for third parties. Contract packaging services accounted for approximately 2.5% of net revenues in fiscal 2003, compared to 10.1% of net revenues in fiscal 2002 and 11.6% in fiscal 2001.

        Distribution

        Our primary distribution strategy for fiscal 2003 was to maximize distribution from our owned and contracted production locations and to minimize distribution centers that were not associated with a production facility. During fiscal 2003, we utilized six distribution centers, with all but two either on the site of or directly associated with a production facility. While this distribution strategy allowed for cost reductions and good inventory control, we did experience a freight disadvantage due to distribution locations. During fiscal 2004 we will continue our strategy of maximizing distribution from production locations, however, we will have nine distribution locations throughout the country with three remote minimal inventory distribution centers not directly associated with a production facility. We believe our agreements with third party contract packaging providers will allow us to continue our focus on reducing transfer costs and finished goods inventory while satisfying customer orders. We expect to achieve reduced freight costs due to the strategic location of our distribution.

        We have an internal transportation department that contracts with independent carriers to distribute our products to grocery customers and customers in other channels. We believe that the strategic locations of our owned concentrate facility and the contract packaging plants, along with our distribution strategy and our in-house transportation department, contributes to lower costs overall while continuing to provide timely response to customer demands.

Agricultural Operations

        We own or operate 20 cranberry marshes and approximately 1,963 planted acres in Wisconsin as of November 25, 2003. During fiscal 2003, we sold our Yellow River F Marsh property. In connection with the sale, we entered into a multi-year crop purchase agreement pursuant to which the purchaser is required to sell to us the cranberries harvested from the property.

        In the fall of 2002 (i.e., fiscal 2003), we harvested approximately 307,000 barrels from 2,055 acres. We also contracted with other cranberry growers in Wisconsin and Oregon to purchase their crop. In fiscal 2003, we bought approximately 269,000 barrels of cranberries from other growers. As of November 25, 2003, we maintained multi-year crop purchase contracts with 45 independent cranberry growers to purchase all of the cranberries harvested from an aggregate of up to 1,794 contracted acres, subject to federal marketing order limitations. These contracts generally last for five years, and pay the growers at a market rate, as defined, for all raw cranberries delivered (plus $3 per barrel in certain circumstances) and certain incentives for premium cranberries. The ability to harvest our own fruit, combined with the contracted acreage, provides us with geographical diversity in our crop and spreads our agricultural risk. All of the growers under contract have delivered their 2003 crop.

        For the 2003 growing season, no federal marketing order restricting the volume of cranberry harvests was in effect. Our fall 2003 harvest (i.e., fiscal 2004) has been completed on our owned and operated marshes. Production from 1,864 harvested acres totaled approximately 332,000 barrels of cranberries. During the fall 2003 harvest, we also purchased approximately 323,000 barrels of cranberries from contract growers.

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        The quality and quantity of cranberries produced in any given year is dependent upon certain factors over which we have little or no control. For example, extremes in temperature, rainfall levels, storms and hail, or crop infestations can all adversely impact the quality and/or quantity of the harvest in any crop year. In addition, Ocean Spray exercises control over cranberry production and hence, we believe, levels of output in the industry. While we make efforts to reduce the potential adverse effects these factors may have on our internal crop, our cranberry production remains subject to these agricultural and industry factors.

        We also purchase insurance coverage for most of our marshes, which is subsidized by the federal government. These policies help insure against bad weather and other contingencies which may affect our crop. They generally insure us for at least 50% of the average crop yield over the past 10 years on each marsh.

Regulation

        Cranberry Products Regulation

        The production, packaging, labeling, marketing and distribution of our fresh cranberries and cranberry juice products are subject to the rules and regulations of various federal, state and local food and health agencies, including the United States Food and Drug Administration (“USDA”), the United States Department of Agriculture, the Federal Trade Commission and the Environmental Protection Agency. We believe we have complied, and will be able to comply, in all material respects with such rules, regulations and laws.

        The Cranberry Marketing Committee (“CMC”) of the USDA has the authority to recommend that the Secretary of the USDA impose harvest restrictions on cranberry growers if the CMC believes there will be an oversupply of cranberries for the coming crop year. During fiscal 2003 and fiscal 2002, the Secretary of the USDA did not invoke volume regulations. During fiscal 2001 and 2000, the Secretary of the USDA, at the request and based on the recommendation of the CMC, invoked volume regulations to restrict the industry-wide harvest of cranberries for the harvests occurring in the fall of 2000 and the fall of 2001. In 2000, the volume of cranberries that growers in the United States could harvest was limited to approximately 85% of a grower’s given historical production. In 2001, the limit was lowered to 65% of historical production.

        Environmental and Other Governmental Regulation

        It can be difficult under federal laws for cranberry growers and other developers to obtain permits to create new cranberry marshes in wetlands in the United States. To do so, such growers must generally observe a “no net loss” of wetlands policy. That is, they must show that the proposed development activity will not result in a loss of wetland acreage, or they must restore the functional value of acreage they propose to disturb. Given this strict requirement, as well as water quality legislation in Wisconsin and Massachusetts, we believe it is currently unlikely that we, or other cranberry growers or developers in the United States, will be able to secure permits for cranberry marsh development or expansion in wetland acreage. However, we and other growers or developers may renovate existing wetland acreage from time to time and replant older cranberry vine varieties with higher-yielding vine varieties. Also, certain developers have created upland cranberry marshes, which are marshes that are not on wetland acreage.

        Pursuant to permits previously received, in the past several years certain growers have planted, cultivated, and developed new cranberry-producing acreage in several states and abroad, particularly in Canada. Many of these previously planted acres have recently become productive or should become productive in the near future.

