The J. M. Smucker Company Annual Report 2006

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FY2006 Annual Report · The J. M. Smucker Company

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Annual Report
2006

Financial Highlights

(cid:3)(cid:3)The J. M. Smucker Company

(Dollars in thousands, except per share data)

Net sales
Net income and net income per common share:

Net income
Net income per common share – assuming dilution

Income and income per common share from continuing operations:

Income
Income per common share – assuming dilution

Income and income per common share from continuing operations

before restructuring and merger and integration costs: (1)
Income
Income per common share – assuming dilution

Common shares outstanding at year end
Number of employees

(1) Reconciliation to income from continuing operations:

Income from continuing operations before income taxes
Merger and integration costs
Cost of products sold – restructuring
Other restructuring costs

Income from continuing operations before income taxes,

restructuring, and merger and integration costs

Income taxes

Income from continuing operations before restructuring

and merger and integration costs

Year Ended April 30,
2006

2005

$2,154,726

$2,043,877

$ 143,354
$ 2.45

$ 129,073
$ 2.24

$ 143,354
$ 2.45

$ 130,460
$ 2.26

$ 161,920
$ 2.77
56,949,044
3,500

$ 150,401
$ 2.60
58,540,386
3,700

$ 215,570
17,934
2,263
7,722

$ 204,614
17,954
2,466
10,854

$ 243,489
81,569

$ 235,888
85,487

$ 161,920

$ 150,401

(cid:2) Contents (cid:2)

Letter to Shareholders

Five-Year Summary of Selected Financial Data

Summary of Quarterly Results of Operations

Stock Price Data

Management’s Discussion and Analysis

Report of Management on Internal Control
Over Financial Reporting

Report of Independent Registered Public
Accounting Firm on Internal Control
Over Financial Reporting

Report of Independent Registered Public
Accounting Firm on the Consolidated
Financial Statements

Consolidated Financial Statements

Notes to Consolidated Financial Statements

Report of Management on Responsibility
for Financial Reporting

Directors, Officers, and General Managers

Properties

Corporate and Shareholder Information

Back Cover

Recipes

Back Cover

(cid:2) On Our Cover (cid:2)

California folk artist Jerry Winters creates joyful
and charming primitive Americana scenes. In this
work in acrylics, Mr. Winters celebrates the bounty
of field and orchard and the warm hospitality
found in small-town America.

Dear Shareholders and Friends:

(cid:3)

Fiscal 2006 was another record year for The J. M.

over 3,500 employees is an ongoing priority, as out-

Smucker Company, with all of our brands making

standing employees are essential to responding effec-

positive contributions. Compared to our previous

tively to today’s varied and fast-changing marketplace.

ﬁ scal year:
(cid:2) Net sales were up ﬁ ve percent, and operating

income was up four percent. (When compared to

ﬁ scal 2005, both ﬁ gures include an additional six

weeks of sales from the International Multifoods

brands.)

(cid:2) Excluding the divested U.S. Industrial business, net
sales were up seven percent compared to last year.
(cid:2) Income from continuing operations was up ten percent.
These record results conﬁ rm the validity of our

commitment to owning icon brands that hold leading

market positions in North America. Strategically, our

most signiﬁ cant achievement in recent years has been

transforming the Company from an essentially single-

branded organization to one with a broad portfolio

of brands that offer signiﬁ cant growth potential.

The J. M. Smucker Company has grown considerably

in the last four years — from $650 million in annual

sales in ﬁ scal 2002 to $2.2 billion in ﬁ scal 2006.

Ultimately, however, our goal remains what it was

when we were founded 109 years ago: to deliver

value to all of our constituents while maintaining

the highest ethical standards.

Delivering Satisfaction — And Smiles Of course, our
number-one constituent will always be our consumer,

and we place a great deal of emphasis on developing

products that satisfy diverse tastes and lifestyles. This

past year, we introduced over 50 new products under

more than a dozen brands. These additions contributed

signiﬁ cantly to our growth. All are aimed at offering

choices that are “good and good for you, easy for you,

and make you smile.”

Doing the Right Things and Doing Things Right The J. M.
Smucker Company’s history is built on a tradition of

One way that we are upholding our pledge to “doing

the right things and doing things right” is by focusing

on sustainability relative to the environment, growing

practices, and community support. Company-wide,

our recycling rates average 90 to 95 percent, and we

recently received Environmental Protection Agency

commendation for wastewater pretreatment quality.

We are leaders in producing organic foods, as exem-

pliﬁ ed by our R.W. Knudsen Family and

Santa Cruz Organic brands, and have

added more organic choices to our

fruit spreads and

peanut butter

categories.

Responsive and Responsible We are certain that we can
be responsible corporate citizens while delivering posi-

tive, long-term ﬁ nancial results to our shareholders.

In fact, our stock has delivered a compounded annual

return of more than ten percent since the Company

went public in 1959.

By addressing the interests of all our constituents —

ethically and with a spirit of growth — The J. M. Smucker

Company will continue to meet its ﬁ nancial goals.

We thank you, our shareholders, for your contin-

ued support and look forward to another great year

together. We remain committed to our belief that the

conducting business and maintaining relationships in

best is yet to come.

accordance with our Basic Beliefs — Quality, People,

Ethics, Growth, and Independence. As a result, our

Sincerely,

Company was ranked for the ninth consecutive year

among Fortune magazine’s “100 Best Companies

to Work For.” Training and developing our team of

Tim Smucker Richard Smucker

(cid:3)

(cid:4) U.S. Retail Segment (cid:4)

U.S. Retail, our largest business segment, continued

its momentum this year, with total sales up six percent.

Brands in this segment include Smucker’s, Jif, Crisco,

Pillsbury, Hungry Jack, and Martha White. With a

broad portfolio of brands — and products in categories

throughout the center of the store — we offer consumers

more choices than ever before for enhancing family meals.

Fruit Spreads & Peanut Butter To complement our

broad array of high-quality, long-time family favorites, we

expanded our fruit spreads and peanut butter choices,

further strengthening our leadership position in both

categories. We introduced

Smucker’s Organic straw-

berry preserves, Smucker’s

Organic red raspberry

preserves, Smucker’s

Organic grape jelly,

and Smucker’s Sugar Free preserves, sweetened with

Splenda®, in strawberry, apricot, and seedless blackberry

ﬂ avors. We now also offer organic alternatives within all

of our natural peanut butter brands: Smucker’s, Adams,

and Laura Scudder.

We responded to consumers’ ever-growing desire for

convenient alternatives with the introduction of Jif To Go,

which allows consumers on the move to enjoy the

nutritious beneﬁ ts and fresh

roasted peanut taste of Jif.

We continued to pursue

our long-term plan for broad-

ening the use of our products among

Hispanic consumers. In ﬁ scal 2006, we

extended Smucker’s and Jif marketing and advertising

efforts into select markets and introduced pineapple

and mango preserves.

(cid:3)2

(cid:4)
Rise & Shine
Family togetherness

begins with breakfast.

With our wide variety of items,

everyone can enjoy a healthy and

delicious start to the busy day ahead.

(cid:4)
Lunch Break
Preparing lunch

together is a powerful way

for parents and children to bond.

Our high-quality, wholesome products

are tasty, easy to prepare, and make you smile.

(cid:3)

Uncrustables Products Uncrustables products continue

to thrive at retail, with net sales this past year up

29 percent. Two new varieties — peanut butter only

and peanut butter & honey spread on wheat bread —

offer consumers even more ways to enjoy one of life’s

simple pleasures. Demand for Uncrustables products

is strong, and we

remain optimistic

about the brand’s

potential.

