Fiscal Years 2003 and 2002 Consolidated Results pressures in the protein market, allowing the company to raise prices during the second half of the year as industry supplies returned to more normal levels. Also contributing to this trend was the company’s continued success in growing its value-added product lines, while lessening its percentage of commodity items.  Gross Profit: Gross profits were $295,353 and $1,013,153 for the fourth quarter and year, respectively, compared to $265,734 and $962,853 in fiscal 2002. As a percent of net sales, gross profit decreased to 25.2 and 24.1 percent for the fourth quarter and year, respectively, compared to 25.6 and 24.6 percent in  fiscal 2002. Overshadowing the successes in many of the com- pany’s branded products lines were the challenges relating to the oversupply of commodity turkey meat in the marketplace. The turkey market strengthened significantly in the fourth quarter of fis- cal 2003 after a very challenging first nine months; however, fourth quarter market conditions remained below those of 2002. Higher retiree medical costs also contributed to lower gross margins. The first half of fiscal 2003 provided many of the same challenges the company faced in fiscal 2002, of which the most significant was an oversupply of protein inventory in the marketplace. This market condition created significant pricing pressure on the com- pany’s turkey and pork businesses, impacting the Jennie-O Turkey Store and Refrigerated Foods segments, respectively. The over- supply subsided in the second half of fiscal 2003, greatly improv- ing margins within these segments. However, as protein supplies in the second half of fiscal 2003 decreased, pork and beef raw material costs significantly increased, resulting in lower than expected margins within the company’s Grocery Products’ portfo- lio. The company continuously adapts to these changing livestock supply conditions. In addition, the company is constantly adapting to changes in consumer preferences, primarily through enhance- ment of its value-added portfolio of products.  Selling and Delivery: Selling and delivery expenses for the fourth quarter and year were $144,083 and $583,964, respectively, compared to $133,352 and $558,354 in fiscal 2002. As a percent of net sales, selling and delivery expenses decreased to 12.3 and 13.9 percent for the quarter and year, respectively, compared to 12.8 and 14.3 percent in 2002. The increase in selling and deliv- ery expenses over the prior year is primarily due to fiscal 2003 acquisitions. Marketing expenses increased $2,809 and decreased $4,226 for the fourth quarter and year, respectively, compared  to fiscal 2002. The twelve month decrease in spending reflects adjustments the company made earlier in fiscal 2003 as Jennie-O Turkey Store and Refrigerated Foods dealt with the difficult protein markets. Impacting the percentages of selling and delivery expense, primarily in the fourth quarter, was a significant rebound in pork prices over the prior year, creating lower expenses as a percent of net sales.  Net Earnings: Net earnings for the fourth quarter of fiscal 2003 were $70,365, an increase of 3.5 percent compared to earnings of $67,970 for the same period in fiscal 2002. Diluted earnings per share were $.50 compared to $.49 for the same period in 2002. The fourth quarter of fiscal 2003 includes an expense of $.01 per share relating to the company’s adoption of the fair value method of recording stock option expense contained in SFAS No. 123. The company transitioned to fair value stock option accounting using the prospective method described in SFAS No. 148. All stock options granted in fiscal 2003 and thereafter, will be expensed over the vesting period of the options, generally four years, based on the fair value at the date the options are granted. Net earnings for the year decreased 1.9 percent to $185,779  from $189,322 in fiscal 2002. Diluted earnings per share for the same period decreased to $1.33 from $1.35 in 2002.  Sales: Net sales for the fourth quarter increased to $1,169,881 from $1,038,895 in 2002, an increase of 12.6 percent. Net sales for the twelve months in fiscal 2003 increased 7.4 percent to $4,200,328 compared to $3,910,314 in 2002. Net sales for the fourth quarter and twelve months of fiscal 2003 were impacted  by the Diamond Crystal Brands (DCB) and Century Foods International (CFI) acquisitions, which occurred in December 2002 and July 2003, respectively. Administrative and General: Administrative and general expenses were $35,182 and $124,665 for the fourth quarter and year, respectively, compared to $24,421 and $93,990 in fiscal 2002. As a percent of net sales, administrative and general expenses for the quarter and year were 3.0 percent compared  to 2.4 for the quarter and year in fiscal 2002. The increased expenses primarily resulted from higher pension costs of $3,200 and $12,800, bad debt expense of $811 and $5,052 relating to the Fleming Companies’ bankruptcy, and higher amortization of intangibles of $1,576 and $3,542, for the fourth quarter and year, respectively. Administrative and general expenses also increased in the fourth quarter and year due to $1,887 of stock option expense in the fourth quarter.  Research and development expenses for the fourth quarter and year increased to $3,460 and $13,165, respectively, from $3,021 and $12,097 in fiscal 2002. The fiscal 2003 acquisitions generated Tonnage volume for the fourth quarter increased 3.3 percent to 906,183 from 877,469 in fiscal 2002. Tonnage volume for the  year increased 2.6 percent to 3,400,265 from 3,313,010 in 2002. Tonnage volume for the fourth quarter and twelve months of fiscal 2003 were impacted by the DCB and CFl acquisitions. Increased volume resulting from the acquisitions of DCB and CFI more than offset the lost tonnage resulting from the discontinuance of hog processing at the company’s Rochelle, Illinois, facility. The percentage increase in sales dollars exceeded tonnage gains for the fourth quarter and year primarily as a result of easing pricing 2004 Annual Report 23