        We are currently taking steps to clean up certain contamination caused by underground storage tanks at one of our marshes in Wisconsin and our former marsh in Hanson, Massachusetts. All of the sites have been reported to the appropriate state regulatory agencies. In addition, all clean-up activities are subject to state supervision. We do not expect to incur material liabilities as a result of these remedial activities. We do not expect environmental or other governmental legislation or regulation to have a material effect on our capital expenditures, results of operations or competitive position.

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Seasonality

        Since our evolution from a cranberry grower to a consumer products company in 1997, the seasonality of our business has been limited because we offer our products for sale throughout the entire year. We do expect, however, that our results of operations will continue to fluctuate from quarter to quarter depending mainly upon the level of media advertising and other promotional expenditures in any given quarter, the level of distribution we can achieve, as well as seasonal sales of fresh fruit.

Materials and Supplies

        We buy bottles, caps, flavorings, juice concentrates and packaging from independent third parties. We get most of the materials and supplies necessary for growing and cultivating cranberries, including water and sand, from our own marshes. We purchase and expect to continue to purchase most of our fertilizer and pesticides from our subsidiary, Wildhawk, Inc. We purchase the rest of the raw materials and supplies, including the materials used to package our fresh fruit, from various sources.

        If necessary, we believe we would be able to find other sources for these raw materials and supplies without a material delay or adverse effect on our business.

Trademarks and Formulae

        We own the Northland, TreeSweet, and Awake trademarks, which are registered in the United States Patent and Trademark Office. We have also entered into a 99-year license agreement with Seneca which allows us to market and sell Seneca brand juice and concentrate. The Northland and Seneca trademarks are important in the sale of our branded cranberry juice and other fruit juice and fruit products.

        We use proprietary flavor formulations to make our cranberry blends. We protect the confidentiality of these formulations by requiring co-packers to enter into confidentiality agreements with us.

Employees

        As of August 31, 2003, we had 223 full-time employees, as compared to 299 as of August 31, 2002. As of November 17, 2003, we had approximately 218 full-time employees. In addition to our full-time employees, we hired:

        As a result of our continuing efforts to reduce costs, either through attrition or permanent layoffs, our total workforce was reduced by 76 employees in fiscal 2003. We reduced our workforce by 14 employees throughout fiscal 2003 as we adjusted our administrative personnel to reflect the current sales and production levels. We also laid off 62 employees at our Jackson facility during fiscal 2003. In December 1998, we entered into a collective bargaining agreement with a union representing employees in Jackson, Wisconsin. That agreement covers approximately 29 employees and is effective through January 1, 2005. We believe our current relationships with our employees, both union and non-union, are good.

Item 2.  Properties.

        In Wisconsin Rapids, Wisconsin we own an office building on Industrial Street near our processing plant and an office building on West Grand Avenue.

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        We also own a 172,000 square foot receiving station, fresh fruit packaging and concentrate facility located on 40 acres in Wisconsin Rapids. This facility includes 62,400 square feet of freezer space, 45,000 square feet of cooler space, 8,500 square feet of dry warehouse and 55,100 square feet devoted to cranberry receiving and cleaning, fresh fruit packaging and concentrate production.

        During fiscal 2003, we owned a production and warehouse facility in Bridgeton, New Jersey. We leased approximately 90,000 first floor square footage of the warehouse building to a warehouseman and distributor whose main offices are located in Bayonne, New Jersey. During the first quarter of fiscal 2004, we sold our Bridgeton facility to an affiliate of the lessee. We had previously, in fiscal 2003, sold the office building to another party.

        We closed our Dundee, New York, bottling and packaging plant in fiscal 2002. The facility totals 139,000 square feet, including 40,000 square feet of production area, 53,000 square feet of dry warehouse, 17,200 square feet of freezer space and 21,000 square feet of cooler and bulk tank storage area. This facility is currently being held for sale, as we continue our efforts to sell the facility.

        In Jackson, Wisconsin, we own a bottling facility totaling 136,000 square feet including 55,000 square feet of production area, 70,000 square feet of dry warehouse and 5,000 square feet of cooler and bulk storage area. We intend to cease production at this facility in fiscal 2004 and thereafter hold it for sale.

        In Eau Claire, Michigan, we own a 79,000 square foot storage facility and distribution center. This facility was mostly destroyed by fire in May 2003. We are currently negotiating a settlement with the insurance company. We do not anticipate rebuilding on this site, but anticipate selling the property “as is” to a developer.

        In addition to our facilities, we own 19 cranberry marshes and manage another one. We have set forth in the following table information about each of our 20 cranberry marshes as of November 25, 2003. We own all of these marshes in fee simple (or we manage or operate them, as indicated below), subject to mortgages. All of our marshes have storage buildings and repair shops for machinery, trucks and harvest and irrigation equipment. Each also has a house on site or close to the site which serves as the marsh manager’s residence. Many of our marshes also have residences for assistant marsh managers. We believe that all of our facilities are suitable and adequate for our existing needs.

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Item 3.  Legal Proceedings.

        On March 8, 2000, we sold the net assets of our private label juice business to Cliffstar Corporation (“Cliffstar”) pursuant to an asset purchase agreement (“Asset Purchase Agreement”) dated January 4, 2000. In connection with the sale, we received from Cliffstar an unsecured, subordinated promissory note for $28,000,000 payable over six years and bearing interest at a rate of 10% per annum, as well as approximately $6,800,000 in cash. Cliffstar is obligated under the Asset Purchase Agreement to make certain annual earn-out payments to us for a period of six years from the closing date based generally on operating profit from Cliffstar’s sale of cranberry juice products.