Ice Cream Toppings Our ice cream toppings satisfy

a diverse array of consumer needs and tastes. This

past year, we broadened our offerings with the addi-

tion of caramel to our Sugar Free line, which provides

new, guilt-free ways to add sweet indulgences to

everyday and special occasions.

Potatoes, Pancakes and Syrup We built on the strength

of the Hungry Jack line this past year by focusing on

the basics necessary to grow the brand. Strategies

included developing a more relevant brand position,

expanding product distribution, improving product

formulations, and updating packaging. Most signiﬁ -

cant was our introduction of the standup, resealable

Hungry Jack pancake mix package, one of the ﬁ rst

packaging innovations the category has seen in a

number of years. We plan to further

expand the Hungry

Jack brand in the

year ahead

with additions

to the side dish

and breakfast

categories.

5(cid:3)

(cid:3)

Oils and Baking Momentum continues in the baking

aisle. Sales for the business were up ﬁ ve percent, and

we made several signiﬁ cant product introductions.

We also focused on strengthening the foundation

of the baking business by securing new distribution

and refreshing our packaging. Putting these basics in

place demonstrates our long-term commitment to the

Pillsbury and Martha White brands and positions us

well for growth.

Consumers continually anticipate new products

to enhance the ease and satisfaction of home baking.

We responded with several new Pillsbury Ultimate

Dessert Kits and Whipped frosting ﬂ avors.

We believe that innovation is a key driver of success

in the oils category. For example, consumers continue

to welcome the Crisco 64-ounce Simple Measures bottle,

introduced last year. The Simple Measures bottle

features a cap that functions as a built-in measuring

cup. When the cap is replaced, unused oil drains

neatly back into the bottle.

In addition, we have successfully entered the fast-

growing olive oil segment. Our introduction and test-

ing of Crisco olive oil this past year was encouraging,

and we expect to offer olive oil products to

consumers within the

nation’s Southeast in

the year ahead.

Another strength

is the growth and

proﬁ tability of

the sprays

segment,

which contin-

ues to exceed our expectations. We will build on our

success in the oils category by further growing market

share and leading the category with innovation.(cid:3)

(cid:4)
Family Time
Dinner time is family

time — a chance to share

the day’s events and strengthen

relationships. Our icon brands have been

bringing families together for generations.

(cid:3)

Expanding consumer choices was also an emphasis

(cid:4) Special Markets Segment (cid:4)

Our Special Markets segment includes our Canadian,

Foodservice, Beverage, and International businesses.

Sales for this segment were up ﬁ ve percent in ﬁ scal 2006,

accounting for over 30 percent of total Company sales.

Canada Our Canadian business realized much suc-
cess this past year by reconnecting consumers with

well-known brands that have been part of Canadian

family meals for generations. Through television

advertising — the ﬁ rst of such campaigns in several

years — we brought increased attention

to Robin Hood ﬂ our and

Bick’s pickles and condi-

ments, two brands that

lead their respective

categories. A series

of fall and holiday

Robin Hood advertisements

reminded consumers that baking together yields

warm and lasting family memories. Also, a successful

Baking Is Back holiday campaign promoted many

of our brands together for the ﬁ rst time.

In the Canadian fruit spreads category, Smucker’s

continued to grow market share in ﬁ scal 2006, further

strengthening its category leadership position.

in our Foodservice business this past year with the

addition of ﬂ avors in our Sugar Free Smucker’s por-

tion control line and the introduction of Sugar Free

PlateScapers topping for plate decorating.

Smucker Quality Beverage Our R.W. Knudsen Family

and Santa Cruz Organic products enjoyed tremen-

dous success this past year with overall sales for

the division up 13 percent. Core business as well as

new products drove growth in both the natural and

mainstream channels, reﬂ ecting consumers’ interest

in health and nutrition across multiple channels. In

part, growth was driven by the introduction of new

organic juices, such as blueberry-cranberry and blue-

berry-pomegranate, that are enjoyed for their inher-

ent goodness. Our Santa Cruz Organic brand now

includes peanut butter in crunchy

and creamy varieties. Fresh

packaging is evident in

R.W. Knudsen Family

Spritzers, which are

now offered in newly

designed glass bottles.

International Fiscal 2006 was another year of strong
growth for our International business, which was up

Foodservice Momentum in our Foodservice business
continues to be fueled by Uncrustables peanut butter

49 percent from last year, primarily due to the addi-

tion of new business from the International Multifoods

and jelly sandwiches and Uncrustables cheese sand-

acquisition. Also, because of an internal accounting

wiches. Demand for Uncrustables products remains

change, International now includes business that

strong in schools, with ﬁ scal year 2006 sales up

previously had been reported as part of our Canadian

22 percent. Growth of our overall Foodservice business

business sector. Our businesses in Latin America and

was up seven percent.

Mexico continue to grow sales, proﬁ ts, and market

In addition to Uncrustables, overall growth is at-

share. Successes are being realized across the entire

tributable to our expanding partnerships with restau-

business, with total export sales up more than 90 per-

rants, hotels, health care facilities, and similar venues.

cent compared to a year ago.

(cid:3)

Recipes for the dishes shown on the previous pages can be found on the inside back cover.

Five-Year Summary of Selected Financial Data(cid:2)

The following table presents selected financial data for each of the five years in the period ended April 30, 2006. The
selected financial data was derived from the consolidated financial statements and should be read in conjunction with
“Management’s Discussion and Analysis of Results of Operations and Liquidity and Capital Resources” and the con-
solidated financial statements and notes thereto.

(Dollars in thousands, except per share data)

2006

Year Ended April 30,
2004

2005

2003

2002

Statements of Income:

Net sales

$2,154,726 $2,043,877 $1,369,556 $1,270,098

$649,997

Income from continuing operations

$ 143,354 $ 130,460 $ 111,298 $ 94,212

$ 29,324

Discontinued operations

—

(1,387)

2,130

1,527

Net income

$ 143,354 $ 129,073 $ 111,350 $ 96,342 $ 30,851

Financial Position:

Total assets

Long-term debt

Shareholders’ equity

Other Data:

Capital expenditures

Weighted-average shares

$2,649,744 $2,635,894 $1,684,125 $1,615,407

$524,892

428,602

431,560

135,000

1,728,059

1,690,800

1,210,693

1,124,171

135,000

280,144

$ 63,172 $ 87,576 $ 97,721 $ 48,083

$ 22,085

57,863,270 57,086,734 49,816,926 47,309,257 23,114,494

Weighted-average shares – assuming dilution

58,425,361 57,748,780 50,395,747 47,764,777 23,493,365

Earnings per common share:

Income from continuing operations

$ 2.48 $ 2.29 $ 2.23 $ 1.99

$ 1.27

Discontinued operations

—

(0.03)

0.01

0.05

0.06

Net income

$ 2.48 $ 2.26 $ 2.24 $ 2.04

$ 1.33

Income from continuing operations –

assuming dilution

$ 2.45 $ 2.26 $ 2.21 $ 1.97

$ 1.25

Discontinued operations – assuming dilution

—

(0.02)

—

0.05

0.06

Net income – assuming dilution

$ 2.45 $ 2.24 $ 2.21 $ 2.02

$ 1.31

Dividends declared per common share

$ 1.09 $ 1.02 $ 0.94 $ 0.83

$ 0.68

Summary of Quarterly Results of Operations

(cid:2)

The following is a summary of unaudited quarterly results of operations for the years ended April 30, 2006 and 2005.