        On July 7, 2000, Cliffstar filed suit against us in the United States District Court, Western District of New York, alleging, among other things, that we breached certain representations and warranties in the Asset Purchase Agreement. That lawsuit was subsequently dismissed, and on July 31, 2000, we filed a lawsuit against Cliffstar in the Northern District of Illinois alleging that Cliffstar breached various provisions of the Asset Purchase Agreement, an interim cranberry sauce purchase agreement between the two companies, the promissory note issued by Cliffstar in the transaction, and a co-packing agreement entered into in connection with the sale. Cliffstar asserted various counterclaims against us alleging among other things that we fraudulently induced Cliffstar to enter into the Asset Purchase Agreement and that we breached various provisions of the Asset Purchase Agreement, the co-packing agreement and a transition agreement between the parties. Disagreements between us and Cliffstar over the valuation of finished goods, work-in-process and raw material inventory purchased by Cliffstar were submitted to arbitration for resolution.

        On June 7, 2002, the court granted our motion for summary judgment and dismissed Cliffstar’s fraud claim. On October 23, 2002, after a trial to a jury on the remaining claims, the District Court entered judgment in our favor and against Cliffstar in the amount of $6,674,450. Following post trial motions, final judgment was entered in our favor in the amount of $8,210,459 and in favor of Cliffstar in the amount of $459,050. On January 21, 2003, Cliffstar filed a Notice of Appeal with the United States Court of Appeals for the Seventh Circuit.

        The parties entered into a Confidential Settlement Agreement effective February 27, 2003 and a Supplemental Agreement to Confidential Settlement Agreement dated April 3, 2003 (collectively referred to as the “Settlement Agreement”) pursuant to which we agreed to settle and resolve all disputes between us, except those relating to the annual earn-out payments required to be made by Cliffstar to us under the Asset Purchase Agreement. Pursuant to the Settlement Agreement, Cliffstar has among other things satisfied the judgment entered in its favor in the case, released all claims it may have against us and paid us the sum of $28.75 million. Pursuant to the Settlement Agreement, we have among other things cancelled the promissory note issued by Cliffstar in the private label sale transaction, satisfied the judgment entered in its favor in the case and released all claims we may have against Cliffstar, except those relating to the annual earn-out payments under the Asset Purchase Agreement. As of February 28, 2003, the principal balance due under the promissory note was $21.0 million.

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        On May 13, 2002, we received Cliffstar’s earn-out calculation for 2000. We believe Cliffstar’s earn-out calculation was not prepared in accordance with the Asset Purchase Agreement. We have since received an estimate of the earn-out calculation from Cliffstar in the amount of $1,177,621 for 2001 and $0 for 2002. To date, however, Cliffstar has not provided us with audited earn-out calculations for 2001 or 2002 in accordance with the Asset Purchase Agreement. We believe that the estimates provided by Cliffstar for 2001 and 2002 significantly understate the earn-out payments due under the Asset Purchase Agreement.

        On June 7, 2002, we filed a separate suit against Cliffstar in the United States District Court, Northern District of Illinois, seeking access to all relevant books and records of Cliffstar relating to the earn-out calculations and claiming Cliffstar breached the Asset Purchase Agreement by failing to pay us earn-out payments for the years 2000 and 2001. During the first quarter of fiscal 2004, the parties reached a settlement in principle. The Court has stayed further proceedings in the case pending finalization of the terms of the settlement. Assuming the settlement in principle is finalized consistent with the proposed terms, we expect to recognize income of approximately $3,000,000 during the second quarter of fiscal 2004 as a result of the settlement.

        On November 11, 2002, we together with Clermont, Inc, filed an antitrust lawsuit against Ocean Spray Cranberries, Inc. (“Ocean Spray”). The lawsuit, which is pending in the United Stated District Court for the District of Massachusetts, alleges that Ocean Spray has engaged in anticompetitive tactics and unlawfully monopolized the cranberry products industry to the detriment of its competitors and customers. We are seeking an order from the Court enjoining Ocean Spray from certain unlawful conduct as well as an award of treble damages in an amount to be determined at trial. The parties have filed cross motions for summary judgment related to an affirmative defense asserted by Ocean Spray under the Capper-Volstead Act. The proceeding remains in the early stages of discovery.

Item 4.  Submission of Matters to a Vote of Shareholders.

        We did not submit any matters to a vote of our shareholders during the fourth quarter of fiscal 2003.

Executive Officers

        As of November 25, 2003, each of our executive officers is identified below together with information about each officer’s age, current position with us and employment history for at least the past five years:

        The Board of Directors generally elects our executive officers annually after the annual meeting of shareholders. Each executive officer holds office until his successor has been duly qualified and elected or until his earlier death, resignation or removal.

        John Swendrowski originally founded Northland in 1987 and has served as our Chief Executive Officer since that time.

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        Ricke A. Kress was appointed President and Chief Operating Officer in July 2001. Previously he served as our Executive Vice President since October 2000; Non Branded Group President since October 1999; and Non Branded Sales President since November 1998. Prior to that time, he held several positions with Seneca Foods Corporation, including serving as its Senior Vice President — Technical Services since June 1997, President — Juice Division since October 1995 and Senior Vice President — Operations since June 1994.

        Nigel J. Cooper was appointed Vice President – Finance in May 2002. He joined us as Corporate Controller in October 2000. Before that he was a financial and accounting consultant with Resources Connection from 1999. Prior to that he held controller positions with InterAct Security, Riverplace Inc., Separation Technology and W. Security Systems, Inc. He spent four years with Price Waterhouse in the U.K. and is a Chartered Accountant.

        Kenneth A. Iwinski was appointed Vice President — Legal in January 2001 and Secretary in October 2001. He joined the Company in November 1998 as Assistant Corporate Counsel/Assistant Secretary. Prior to joining the Company, he practiced law with the business law firm of Meissner Tierney Fisher & Nichols, S.C., in Milwaukee, Wisconsin since May 1992.

        William J. Haddow, Sr. was named Vice President – Purchasing and Logistics in September 1998. Before that, he served as Vice President-Purchasing, Transportation and Budget since October 1996; Vice President-Purchasing and Transportation from May 1993; and Assistant Vice President-Purchasing from 1989.

        Steven E. Klus was appointed Vice President – Manufacturing in January 2001. Previously he served as our Manufacturing Division President since September 1998. He joined us in April 1996 as the Director of Strategic Product Planning. He was appointed Vice President-Manufacturing in October 1996. Before that, he served as President-Eastern Division of Seneca Foods Corporation in New York from May 1990.

        John B. Stauner was appointed Vice President – Agricultural Operations in January 2001. Previously he served as our Agricultural Operations Division President since September 1998; Vice President-Agricultural Operations since October 1996; Vice President-Operations from May 1995; and Assistant Vice President of Operations since we were formed in 1987.

        Robert M. Wilson was appointed Vice President – Industrial/Ingredients, which includes international and fresh fruit sales, in January 2001. He joined us as our Industrial-Ingredients Division President in April 1999 when we purchased Potomac Foods of Virginia, Inc., a broker of fruit juices and other fruit products. Before that, he was the President and owner of Potomac Foods of Virginia, Inc., since 1986.

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PART II

Item 5.  Market for the Company’s Common Equity and Related Shareholder Matters.

Sale Price Range of Class A Common Stock (1)

        On November 25, 2003 there were approximately 1,166 shareholders of record for the shares of our Class A Common Stock. On November 25, 2003, the last sale price of shares of our Class A Common Stock was $0.75 per share.

        During fiscal 2001, shares of our Class A Common Stock traded on The Nasdaq Stock Market under the symbol “CBRYA.” On November 5, 2001 (which was subsequent to the end of fiscal 2001), in contemplation of debt and equity restructuring, we effected a one-for-four reverse stock split of our outstanding capital stock (which was previously approved by our shareholders at our 2001 annual meeting of shareholders). All share information in the table above has been restated to give effect to the reverse stock split. Additionally, in furtherance of the restructuring, we voluntarily delisted our Class A Common Stock from trading on The Nasdaq Stock Market and obtained quotation of our Class A Common Stock on the Over-The-Counter Bulletin Board under a new symbol (“NRCNA”) effective on the opening of trading on November 6, 2001.

        We have not paid dividends on our common stock since the third quarter of fiscal 2000.

        Our Amended and Restated Credit Agreement with U.S. Bank National Association, as Agent, and our Loan and Security Agreement with Foothill Capital Corporation, as the Arranger and Administrative Agent, prohibit us from making any distributions on or redemptions of our capital stock, except that under certain circumstances, we may redeem employee-owned stock upon the employee’s termination or death.

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Item 6.  Selected Financial Data.

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Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Results of Operations

        General

        During fiscal 2003 we focused our efforts on improving profitability by increasing gross margins and lowering operating expenses. We also focused our marketing efforts on educating consumers about the health benefits of our Northland brand 100% Juice Cranberry Blends. We believe this contributed to the improvement in sales of our Northland brand products of 16.3% over fiscal 2002. Total sales, however, decreased in fiscal 2003 by 5.0% from fiscal 2002, primarily due to the reduction of co-packing sales and other less profitable products.

        During fiscal 2003 we significantly reduced our long-term and short-term debt by a total of $28.6 million and our cash position improved by $8.8 million. Shareholders equity also improved by $6.6 million.

        In fiscal 2004 we intend to continue to focus our efforts on profitable growth while striving to reduce debt.

        Critical Accounting Policies

        The preparation of consolidated financial statements in conformity with generally accepted accounting principles (GAAP) in the United States of America requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. On an on-going basis, we evaluate our estimates, including those related to product shipments and returns, bad debts, inventories, income taxes, contingencies and litigation. We base these estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

        Specifically, we believe that the following accounting policies and estimates are most important to the portrayal of our financial condition and operating results and require management’s most difficult judgments:

        Revenue Recognition

        We recognize revenue when persuasive evidence of an arrangement exists, product is delivered, collectibility is reasonably assured and title passes to the customer. Estimated reserves for discounts, coupons, product returns and trade allowances are established based on an analysis of historical trends and experience, as well as the trade allowances offered by us at the time products are delivered. The estimated reserves are charged against revenues in the same period that corresponding sales are recorded. We periodically evaluate such reserves and make necessary adjustments when actual participation in these programs differs from historical experience. There have been no significant changes in estimates for such reserves during fiscal 2003.

        Inventory

        We have stated our inventory carrying value at the lower of cost (using the first-in, first-out costing method) or estimated market values, based upon management’s best estimates of future product selling costs for the periods during which the cranberries are grown and the cranberries and cranberry-related products are expected to be sold. The market estimates are dependent upon several factors including, but not limited to, price, product mix, demand, costs and the period of time it takes to sell the inventory.

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        Allowance for Doubtful Accounts

        We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We determine the level of our allowance based on historical experience, the aging of our accounts receivables and the credit worthiness of individual customers. If the financial condition of our customers were to deteriorate, resulting in impairment of their ability to make payments, additional allowances may be required. Our accounts receivable balance was $8.5 million, net of doubtful accounts of $0.4 million, and $7.5 million, net of doubtful accounts of $0.4 million, as of August 31, 2003 and 2002, respectively.

        Recoverability of Long-Lived Assets

        We state the value of our long-lived assets (property and equipment) at cost less depreciation and amortization. We periodically evaluate this carrying value. Our estimates of the expected future undiscounted cash flows related to the recoverability of these assets may change from actual cash flows due to, among other things, changes in technology and economic conditions.