(Dollars in thousands, except per share data)

Quarter Ended

Net Sales

Gross Profit

Income from
Continuing
Operations

Net
Income

Earnings per
Common Share

Income from
Continuing
Operations

Net
Income

Earnings per
Common Share –
Assuming Dilution

Income from
Continuing
Operations

Net
Income

2006

July 31, 2005 $510,331

$164,713

$29,897

$0.51

October 31, 2005

606,264

203,423

January 31, 2006

536,453

163,854

April 30, 2006

501,678

160,862

46,444

31,312

35,701

46,444

31,312

35,701

0.80

0.54

0.63

0.80

0.54

0.63

0.79

0.54

0.62

0.79

0.54

0.62

2005

July 31, 2004 $413,267 $144,188

$27,487

$32,848

$0.51

$0.61

$0.50

$0.60

October 31, 2004

588,922

188,881

January 31, 2005

550,234

174,198

40,663

35,524

April 30, 2005

491,454

150,149

26,786

38,005

36,108

22,112

0.70

0.61

0.46

0.65

0.62

0.38

0.69

0.60

0.45

0.65

0.61

0.38

Annual earnings per share may not equal the sum of the individual quarters due to differences in the average number
of shares outstanding during the respective periods.

Stock Price Data

(cid:2)

The Company’s common shares are listed on the New York Stock Exchange — ticker symbol SJM. The table below
presents the high and low market prices for the shares and the quarterly dividends declared. There were approxi-
mately 304,800 shareholders as of the June 19, 2006 record date, of which 85,878 were registered holders of common
shares.

Quarter Ended

July 31, 2005

October 31, 2005

January 31, 2006

April 30, 2006

July 31, 2004

October 31, 2004

January 31, 2005

April 30, 2005

High

$51.04

49.41

46.84

44.26

$53.12

47.00

47.63

51.65

Low

$45.94

44.56

43.33

37.15

$40.80

41.85

43.44

46.31

Dividends

$0.27

0.27

0.28

$0.25

0.25

0.27

2006

2005

Management’s Discussion and Analysis(cid:2)

(cid:3) Executive Summary (cid:3)

The J. M. Smucker Company (the “Company”), head-
quartered in Orrville, Ohio, is the leading manufacturer
of fruit spreads and peanut butter in North America. It is
also a leading producer of dessert toppings, shortening
and oils, and health and natural foods beverages under
such icon brands as Smucker’s, Jif, and Crisco.

The Company’s strategy is to own and market leading
icon food brands found in the center of the store and sold
throughout North America. In support of this strategy,
the Company continues to add to its portfolio of brands.
In addition to the Smucker's, Jif, and Crisco brands, the
Company’s portfolio includes the following brands in the
U.S.: Pillsbury flour, baking mixes, and ready-to-spread
frostings; Hungry Jack pancake mixes, syrup, and potato
side dishes; and Martha White baking mixes and ingre-
dients; in Canada: Robin Hood flour and baking mixes;
Bick’s pickles and condiments; and Golden Temple atta
flour and rice. In addition to these leading brands, the
Company markets products under numerous other
brands, including Dickinson’s, Laura Scudder’s, Adams,
Double Fruit (Canada), R. W. Knudsen Family, and Santa
Cruz Organic. The Company is widely known and trusted
for quality food products.

The Company distributes its products through grocery
and other retail outlets, foodservice establishments,
schools, specialty and gourmet shops, health and natural
foods stores, and consumer direct vehicles such as the
Internet and a showcase store in Orrville, Ohio, and mar-
kets a wide variety of other specialty products through-
out North America and in many foreign countries.

Since the 1998 inception of Fortune magazine’s annual
survey of the “100 Best Companies to Work For,” the
Company has consistently been recognized as one of the
top 25 companies to work for in the United States. The
Company has approximately 3,500 employees worldwide
and distributes products in more than 45 countries.

(cid:3) Results of Operations (cid:3)

In 2005, the Company completed its acquisition of
International Multifoods Corporation (“Multifoods”) in a
tax-free stock and cash transaction valued at approxi-
mately $871 million. The results of Multifoods’ opera-
tions are included in the Company’s consolidated
financial statements from the date of the acquisition.

Since the acquisition of Multifoods closed midway
through the first quarter of 2005, an additional six weeks
of results are included in 2006.

Also during 2005, in support of the Company’s stated
strategy, the Company sold its Australian subsidiary,
Henry Jones Foods; its Brazilian subsidiary, Smucker do
Brasil, Ltda.; and the U.S. foodservice and bakery prod-
ucts businesses, including the Canadian foodservice
locations operated under the Gourmet Baker name,
which were acquired as part of Multifoods.

The Australian subsidiary, the Brazilian subsidiary, and
the Multifoods U.S. foodservice and bakery products
businesses are considered to be discontinued operations
and are excluded from the discussions below. Although
not considered to be a discontinued operation, the
Company also sold its U.S. industrial ingredient business
in 2005.

— Net Sales —

Year Ended April 30,
2005

2006

2004

(Dollars in thousands)

Net sales:

U.S. retail market

$1,484,873 $1,405,191 $1,002,306

Special markets

669,853

638,686

367,250

Total net sales

$2,154,726 $2,043,877 $1,369,556

Sales in 2006 increased $110.8 million, or five percent,
over 2005. Excluding the additional Multifoods sales and
the divested U.S. industrial business, sales increased
three percent. In addition to growth in several business
areas, other factors impacting sales in 2006 were a six
percent price decrease on Crisco products in effect for
the entire year, favorable foreign exchange rates, and
selective price increases on fruit spreads and peanut
butter items.

In the U.S. retail market segment, sales were $1,484.9
million in 2006, up $79.7 million, or approximately six
percent, over 2005. Sales in the consumer business area
were up six percent for the year, led by sales of Smucker’s
and Jif. In addition, sales of Uncrustables products in-
creased 29 percent in 2006 as the Company continued the
momentum experienced in 2005. Sales in the consumer
oils and baking business area were up five percent over
last year due primarily to the additional Multifoods sales.
The additional Multifoods sales accounted for almost half
of the year-over-year growth in the segment.

The special markets segment is comprised of the food-
service, beverage, Canada, and international business
areas. Sales in this segment were $669.9 million in 2006
compared to $638.7 million in 2005, an increase of five
percent. The overall sales increase reflects the segment’s
additional Multifoods sales in Canada and the interna-
tional business area and growth in the foodservice and
beverage areas, which were offset by the divestiture of
the industrial business.

In the foodservice area, 2006 sales were up seven per-
cent from 2005 due to a two percent growth in tradi-
tional portion control items, primarily under the
Smucker’s brand, and increased sales in the schools
market, where Uncrustables products increased 22 per-
cent in 2006.

Beverage area sales were up 13 percent in 2006. Sales of
R. W. Knudsen Family and Santa Cruz Organic products
were up 18 and 28 percent, respectively, for 2006, offset
somewhat by nonbranded sales, which were down five
percent in 2006.

In the international area, sales were up 49 percent in
2006 from 2005. Much of the increase was attributed to
a realignment of the export business, acquired as part of
the Multifoods acquisition, as sales to export customers
were previously included as part of the Canadian busi-
ness. Sales in Scotland were down four percent.

Although negatively impacted by planned rationalization
of certain unprofitable businesses and the realignment of
the export business, the Canada business was favorably
impacted by foreign exchange rates.

Sales in 2005 increased $674.3 million, or 49 percent,
from 2004. The acquired Multifoods businesses con-
tributed $626.2 million of the total increase. Excluding
the contribution of the Multifoods brands, sales were up
nearly four percent. Other factors favorably impacting
sales in 2005 were foreign exchange rates and the pric-
ing environment in the shortening and oils business.