        Assets Held for Sale

        From time to time, in connection with our management’s ongoing efforts to maximize operating effectiveness, decisions are made to exit certain production or distribution facilities. At the time that our management commits to a decision to exit existing facilities and initiates an active plan to dispose of the facility, an assessment of the recoverability of the carrying value of the long-lived assets of the facility to be closed is made by our management. This assessment requires our management to estimate the fair value of the assets to be disposed of and the estimated cost to sell such assets. To the extent that carrying value of the assets to be disposed of exceeds the estimated fair value of those assets less their estimated cost to sell, impairment in the value of the assets is recognized.

        Estimates of the fair value of the assets to be disposed of are generally based on a discounted cash flow analysis or substantive purchase offers from viable potential buyers. Estimates of the value are impacted by a variety of relevant factors, including, but not limited to, alternative future uses of such assets, the availability of potential buyers, general economic conditions, current legal restrictions, if any, on the use of the assets, and any relevant legal issues. Our management continues to evaluate all available evidence of the fair value of the assets to be disposed of and makes any necessary adjustments at the time that additional information becomes available.

        Deferred Gain on Forgiveness of Indebtedness

        On November 6, 2001 we completed the restructuring of our then-outstanding debt obligations. In estimating the gain or loss resulting from this restructuring, our management was required to make certain estimates of the future cash payments to be made under the terms of the modified debt. Since the modified debt included provisions for a variable interest rate based on a premium above the lender’s prime borrowing rate, the critical assumption made at the time of the restructuring was the interest rate to be incurred over the life of the debt. For purposes of the determination of the gain from the restructuring, the estimated interest rate over the term of the debt was assumed to be the rate in effect at the date of the restructuring. Since the debt restructuring in November 2001, general economic conditions and other factors have resulted in a reduction of interest rates. Accordingly, interest paid has been less than previously estimated. Assuming interest rates in effect at August 31, 2003 (6.5%) were to continue through the scheduled maturity date of the debt, we would recognize a gain of approximately $4.3 million upon final payment of the principal outstanding.

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        Off-Balance Sheet Arrangements

        We do not typically engage in off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships with unconsolidated entities or other persons that may have a material current or future effect on our financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses. We do not materially rely on off-balance sheet arrangements for liquidity, capital resources, market risk support, credit risk support or other benefits.

        On May 13, 1997, we guaranteed $1,000,000 of outstanding obligations to a bank of an independent cranberry grower who subsequently became an officer of our company during the year ended August 31, 2001. The guarantee was provided to allow the grower to obtain financing for the expansion of its then-existing growing operations. Simultaneous with the issuance of the guarantee, we entered into a multi-year crop purchase agreement pursuant to which the grower is required to sell to us the cranberries harvested from the property. As of August 31, 2003, the grower/officer was in default with certain terms and conditions contained in the related debt agreements and is currently in the process of restructuring the debt obligations. Based on the current financing alternatives available and the impact of these options on the guarantee, we believe the resolution of this matter will not have a material adverse effect on our financial statements.

        In addition, we have outstanding 100 shares of our Series B Preferred Stock. The Series B Preferred Stock is subject to mandatory redemption upon (i) the consummation of a transaction following which neither Sun Northland, LLC nor its affiliates owns or controls securities possessing at least 10% of the voting power of the company, or (ii) the distribution of assets to holders of our capital stock upon the sale of substantially all our assets. The redemption price in such a circumstance varies depending upon the number of shares of Series B Preferred Stock then outstanding and the internal rate of return (as defined in the Articles of Incorporation) recognized by Sun Northland, LLC in connection with the event triggering such redemption. We cannot be certain if or when the Series B Preferred Stock may be redeemed, nor can we be certain of the redemption price in the event of such a redemption. See Note 11 to our Notes to Consolidated Financial Statements for more information regarding our Series B Preferred Stock.

        Fiscal 2003 Compared to Fiscal 2002

        Net Revenues. Our total net revenues decreased 5.0% to $96.5 million in fiscal 2003 from $101.5 million in fiscal 2002. The decrease resulted primarily from (i) reduced co-packing revenues; and (ii) reduced sales of Seneca branded products due to decreased trade spending in those markets where we had previously lost distribution. Trade spending, slotting and consumer coupons, which are reported as a reduction of net revenue, were up 37.4% to $16.7 million in fiscal 2003 from $12.2 million in fiscal 2002. We expect trade spending in fiscal 2004 to be comparable to fiscal 2003 on a per case basis.

        The decrease in net revenues in fiscal 2003 was partially offset by an increase in sales of Northland branded products and cranberry concentrate. Gross sales of Northland branded product increased by 16.3% in fiscal 2003 over fiscal 2002 and industrial/ingredients sales increased by 17.0% in fiscal 2003 over fiscal 2002. Industry data indicated that, for the 12-week period ended September 7, 2003, our Northland brand 100% juice products achieved a 5.6% market share of the supermarket shelf-stable cranberry beverage category on a national basis, up from 5.1% market share for the 12-week period ended September 8, 2002.

        With the closure of our Jackson, Wisconsin facility, we intend to discontinue providing contract packaging services for third parties and expect net revenues from those services to be negligible in fiscal 2004. Contract packaging services accounted for approximately 2.5% of net revenues in fiscal 2003.

        Cost of Sales. Our cost of sales for fiscal 2003 was $65.1 million compared to $69.7 million in fiscal 2002, resulting in gross margins of 32.5% and 31.3%, respectively. The decrease in cost of sales resulted primarily from reduced co-packing costs associated with reduced co-packing volume. In addition to the reduced costs, the improved margins in fiscal 2003 resulted from the impact of higher selling prices for cranberry concentrate. We expect cost of sales for our branded products to decrease in fiscal 2004 on a per-case basis as we transition production at our Jackson, Wisconsin facility to our network of third party contract packaging providers.

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        Selling, General and Administrative Expenses. Our selling, general and administrative expenses were $24.5 million, or 25.4% of net revenues, in fiscal 2003, compared to $24.8 million, or 24.5% of net revenues, in fiscal 2002. Included in the fiscal 2002 amount were approximately $1.3 million of charges relating to our debt and equity restructuring in November 2001. Partly offsetting the reduction of restructuring charges in fiscal 2003 were increases in advertising expenses of $0.7 million and increases in management fees paid to Sun Capital Partners Management, LLC of $0.4 million.

        Gain on Disposal of Property and Equipment. In fiscal 2003, we recognized a net $0.1 million gain on the sale of various assets. We sold (i) an office building in Bridgeton, New Jersey; (ii) one of our cranberry marshes located in Armenia, Wisconsin; and (iii) various equipment. In fiscal 2002, we recognized a net $0.1 million gain on the sale of various assets. We sold (i) our office facility in Wisconsin Rapids, Wisconsin; (ii) our processing facility in Cornelius, Oregon; and (iii) our cranberry marshes in Hanson, Massachusetts. We also closed our juice packaging facility in Dundee, New York and sold the related equipment.

        Other Income. In fiscal 2003 we recognized $1.5 million in other income from the settlement of a claim against a third party storage facility (see Note 5 to Consolidated Financial Statements). Also included in other income was a gain of $0.1 million attributable to the settlement of certain litigation with Cliffstar Corporation (see Note 3 to Consolidated Financial Statements).

        Interest Expense. Our interest expense was $3.6 million for fiscal 2003, compared to $6.6 million in fiscal 2002. The decrease in our interest expense was due primarily to reduced debt levels between periods as a result of a paydown of $28.6 million in long-term and short-term debt during fiscal 2003. The weighted average interest rate on our borrowings for fiscal 2003 was approximately 6.3%.

        Interest Income. Our interest income was $1.6 million in fiscal 2003 compared to $2.5 million in fiscal 2002. Interest income was recognized primarily as a result of an unsecured, subordinated note receivable we received in connection with the sale of our private label juice business in March 2000. The reduction in interest income was the result of the conversion of a note receivable to cash in May 2003 in connection with the settlement of certain litigation with Cliffstar Corporation.

        Income Tax. In fiscal 2003 there was no income tax provision due to the utilization of certain net operating loss carry forwards for which no benefit had previously been provided. In fiscal 2002 there was income tax expense of $32.5 million. This expense was comprised of (i) $32.8 million of expense related to the income tax on the gain on forgiveness of indebtedness; and (ii) $0.3 million of benefit as a result of certain refunds of Federal Alternative Minimum Tax (AMT) related to a change in the tax law for AMT carry-backs.

        Net Income. In fiscal 2003 we recorded net income of $6.6 million or $0.06 per diluted share compared to net income of $53.8 million or $0.64 per diluted share in fiscal 2002. Included in fiscal 2002 net income was a net of tax gain of $50.5 million on the forgiveness of indebtedness related to the financial restructuring of the company.

        Fiscal 2002 Compared to Fiscal 2001

        Net Revenues. Our total net revenues decreased 19.4% to $101.5 million in fiscal 2002 from $125.8 million in fiscal 2001. The decrease resulted primarily from (i) reduced sales of Northland and Seneca branded products due to previous lost distribution which caused us to change our promotional and pricing strategies and reduce marketing spending; and (ii) the sale of our cranberry sauce business and a manufacturing facility in June 2001, which reduced co-packing revenue and revenue from cranberry sauce sales. Trade spending, slotting and consumer coupons, which are reported as a reduction of net revenue, were down 26.9% to $12.2 million in fiscal 2002 from $16.6 million in fiscal 2001. The decrease in net revenues in fiscal 2002 from reduced sales of our branded products was partially offset by an increase in sales of cranberry concentrate, as we reduced cranberry concentrate inventory during the year.

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        Industry data indicated that, for the 12-week period ended September 8, 2002, our Northland brand 100% juice products achieved a 5.1% market share of the supermarket shelf-stable cranberry beverage category on a national basis, down from a 6.0% market share for the 12-week period ended September 9, 2001. Market share of our Seneca brand cranberry juice product line for the same period decreased from approximately 0.4% to approximately 0.1%, resulting in a total combined market share of supermarket shelf-stable cranberry beverages for our Northland and Seneca branded product lines of approximately 5.2% for the 12-week period ended September 8, 2002, down from approximately 6.4% for the 12-week period ended September 9, 2001.

        Cost of Sales. Our cost of sales for fiscal 2002 was $69.7 million compared to $115.5 million in fiscal 2001, resulting in gross margins of 31.3 % and 8.2%, respectively. The decrease in cost of sales resulted primarily from reduced sales of Northland and Seneca branded products, the elimination of costs associated with production of private label juice products and reduced sauce and co-packing costs. In addition to the reduced costs, the improved margins in fiscal 2002 resulted from the impact of a $17.6 million write down of the carrying value of our cranberry inventory in the fourth quarter of fiscal 2001 and the effects of improved manufacturing efficiencies and other cost control measures including a reduction in personnel costs resulting from our restructuring efforts.

        Industrial/ingredients sales increased to approximately 31% of net revenues in fiscal 2002 compared to approximately 16% of net revenues in fiscal 2001. Since sales of cranberry concentrate generally result in lower margins than sales of our branded products, gross margins in fiscal 2002 were negatively impacted by higher cranberry concentrate sales.

        Selling, General and Administrative Expenses. Our selling, general and administrative expenses were $24.8 million, or 24.5% of net revenues, in fiscal 2002, compared to $25.5 million, or 20.3% of net revenues, in fiscal 2001. Included in the fiscal 2002 amount were approximately $1.3 million of charges relating to the Restructuring. The increase was mainly attributable to an increase in advertising expense of $6.5 million or 220.4%. Other selling and administrative expenses decreased by $6.7 million, mainly due to a reduction in legal and consulting expenses following our debt and equity restructuring in November 2001.