In the U.S. retail market segment, sales were $1,405.2
million in 2005, up $402.9 million, or approximately 40
percent, from 2004. The Multifoods contribution for
2005 was $356.2 million. The Company’s sales of
Smucker’s, Jif, and Crisco contributed approximately ten
percent of the total sales increase for the segment. In

addition, sales of Uncrustables products increased 37 per-
cent in 2005 as the Company continued to build on the
success experienced in 2004.

Sales in the special markets segment were $638.7 mil-
lion in 2005 compared to $367.3 million in 2004, an
increase of 74 percent. The overall sales increase
reflects the segment’s addition of sales in Canada and the
growth in the foodservice and beverage areas, which
were offset by the divestiture of the industrial business.
The Multifoods contribution for 2005 was $270.1 million.
Excluding the contribution from Multifoods and the
industrial business, the special markets segment was up
five percent in 2005.

In the foodservice area, 2005 sales were up five percent
from 2004 due to a seven percent growth in traditional
portion control items, primarily under the Smucker’s
brand, and increased sales in the schools market. Sales
of Uncrustables products increased six percent in 2005
in the schools market despite capacity constraints that
were experienced during the first half of the year.

Beverage area sales were up six percent in 2005. Sales
of R. W. Knudsen Family and Santa Cruz Organic prod-
ucts were up nine and five percent, respectively, for
2005, while sales of After The Fall continued to decline,
as a result of the strategic decision to regionalize this
brand. Nonbranded sales for the business area were up
six percent in 2005.

In the international area, sales were up one percent in
2005 from 2004. Sales in Mexico and Latin America
experienced strong growth in 2005 with the entire geo-
graphic region up over 26 percent from 2004. The South
Asia export market was also strong for the year with
sales up ten percent. Sales in Scotland and other export
markets were down eight percent and 35 percent,
respectively, from 2004 primarily due to the restructur-
ing program in Europe and the United Kingdom in the
first quarter of the year.

Finally, sales in the Company’s industrial business were
down 22 percent for 2005. Approximately 70 percent of
this decline, or $10.5 million in sales, was the result of
planned decreases associated with the strategic decision
to exit certain low-margin contracts. The remaining
shortfall was caused by the sale of the ingredients busi-
ness in 2005.

— Operating Income —

The following table presents components of operating
income as a percentage of net sales.

Year Ended April 30,
2005

2006

2004

32.2%

35.2%

2.6%
7.4
3.6
6.7

2.4%
7.7
2.9
7.0

3.9%
7.8
2.0
8.0

Gross profit
Selling, distribution, and

administrative:
Advertising
Marketing and selling
Distribution
General and administrative

Total selling, distribution,

and administrative

20.3%

20.0%

21.7%

Restructuring and merger

and integration

1.3%

1.4%

0.6%

Operating income

10.6%

10.8%

12.9%

Operating income increased $8.0 million in 2006, or four
percent, over 2005 while operating margin decreased
from 10.8 percent to 10.6 percent primarily due to an
increase in distribution costs throughout this year.
Included in 2006 operating income was approximately
$27.9 million of restructuring and merger and integra-
tion related costs, while 2005 included $31.3 million of
similar charges. Positive contributors to operating
income in 2006 included the overall growth of the higher
margin U.S. retail market segment, including gains in the
Smucker’s and Jif brands. The Company’s gross margin
remained unchanged at 32.2 percent in 2006, despite
higher commodity costs associated with packaging and
freight, as these higher costs were offset by a favorable
adjustment of approximately $6.7 million to net sales
reflecting a change in estimate of the expected liability
for trade merchandising programs offered to customers
during 2005, improved profitability of Uncrustables
products, and favorable pricing on other raw materials.

Selling, distribution, and administrative (“SD&A”)
expenses increased eight percent during 2006. As a per-
cent of net sales, SD&A increased from 20.0 percent to
20.3 percent, primarily due to increased expenses
related to a new distribution network implemented
during the year. The Company increased its marketing
expense by eight percent during 2006 in support of its
major retail brands, as well as the continued retail roll-
out of Uncrustables products. Also contributing to the
increase in SD&A were amortization costs associated
with the Company’s expanded restricted stock program,
which replaced its stock option program.

On April 12, 2006, the Executive Compensation
Committee of the Board of Directors of the Company
approved accelerating the vesting of stock options previ-
ously awarded to employees under its equity-based com-
pensation plans, effective immediately. The Company
fully vested previously issued stock options with exercise
prices in excess of $39.31, the closing price of the
Company’s common shares on the New York Stock
Exchange on April 11, 2006.

As a result of the accelerated vesting, approximately
441,000 stock options with exercise prices of either
$43.38 or $44.17 became immediately exercisable.
Approximately 110,000 and 331,000 of these stock
options would originally have vested in October 2006
and October 2007, respectively. Stock options issued to
employees typically vested at a rate of one-third per year,
beginning one year after the date of grant. Stock options
were last granted to employees in October 2004. In June
2005, the Company replaced issuing stock options to
employees in favor of issuing performance-based
restricted stock or performance-based restricted stock
units.

The purpose of the accelerated vesting was to minimize
future noncash stock compensation expense that the
Company would otherwise recognize in its results of
operations with the adoption of Statement of Financial
Accounting Standards No. 123 (revised), Share-Based
Payments (“SFAS 123R”). This requirement becomes
effective for the Company on May 1, 2006, the beginning
of fiscal year 2007. By accelerating the vesting of these
stock options, the Company will not incur pretax com-
pensation expense of approximately $2.7 million and
$1.0 million in fiscal years 2007 and 2008, respectively,
that otherwise would have been required upon adoption
of SFAS 123R related to these stock options. This action
had no impact on 2006 results of operations.

Operating income increased $43.8 million for 2005, or
25 percent, over 2004 while operating margin decreased
from 12.9 percent to 10.8 percent, due to the inclusion of
the lower margin Multifoods brands. Included in 2005
operating income was approximately $31.3 million of
restructuring and merger and integration related costs,
while 2004 included $17.1 million of similar charges.
Positive contributors to operating income in 2005
included the overall growth of the higher margin U.S.
retail market segment, including gains in the Smucker’s,
Jif, and Crisco brands. The Company’s gross margin was
32.2 percent in 2005 versus 35.2 percent in 2004. The
addition of the lower-margin Multifoods brands was a

primary contributor to this difference, along with higher
raw material costs and costs associated with the start up
of the Scottsville, Kentucky, facility.

SD&A expenses increased 37 percent during 2005, but
decreased as a percent of net sales to 20.0 percent from
21.7 percent. The Company increased its marketing
expense by 20 percent during 2005 in support of the
Smucker’s and Jif brands, the continued retail rollout of
Uncrustables products, as well as support of the newly
acquired Multifoods brands. In addition, the Company
incurred certain costs related to the maintenance of
Multifoods’ Minnetonka, Minnesota, facility that was
closed in June 2005. Other factors contributing to the
total expense increase in SD&A were increased expenses
to support the acquired business and increased costs
associated with regulatory requirements. This increase
in costs was more than offset by the overall increase in
sales due to the acquisition.

— Interest Income and Expense —

Interest expense increased $1.5 million in 2006 as the
Company realized a full year of expense on the additional
debt associated with the acquisition of Multifoods. This
increase in interest expense was offset somewhat by a
decrease in the Company’s short-term notes payable bal-
ance and the payoff of $17 million in long-term debt in
September 2005. Interest income increased by $1.9 mil-
lion in 2006 due to increases in the average investment
balances, higher interest rates throughout the year, and
interest earned on promissory notes.

Interest expense increased $16.3 million in 2005 due to
an increase in the Company’s debt outstanding associ-
ated with the Multifoods acquisition. Interest income
increased by $1.9 million in 2005 due to an increase in
the average investment yield and interest earned on
promissory notes received in conjunction with divesti-
tures during the year.