        Write Down of Long-Lived Assets and Assets Held for Sale. In the fourth quarter of fiscal 2001, we restructured our operations and identified certain long-lived assets to be held for sale. We also concluded that the estimated future cash flows of our long-lived assets were below the carrying value of those assets. Accordingly, during the fourth quarter of fiscal 2001 and in accordance with SFAS No. 121, we recorded an impairment charge of approximately $80.1 million related to write downs to assets held for sale, property and equipment held for use, and goodwill and other intangible assets.

        Gain on Disposal of Property and Equipment. In fiscal 2002, we recognized a net $0.1 million gain on the sale of various assets. We sold (i) our office facility in Wisconsin Rapids, Wisconsin; (ii) our processing facility in Cornelius, Oregon; and (iii) our cranberry marshes in Hanson, Massachusetts. We also closed our juice packaging facility in Dundee, New York and sold the related equipment. In fiscal 2001, we recognized a $2.1 million gain associated with the sale of the net assets of our private label sauce business and manufacturing facility in Mountain Home, North Carolina, as well as certain property and equipment.

        Interest Expense. Our interest expense was $6.6 million for fiscal 2002, compared to $18.9 million in fiscal 2001. The decrease in our interest expense was due to reduced debt levels between periods as a result of the Restructuring and reduced interest rates. The weighted average interest rate on our borrowings for fiscal 2002 was approximately 6.5%.

        Interest Income. Our interest income was $2.5 million in fiscal 2002 compared to $2.7 million in fiscal 2001. Interest income was recognized primarily as a result of an unsecured, subordinated promissory note we received in connection with the sale of our private label juice business in March 2000.

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        Income Tax. In fiscal 2002 there was income tax expense of $32.5 million. This expense was comprised of (i) $32.8 million of expense related to the income tax on the gain on forgiveness of indebtedness and (ii) $0.3 million of benefit as a result of certain refunds of Federal Alternative Minimum Tax (AMT) related to a change in the tax law for AMT carry-backs. In fiscal 2001 we recognized income tax benefits of $34.9 million. Of this amount, $2.1 million resulted from certain refunds received in 2001 related to farm loss carry-backs. The balance resulted from the recognition of a tax benefit of $32.8 million for certain net operating loss carry-forwards which were utilized for financial reporting purposes during the first quarter of fiscal 2002 related to forgiveness of certain indebtedness (see Note 12 of Notes to Consolidated Financial Statements).

        Net Income. In fiscal 2002 we recorded net income of $53.8 million, or $0.64 per diluted share, compared to a net loss of $74.5 million, or $(14.64) per diluted share), in fiscal 2001. Included in the fiscal 2002 net income was a net of tax gain of $50.5 million on the forgiveness of indebtedness related to our restructuring. Included in the net of tax loss in fiscal 2001 was a net loss of $47.3 million related to the write down of long-lived assets and assets held for sale.

Financial Condition

        In fiscal 2003, net cash provided by operating activities was $14.3 million compared to $17.4 million in fiscal 2002. Cash provided by changes in working capital was $2.5 million in fiscal 2003 compared to $8.6 million in fiscal 2002. Receivables, prepaid expenses and other current assets provided cash of $4.9 million in fiscal 2003 compared to $4.0 million in fiscal 2002. Reductions in inventories provided cash of $2.0 million in fiscal 2003 compared to $6.1 million in fiscal 2002. Reductions in accounts payable and accrued expenses used cash of $4.5 million in fiscal 2003 and $1.5 million in fiscal 2002.

        Net cash provided by investing activities was $23.0 million in fiscal 2003 compared to $9.2 million in fiscal 2002. Collections on the note receivable from Cliffstar were $23.0 million in fiscal 2003 versus $3.0 million in fiscal 2002. Property and equipment purchases increased from $0.8 million in fiscal 2002 to $1.4 million in fiscal 2003. Proceeds from disposals of property and equipment and assets held for sale were $1.4 million in fiscal 2003 compared to $7.0 million in fiscal 2002. The asset sales in fiscal 2003 consisted primarily of the sale of a marsh located in Armenia, Wisconsin, the sale of an office building in Bridgeton, New Jersey and sales of various equipment.

        Our net cash used in financing activities was $28.6 million in fiscal 2003 compared to $27.9 million in fiscal 2002. Payments on long-term debt and other obligations, primarily attributable to the application of the proceeds form the Cliffstar settlement, amounted to $28.0 million in fiscal 2003 compared to $13.0 million in fiscal 2002. Net payments under the revolving line of credit facility amounted to $0.6 million in fiscal 2003 compared to a net borrowing under the facility of $0.6 million in fiscal 2002. In fiscal 2002 net payments in settlement of the revolving credit facility amounted to $39.8 million. These payments were in part financed by proceeds from the issuance of long-term debt in the amount of $20.0 million, reduced by debt issuance costs of $1.3 million. Also in fiscal 2002 there were proceeds from the issuance of preferred stock and common stock in the amounts of $2.9 million and $2.6 million respectively. In fiscal 2002, payments on long-term debt and other obligations, excluding the restructuring, amounted to $13.0 million

        Cash and cash equivalents. Our cash balance increased to $9.1 million at the end of fiscal 2003 from $0.3 million at the end of fiscal 2002.

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        Long-Term Debt and Other Arrangements. During fiscal 2003 we were able to significantly reduce our long-term debt by approximately $28.0 million. This was in large part due to the conversion of the $23.0 million note receivable to cash in connection with the settlement of the Cliffstar litigation. There was also $14.3 million in cash provided by operating activities which was partially utilized to further reduce long-term debt by approximately $5.0 million and our revolving credit facility by approximately $0.6 million, and resulted in an increase in our cash balance of $8.8 million. At the end of fiscal 2003 we no longer had a balance outstanding on our revolving credit facility.