— Other Income and Expense —

In 2006, other income (net) was $4.2 million, which
included a gain of $5.6 million recognized on the sale of
the Salinas, California, facility during the third quarter
offset by other expenses, primarily associated with the
write-off of certain manufacturing assets no longer in use.

In 2004, other income (net) was $3.6 million, which
included a $2.1 million gain recognized on the sale of the
Watsonville, California, facility.

— Income Taxes —

Income taxes in 2006 were $72.2 million, down $1.9 mil-
lion, or three percent, from 2005. The decrease is due
primarily to a decrease in the consolidated effective tax
rate to 33.5 percent, compared to 36.2 percent in 2005
as pretax earnings increased $11.0 million, or five per-
cent, over 2005. The lower rate results from the
Company’s realignment of its legal entity structure to
better match the operations of the business and the flow
of goods, coupled with recent state tax law and rate
changes. This realignment was necessitated by changes
made to the Company’s manufacturing and distribution
networks resulting from its supply chain optimization
project and the acquisition of Multifoods.

Income taxes in 2005 were $74.2 million, up $8.3 mil-
lion, or 13 percent, from 2004. The increase is due pri-
marily to an increase in pretax earnings of $27.4 million,
or 15 percent. The consolidated effective income tax rate
in 2005 was 36.2 percent, compared to 37.2 percent in
2004. The reduction in the effective tax rate was due pri-
marily to benefits realized from the addition of the
Multifoods organization.

— Restructuring —

During 2003, the Company announced plans to restruc-
ture certain operations as part of its ongoing efforts to
refine its portfolio, optimize its production capacity,
improve productivity and operating efficiencies, and
improve the Company’s overall cost base as well as ser-
vice levels in support of its long-term strategy. At the end
of 2006, these restructurings were proceeding as
planned.

During 2006, the Company effectively completed the
realignment of its distribution warehouses and sold the
Salinas facility after production was relocated to plants
in Orrville, Ohio, and Memphis, Tennessee.

In conjunction with the restructurings, the Company has
recorded a total charge of $41.7 million to date, includ-
ing $10.0 million in 2006, $13.3 million in 2005, and
$15.8 million in 2004. The majority of these charges
related to employee separation costs, accelerated depre-
ciation on machinery and equipment, equipment reloca-
tion expenses, and the disposition of inventories.

(cid:3) Liquidity and Capital Resources (cid:3)

— Investing Activities —

Year Ended April 30,

2006

(Revised)
2005

(Revised)
2004

$198,281 $149,764 $136,589

(Dollars in thousands)

Net cash provided by
operating activities

Net cash used for

investing activities

15,847

120,817

162,539

Net cash used for

financing activities

169,129

72,280

40,037

The Company’s principal source of funds is cash gener-
ated from operations, supplemented by borrowings
against the Company’s revolving credit instrument. Total
cash and investments at April 30, 2006, were $120.9 mil-
lion compared to $134.9 million at April 30, 2005.

— Operating Activities —

The Company’s working capital requirements are great-
est during the first half of its fiscal year, primarily due to
the need to build inventory levels in advance of the “fall
bake” season, the seasonal procurement of fruit, and the
purchase of raw materials used in the Company’s pickle
and condiment business in Canada.

Cash provided by operating activities was approximately
$198.3 million during 2006, an increase of $48.5 million,
or 32 percent, over 2005. The increased cash generated
resulted from the increase in net income adjusted for
noncash charges of depreciation and amortization, par-
tially offset by increases in working capital require-
ments. The increase in working capital consisted
primarily of payments of accounts payable and accrued
items including contributions to its qualified and non-
qualified retirement benefit plans totaling approximately
$26.4 million, funded restructuring and merger and
acquisition related costs of approximately $27.2 million,
and higher inventory balances required to support the
Company’s new distribution network. As a result, work-
ing capital, excluding cash and short-term investments,
as a percent of net sales increased from 8.4 percent for
the year ended April 30, 2005, to 11.6 percent for the
year ended April 30, 2006.

Net cash used for investing activities totaled approximately
$15.8 million as capital expenditures were partially offset
by sales and maturities of available-for-sale marketable
securities and proceeds from the sale of the Salinas facility.
Capital expenditures were approximately $63.2 million
during 2006 compared to $87.6 million in 2005. Costs
associated with the Company’s Scottsville plant were
included as a large part of 2005 capital expenditures.

— Financing Activities —

Cash used for financing activities during 2006 consisted
primarily of $62.7 million in dividend payments and
$81.7 million to finance stock repurchases, including
1,892,100 common shares repurchased on the open
market under a buyback program authorized by the
Company’s Board of Directors. One million of the
common shares were repurchased as part of the
Company’s Rule 10b5-1 trading plan with a broker. In
April 2006, the Board of Directors authorized an
increase to the Company’s share repurchase plan,
adding another two million shares, bringing the total
shares authorized for repurchase since August 2004 to
five million common shares. At April 30, 2006, the
Company had repurchased a total of 2,260,778 common
shares under the authorizations leaving 2,739,222
common shares authorized for repurchase.

Cash requirements for 2007 will include capital expendi-
tures estimated to range from $65 to $75 million. In
addition, dividends are expected to approximate $64
million and interest payments on long-term debt to
approximate $27 million for the year. Finally, contribu-
tions to the Company’s qualified and nonqualified retire-
ment benefit plans are estimated at $13 million.

Assuming there are no other material acquisitions or
other significant investments, the Company believes that
cash on hand and marketable securities, combined with
cash provided by operations, and borrowings available
under the revolving credit facility, will be sufficient to
meet 2007 cash requirements, including capital expendi-
tures, the payment of dividends, repurchase of common
shares, and interest on debt outstanding.

(cid:3) Off-Balance Sheet Arrangements and (cid:3)
Contractual Obligations

(Dollars in millions)

Long-term

One to
Less Than
One Year Three Years Five Years

Three to More Than
Five Years

Total

The Company does not have off-balance sheet arrange-
ments, financings, or other relationships with unconsoli-
dated entities or other persons, also known as “variable
interest entities.” Transactions with related parties are in
the ordinary course of business, are conducted at an
arm’s length basis, and are not material to the Company’s
results of operations, financial condition, or cash flows.

In conjunction with the acquisition of Multifoods, the
Company has assumed certain guarantees that resulted
from the sale by Multifoods, in September 2002, of its
foodservice distribution business
to Wellspring
Distribution Corporation (“Wellspring”). These guaran-
tees relate to certain real estate and tractor-trailer fleet
lease obligations of the business. The guarantee requires
the lessor to pursue collection and other remedies
against Wellspring before demanding payment from the
Company. In addition, the Company’s obligation related
to the tractor-trailer fleet lease is limited to 75 percent of
the amount outstanding after the lessor has exhausted
its remedies against Wellspring. The fleet guarantee will
expire in September 2006, and the real estate guaran-
tees will expire in September 2010. At April 30, 2006,
the Company’s outstanding guarantees for the lease obli-
gations of Wellspring were $9.2 million related to the
tractor-trailer fleet lease and $8.6 million related to the
real estate lease.

The possibility that the Company would be required to
honor the contingent liabilities under the guarantee is
largely dependent upon the future operations of
Wellspring and the value of the underlying leased prop-
erties. The Company currently has no liability recorded
related to the guarantee. Should a reserve be required in
the future, it would be recorded at the time the obliga-
tion was considered to be probable and estimable.