        The following schedule sets forth our contractual long-term debt obligations as of August 31, 2003:

Payments Due by Period

        In early fiscal 2002, as part of our debt and equity restructuring, we entered into an Amended and Restated Credit Agreement with certain members of our former bank group which evidences, among other things, our obligation to repay the revised term loan in the original principal amount of approximately $25.7 million that we issued to those creditors in the restructuring. Principal and interest outstanding under the original term loan at the time of our restructuring was $74.5 million.

        Additionally, we entered into a Loan and Security Agreement on November 6, 2001 with Foothill Capital Corporation and Ableco Finance LLC. Under this loan agreement, Foothill and Ableco provided us with two term loans, each in the principal amount of $10 million, and a new $30 million revolving credit facility. During fiscal 2003, we paid all outstanding principal on one term loan and the outstanding principal balance on the remaining term loan was $4.9 million as of August 31, 2003. The remaining term loan and the revolving credit facility mature and/or expire on November 6, 2006, and interest accrues on the outstanding principal balance thereunder at the greater of 7.0% or the prime rate, as defined, plus 1%. As of August 31, 2003, there was no outstanding balance on the revolving credit facility.

        In addition to the restructuring, we also, in fiscal 2002, modified the terms of approximately $20.7 million in outstanding borrowings under two term loans with an insurance company, consolidating those two term loans into one new note with a stated principal amount of approximately $19.1 and a stated interest rate of 5% for the first two years of the note, increasing by 1% annually thereafter, with a maximum interest rate of 9% in the sixth and final year. The note is payable in monthly installments of approximately $186,000 commencing December 1, 2001, adjusted periodically as the stated interest rate increases, with a final payment of approximately $11.6 million due November 1, 2007. The effective interest rate to be recognized for financial reporting purposes will approximate 4.5%. The balance of the note, as of August 31, 2003, was $16.9 million. The note is collateralized by specific assets.

        We also, in fiscal 2002, issued fee notes to Foothill and Ableco in the aggregate principal amount of $5 million, which are payable in full on November 6, 2006. The fee notes were discounted for financial reporting purposes and will be charged to operations as additional interest expense over the term of the related debt.

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        The following table sets forth our long-term debt as of August 31, 2003 and 2002:

        Aggregate annual principal payments required under terms of the debt agreements as of August 31, 2003, after giving effect to the debt and equity restructuring and the various obligations that were forgiven in connection therewith, consisted of the following:

        As of August 31, 2003, we had no outstanding borrowings under our $30 million revolving credit facility with Foothill and Ableco. As of August 31, 2003, we had approximately $6.1 million of unused borrowing available under this facility. We believe that we will be able to fund our ongoing operational needs for the foreseeable future through (i) cash generated from operations; (ii) current cash on hand; and (iii) financing available under our revolving credit facility with Foothill and Ableco. We do not have any significant capital expenditure commitments and continue to review our capital requirements in an effort to match expenditures with revenues.

        As of August 31, 2003 we were in compliance with all of our debt agreement covenants.

Quarterly Results

        The table below sets forth our quarterly results for fiscal 2002 and 2003. We believe the following considerations are relevant to an analysis of our quarterly results:

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        The following table contains unaudited selected historical quarterly information, which includes adjustments, consisting only of normal recurring adjustments, except during the quarter ended November 30, 2001, we recorded a gain of $50.5 million, net of tax, on the forgiveness of indebtedness related to the financial restructuring of the company.

Fiscal Quarters Ended(1)
(In thousands, except per share data)

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk.

        We do not enter into any material futures, forwards, swaps, options or other derivative financial instruments for trading or other purposes. Our primary exposure to market risk is related to changes in interest rates and the effects those changes may have on our earnings as a result of our long-term financing arrangements. We manage our exposure to this market risk by monitoring interest rates and possible alternative means of financing. Our earnings are affected by changes in short-term interest rates under our revolving credit facility and certain term loans, pursuant to which our borrowings bear interest at a variable rate. Based upon the debt outstanding on certain term loans as of August 31, 2003, an increase of 1.0% in market interest rates would have increased interest expense and decreased earnings before income taxes by approximately $0.2 million. We currently have significantly less debt outstanding than we did at August 31, 2002, and as a result we would be less impacted by an increase in market interest rates. This analysis does not take into account any actions we might take in an effort to mitigate our exposure in the event interest rates were to change materially. See Note 10 of Notes to Consolidated Financial Statements.

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Item 8.  Financial Statements and Supplementary Data.

INDEPENDENT AUDITORS’ REPORT

To the Shareholders and Board
of Directors of Northland Cranberries, Inc.:

        We have audited the accompanying consolidated balance sheets of Northland Cranberries, Inc. and subsidiaries as of August 31, 2003 and 2002, and the related consolidated statements of operations, shareholders’ equity (deficiency in assets) and cash flows for each of the three years in the period ended August 31, 2003. Our audits also included the consolidated financial statement schedule listed at Item 15(a)(2). These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Northland Cranberries, Inc. and subsidiaries as of August 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

DELOITTE & TOUCHE LLP

/s/ DELOITTE & TOUCHE LLP

Milwaukee, Wisconsin
November 11, 2003

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NORTHLAND CRANBERRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2003 AND 2002

See notes to consolidated financial statements.

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NORTHLAND CRANBERRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2003 AND 2002

See notes to consolidated financial statements.

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NORTHLAND CRANBERRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 31, 2003, 2002 AND 2001

See notes to consolidated financial statements.

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NORTHLAND CRANBERRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 2003, 2002 AND 2001

See notes to consolidated financial statements.

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NORTHLAND CRANBERRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
YEARS ENDED AUGUST 31, 2003, 2002 AND 2001

See notes to consolidated financial statements.

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NORTHLAND CRANBERRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 2003, 2002, AND 2001

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