The following table summarizes the Company’s contrac-
tual obligations at April 30, 2006.

debt obligations $ 428.6 $ — $ 33.0 $295.6 $100.0

Operating lease

obligations

Purchase

11.0

1.9

3.0

2.3

3.8

obligations

531.4

341.6

184.0

5.8

—

Other long-term

liabilities

257.6

—

— 257.6

Total

$1,228.6 $343.5 $220.0 $303.7 $361.4

Purchase obligations in the above table include agree-
ments to purchase goods or services that are enforceable
and legally binding on the Company. Included in this cat-
egory are certain obligations related to normal, ongoing
purchase obligations in which the Company has guaran-
teed payment to ensure availability of raw materials and
packaging supplies. The Company expects to receive
consideration for these purchase obligations in the form
of materials. The purchase obligations in the above table
do not represent the entire anticipated purchases in the
future, but represent only those items for which the
Company is contractually obligated.

(cid:3) Critical Accounting Estimates and Policies (cid:3)

The preparation of financial statements in conformity
with accounting principles generally accepted in the
United States requires management to make estimates
and assumptions that in certain circumstances affect
amounts reported in the accompanying consolidated
financial statements. In preparing these financial state-
ments, management has made its best estimates and
judgments of certain amounts included in the financial
statements, giving due consideration to materiality. The
Company does not believe there is a great likelihood that
materially different amounts would be reported under
different conditions or using different assumptions
related to the accounting policies described below.
However, application of these accounting policies
involves the exercise of judgment and use of assumptions
as to future uncertainties and, as a result, actual results
could differ from these estimates.
Revenue Recognition. The Company recognizes revenue when
all of the following criteria have been met: a valid cus-
tomer order with a determinable price has been
received; the product has been shipped and title has
transferred to the customer; there is no further signifi-

cant obligation to assist in the resale of the product; and
collectibility is reasonably assured. A provision for esti-
mated returns and allowances is recorded as a reduction
of sales at the time revenue is recognized.
Promotional Expenditures. In order to support the Company's
products, various promotional activities are conducted
through the retail trade, distributors, or directly with
consumers, including in-store display and product place-
ment programs, feature price discounts, coupons, and
other similar activities. The Company regularly reviews
and revises, when it deems necessary, estimates of costs
to the Company for these promotional programs based
on estimates of what will be redeemed by the retail
trade, distributors, or consumers. These estimates are
made using various techniques including historical data
on performance of similar promotional programs.
Differences between estimated expense and actual per-
formance are generally not material and are recognized
as a change in management’s estimate in a subsequent
period. However, as the Company’s total promotional
expenditures, including amounts classified as a reduc-
tion of net sales, represent approximately 25 percent of
2006 net sales, the likelihood exists of materially differ-
ent reported results if factors such as the level and suc-
cess of the promotional programs or other conditions
differ from expectations.
Income Taxes. The future tax benefit arising from the net
deductible temporary differences and tax carryforwards
is approximately $78.7 million and $113.5 million, at
April 30, 2006 and 2005, respectively. Management
believes that the Company’s earnings during the periods
when the temporary differences become deductible will
be sufficient to realize the related future income tax ben-
efits. For those jurisdictions where the expiration date of
tax carryforwards or the projected operating results of
the Company indicate that realization is not likely, a val-
uation reserve has been provided.

In assessing the need for a valuation allowance, the
Company estimates future taxable income, considering
the viability of ongoing tax planning strategies and the
probable recognition of future tax deductions and loss
carryforwards. Valuation allowances related to deferred
tax assets can be affected by changes in tax laws, statu-
tory tax rates, and projected future taxable income
levels. Changes in estimated realization of deferred tax
assets would result in either an adjustment to goodwill,
if the change relates to tax benefits associated with a
business combination, or an adjustment to income, in the
period in which that determination is made.

In the ordinary course of business, the Company is
exposed to uncertainties related to tax filings and peri-
odically assesses the liabilities and contingencies for all
tax years under audit based upon the latest information
available. In the event the Company believes a claim will
be asserted, an estimate of the tax liability, including
applicable interest charges, has been recorded.
Long-Lived Assets. Historically, long-lived assets have been
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the
asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the
carrying amount of the assets to future net cash flows
estimated to be generated by such assets. If such assets
are considered to be impaired, the impairment to be rec-
ognized is the amount by which the carrying amount of
the assets exceeds the fair value of the assets. However,
determining fair value is subject to estimates of both
cash flows and interest rates and different estimates
could yield different results. There are no events or
changes in circumstances of which management is
aware indicating that the carrying value of the
Company’s long-lived assets may not be recoverable.
Goodwill and Indefinite-Lived Intangible Assets. The annual evalu-
ation of goodwill and indefinite-lived intangible assets
requires the use of estimates about future operating
results for each reporting unit to determine estimated
fair value. Changes in forecasted operations can materi-
ally affect these estimates. Additionally, other changes in
the estimates and assumptions, including the discount
rate and expected long-term growth rate, which drive
the valuation techniques employed to estimate the fair
value of the reporting unit could change and, therefore,
impact the assessments of impairment in the future.
Pension and Other Postretirement Benefit Plans. To determine the
Company’s ultimate obligation under its defined benefit
pension plans and other postretirement benefit plans,
management must estimate the future cost of benefits
and attribute that cost to the time period during which
each covered employee works. Various actuarial assump-
tions must be made in order to predict and measure costs
and obligations many years prior to the settlement date,
the most significant being the interest rates used to dis-
count the obligations of the plans, the long-term rates of
return on the plans’ assets, and the health care cost trend
rates. Management, along with third-party actuaries and
investment managers, reviews all of these assumptions
on an ongoing basis to ensure that the most reasonable
information available is being considered. For 2007

expense recognition, the Company will use a discount
rate of 6.3 percent and 5.5 percent, an expected rate of
return on plan assets of 8.25 percent and 8.0 percent, and
a rate of compensation increase of 4.5 percent and 4.0
percent, for U.S. and Canadian plans, respectively.
Recovery of Trade Receivables. In the normal course of busi-
ness, the Company extends credit to customers that sat-
isfy predefined criteria. The Company evaluates the
collectibility of trade receivables based on a combination
of factors. When aware of a specific customer’s inability
to meet its financial obligations, such as in the case of
bankruptcy filings or deterioration in the customer’s
operating results or financial position, the Company
records a specific reserve for bad debt to reduce the
related receivable to the amount the Company reason-
ably believes is collectible. The Company also records
reserves for bad debt for all other customers based on a
variety of factors, including the length of time the receiv-
ables are past due, historical collection experience, and
an evaluation of current and projected economic condi-
tions at the balance sheet date. Actual collections of
trade receivables could differ from management’s esti-
mates due to changes in future economic or industry
conditions or specific customers’ financial conditions.
Restructuring. During 2003, the Company announced plans
to restructure certain operations as part of its ongoing
efforts to refine its portfolio, optimize its production
capacity, improve productivity and operating efficiencies,
and improve the Company’s overall cost base as well as
service levels in support of its long-term strategy. The
expected restructuring charge includes estimates related
to employee separation costs, the closure and consolida-
tion of facilities, contractual obligations, and the valua-
tion of certain assets including property, plant, and
equipment, and inventories. Estimates of such costs are
determined by contractual agreement or estimated by
management based on historical experience. Actual
amounts could differ from the original estimates.
Share-Based Payments. As provided under Statement of
Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (“SFAS 123”), the Company
has elected to follow Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees (“APB 25”), and related interpretations in
accounting for its employee stock options. Under APB 25,
because the exercise price of the Company’s employee
stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is
recognized. In December 2004, the Financial Accounting

issued Statement of Financial
Standards Board
Accounting Standards No. 123 (revised), Share-Based
Payments (“SFAS 123R”). SFAS 123R is a revision of
SFAS 123 and supersedes APB 25. SFAS 123R requires
that the cost of transactions involving share-based pay-
ments be recognized in the financial statements based on
a fair value-based measurement. The Company is
required by SFAS 123R to recognize expenses related to
unvested stock options granted to employees beginning
in its first quarter in fiscal 2007. In anticipation of adop-
tion of SFAS 123R, the Company replaced its employee
stock option incentive program with a restricted stock
program as of June 2005. Additionally, on April 12, 2006,
the Executive Compensation Committee of the Board of
Directors of the Company approved accelerating the
vesting of all outstanding unvested stock options with an
exercise price greater than $39.31, the closing price of
the Company’s common shares on the New York Stock
Exchange on April 11, 2006. As a result of this accelera-
tion of vesting, no compensation expense will be
recorded in future periods related to these stock options.

(cid:3)Derivative Financial Instruments and Market Risk(cid:3)

The following discussions about the Company’s market
risk disclosures involve forward-looking statements.
Actual results could differ from those projected in the
forward-looking statements. The Company is exposed to
market risk related to changes in interest rates, foreign
currency exchange rates, and commodity prices.
Interest Rate Risk. The fair value of the Company’s cash and
short-term investment portfolio at April 30, 2006,
approximates carrying value. Exposure to interest rate
risk on the Company’s long-term debt is mitigated since
it is at a fixed rate until maturity. Market risk, as mea-
sured by the change in fair value resulting from a hypo-
thetical ten percent change in interest rates, is not mate-
rial. Based on the Company’s overall interest rate
exposure as of and during the year ended April 30, 2006,
including derivative and other instruments sensitive to
interest rates, a hypothetical ten percent movement in
interest rates would not materially affect the Company’s
results of operations. A hypothetical 100 basis point
increase in short-term interest rates would increase the
Company’s interest expense by approximately $0.4 mil-
lion. Interest rate risk can also be measured by estimat-
ing the net amount by which the fair value of the
Company’s financial liabilities would change as a result
of movements in interest rates. Based on a hypothetical,

immediate 100 basis point decrease in interest rates at
April 30, 2006, the market value of the Company’s long-
term debt and interest rate portfolio, in aggregate, would
increase by approximately $17.3 million.
Foreign Currency Exchange Risk. The Company has operations
outside the United States with foreign currency denomi-
nated assets and liabilities, primarily denominated in
Canadian currency. Because the Company has foreign
currency denominated assets and liabilities, financial
exposure may result, primarily from the timing of trans-
actions and the movement of exchange rates. The foreign
currency balance sheet exposures as of April 30, 2006,
are not expected to result in a significant impact on
future earnings or cash flows.

Revenues from customers outside the United States rep-
resented 19 percent of net sales during 2006. Thus, cer-
tain revenues and expenses have been, and are expected
to be, subject to the effect of foreign currency fluctua-
tions and these fluctuations may have an impact on oper-
ating results.
Commodity Price Risk. Raw materials and other commodities
used by the Company are subject to price volatility
caused by supply and demand conditions, political and
economic variables, and other unpredictable factors. To
manage the volatility related to anticipated commodity
purchases, the Company uses futures and options with
maturities generally less than one year. Certain of these
instruments are designated as cash flow hedges. The
mark-to-market gains or losses on qualifying hedges are
included in other comprehensive income or loss to the
extent effective, and reclassified into cost of products
sold in the period during which the hedged transaction
affects earnings. The mark-to-market gains or losses on
nonqualifying, excluded, and ineffective portions of
hedges are recognized in cost of products sold immedi-
ately. Commodity price risk associated with the Company’s
derivative position at April 30, 2006 and 2005, is not
material to the operating results or financial position of
the Company.

(cid:3) Forward-Looking Statements (cid:3)

Certain statements included in this Annual Report con-
tain forward-looking statements within the meaning of
federal securities laws. The forward-looking statements
may include statements concerning the Company’s cur-
rent expectations, estimates, assumptions, and beliefs
concerning future events, conditions, plans, and strate-
gies that are not historical fact. Any statement that is not

historical in nature is a forward-looking statement and
may be identified by the use of words and phrases such
as “expects,” “anticipates,” “believes,” “will,” “plans,”
and similar phrases.

Federal securities laws provide a safe harbor for for-
ward-looking statements to encourage companies to pro-
vide prospective information. The Company is providing
this cautionary statement in connection with the safe
harbor provisions. Readers are cautioned not to place
undue reliance on any forward-looking statements as
such statements are by nature subject to risks, uncer-
tainties, and other factors, many of which are outside of
the Company’s control and could cause actual results to
differ materially from such statements and from the
Company’s historical results and experience. These risks
and uncertainties include, but are not limited to, those set
forth under the caption “Risk Factors” in the Company’s
Annual Report on Form 10-K, as well as the following:

(cid:4) the strength of commodity markets from which raw
materials are procured and the related impact on
costs;

(cid:4) crude oil price trends and its impact on transporta-

tion, energy, and packaging costs;

(cid:4) raw material, ingredient, and energy cost trends;
(cid:4) the success and cost of introducing new products
and the competitive response, particularly in the
consumer oils and baking area;

(cid:4) the success and cost of marketing and sales programs
and strategies intended to promote growth in the
Company’s businesses, and in their respective markets;
(cid:4) the ability to successfully implement price changes,
particularly in the consumer oils and baking business;
(cid:4) the concentration of certain of the Company’s busi-
nesses with key customers and the ability to manage
and maintain key customer relationships;

(cid:4) the loss of significant customers or a substantial
reduction in orders from these customers or the
bankruptcy of any such customer;

(cid:4) the timing and amount of capital expenditures,
restructuring, and merger and integration costs;
(cid:4) foreign currency exchange and interest rate fluctua-

tions;

(cid:4) the timing and cost of acquiring common shares
under the Company’s share repurchase authorizations;
(cid:4) general competitive activity in the market, including
competitors’ pricing practices and promotional
spending levels; and

(cid:4) other factors affecting share prices and capital mar-

kets generally.

Report of Management on Internal Control Over Financial Reporting(cid:2)

Shareholders
The J. M. Smucker Company

Management of The J.M. Smucker Company is responsible for establishing and maintaining adequate accounting and
internal control systems over financial reporting for the Company. The Company’s internal control system is designed
to provide reasonable assurance that the Company has the ability to record, process, summarize, and report reliable
financial information on a timely basis.

The Company’s management assessed the effectiveness of the Company’s internal controls over financial reporting as
of April 30, 2006. In making this assessment, management used the criteria established in Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“the COSO
criteria”).

Based on the Company’s assessment of internal control over financial reporting under the COSO criteria, management
concluded the Company’s internal control over financial reporting was effective as of April 30, 2006.

Ernst & Young LLP, independent registered public accounting firm, audited the Company’s assessment of internal con-
trol over financial reporting as of April 30, 2006, and their report thereon is included on page 21 of this report.

Timothy P. Smucker
Chairman and
Co-Chief Executive Officer

Richard K. Smucker
President and
Co-Chief Executive Officer

Mark R. Belgya
Vice President,
Chief Financial Officer
and Treasurer

(cid:2)

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

Board of Directors and Shareholders
The J. M. Smucker Company

We have audited management’s assessment, included in the accompanying Report of Management on Internal Control
Over Financial Reporting, that The J.M. Smucker Company maintained effective internal control over financial report-
ing as of April 30, 2006, based on criteria established in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“the COSO criteria”). The J. M. Smucker
Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opin-
ion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over finan-
cial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtain-
ing an understanding of internal control over financial reporting, evaluating management’s assessment, testing and
evaluating the design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regard-
ing the reliability of financial reporting and the preparation of financial statements for external purposes in accor-
dance with generally accepted accounting principles. A company’s internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transaction and disposition of the assets of the company; (2) provide reasonable assurance that trans-
actions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accor-
dance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may dete-
riorate.

In our opinion, management’s assessment that The J. M. Smucker Company maintained effective internal control over
financial reporting as of April 30, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in
our opinion, The J. M. Smucker Company maintained, in all material respects, effective internal control over finan-
cial reporting as of April 30, 2006, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of The J. M. Smucker Company as of April 30, 2006 and 2005, and the related
statements of consolidated income, shareholders’ equity, and cash flows for each of the three years in the period
ended April 30, 2006, and our report dated June 19, 2006, expressed an unqualified opinion thereon.

Akron, Ohio

June 19, 2006

(cid:2)

Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements

Board of Directors and Shareholders

The J. M. Smucker Company

We have audited the accompanying consolidated balance sheets of The J. M. Smucker Company as of April 30, 2006
and 2005, and the related statements of consolidated income, shareholders’ equity, and cash flows for each of the three
years in the period ended April 30, 2006. These financial statements are the responsibility of the Company’s manage-
ment. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). 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 sup-
porting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting prin-
ciples 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, the consolidated financial statements referred to above present fairly, in all material respects, the con-
solidated financial position of The J. M. Smucker Company at April 30, 2006 and 2005, and the consolidated results of
its operations and its cash flows for each of the three years in the period ended April 30, 2006, in conformity with U.S.
generally accepted accounting principles.

We also have audited in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the effectiveness of The J. M. Smucker Company’s internal control over financial reporting as of April 30, 2006,
based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated June 19, 2006, expressed an unqualified opinion
thereon.

Akron, Ohio

June 19, 2006

Statements of Consolidated Income
The J. M. Smucker Company

(cid:2)(cid:2)

(Dollars in thousands, except per share data)

Net sales

Cost of products sold

Cost of products sold – restructuring

Gross Profit

Selling, distribution, and administrative expenses

Merger and integration costs

Other restructuring costs

Operating Income

Interest income

Interest expense

Other income – net

Income From Continuing Operations

Before Income Taxes

Income taxes

Income From Continuing Operations

Discontinued operations, net of tax

Loss on sale of discontinued operations, net of tax

Year Ended April 30,
2005

2006

2004

$2,154,726

$2,043,877

$1,369,556

1,459,611

1,383,995

2,263

692,852

438,457

17,934

7,722

228,739

6,630

(24,026)

4,227

215,570

72,216

143,354

—

2,466

657,416

407,839

17,954

10,854

220,769

4,683

(22,555)

1,717

204,614

74,154

130,460

(134)

(1,253)

878,491

8,464

482,601

296,954

1,266

7,362

177,019

2,761

(6,209)

3,599

177,170

65,872

111,298

—

Net Income

$ 143,354

$ 129,073

$ 111,350

Earnings per Common Share:

Income From Continuing Operations

Discontinued operations

Net Income

$ 2.48

$ 2.29

$ 2.23

—

(0.03)

0.01

$ 2.48

$ 2.26

$ 2.24

Income From Continuing Operations – Assuming Dilution

$ 2.45

$ 2.26

$ 2.21

Discontinued operations – assuming dilution

—

(0.02)

—

Net Income – Assuming Dilution

$ 2.45

$ 2.24

$ 2.21

See notes to consolidated financial statements.

Consolidated Balance Sheets(cid:2)(cid:2)The J. M. Smucker Company

(cid:3) Assets (cid:3)

(Dollars in thousands)

Current Assets

Cash and cash equivalents

Marketable securities

Trade receivables, less allowance for doubtful accounts

Inventories:

Finished products

Raw materials

Other current assets

Total Current Assets

Property, Plant, and Equipment

Land and land improvements

Buildings and fixtures

Machinery and equipment

Construction in progress

Accumulated depreciation

Total Property, Plant, and Equipment

Other Noncurrent Assets

Goodwill

Other intangible assets, net

Marketable securities

Other assets

Total Other Noncurrent Assets

April 30,

2006

2005

$ 71,956

$ 58,085

14,882

17,739

148,014

145,734

197,583

100,038

176,205

108,282

297,621

284,487

39,022

49,806

571,495

555,851

43,246

196,511

563,712

20,994

42,018

175,718

533,340

26,053

824,463

777,129

(296,728)

(256,028)

527,735

521,101

940,967

472,915

34,107

102,525

951,208

469,758

59,074

78,902

1,550,514

1,558,942

$2,649,744

$2,635,894

(cid:3) Liabilities and Shareholders’ Equity (cid:3)

(Dollars in thousands)

Current Liabilities

Accounts payable

Notes payable

Salaries, wages, and additional compensation

Accrued trade marketing and merchandising

Income taxes

Dividends payable

Current portion of long-term debt

Other current liabilities

Total Current Liabilities

Noncurrent Liabilities

Long-term debt

Defined benefit pensions

Postretirement benefits other than pensions

Deferred income taxes

Other noncurrent liabilities

Total Noncurrent Liabilities

Shareholders’ Equity

Serial preferred shares – no par value:

Authorized – 3,000,000 shares; outstanding – none

Common shares – no par value:

Authorized – 150,000,000 shares; outstanding –

56,949,044 in 2006 and 58,540,386 in 2005 (net of 8,185,015

and 6,585,055 treasury shares, respectively), at stated value

Additional capital

Retained income

Less:

Deferred compensation

Amount due from ESOP Trust

Accumulated other comprehensive income (loss)

Total Shareholders’ Equity

April 30,

2006

2005

$ 88,963

$ 105,290

28,620

34,578

29,185

13,584

15,946

—

24,564

33,378

56,796

41,727

5,610

15,807

17,000

32,684

235,440

308,292

428,602

37,656

55,767

155,579

8,641

686,245

431,560

35,921

50,179

110,505

8,637

636,802

—

14,237

14,635

1,212,598

1,240,110

489,067

447,831

(8,527)

(6,525)

27,209

(4,573)

(7,044)

(159)

1,728,059

1,690,800

$2,649,744

$2,635,894

See notes to consolidated financial statements.

Statements of Consolidated Cash Flows

(cid:2)(cid:2)The J. M. Smucker Company

(Dollars in thousands)

Operating Activities

Net income
Adjustments to reconcile net income to net cash

provided by operations:
Depreciation
Amortization
Gain on sale of assets
Deferred income tax expense
Changes in assets and liabilities, net of effect

from businesses acquired:
Trade receivables
Inventories
Other current assets
Accounts payable and accrued items
Income taxes
Discontinued operations
Other – net

Year Ended April 30,

(Revised)
2005

2006

(Revised)
2004

$143,354

$129,073

$111,350

63,638
7,445
(5,638)
33,124

1,444
(6,036)
(24,369)
(63,914)
44,756
—
4,477

54,077
1,971
(3,079)
36,247

(2,015)
(5,257)
(13,934)
(43,595)
(5,494)
868
902

36,147
2,414
—
6,113

(1,190)
(20,341)
3,819
3,478
(18,012)
17,964
(5,153)

Net Cash Provided by Operating Activities

198,281

149,764

136,589

Investing Activities

Businesses acquired, net of cash acquired
Additions to property, plant, and equipment
Proceeds from sale of businesses
Purchase of marketable securities
Sale and maturities of marketable securities
Disposal of property, plant, and equipment
Discontinued operations
Other – net

—
(63,172)
8,754
(5,000)
31,101
3,747
—
8,723

(99,062)
(87,576)
79,566
(88,803)
67,094
2,406
(907)
6,465

(9,196)
(97,721)
—
(86,439)
28,957
9,161
(1,846)
(5,455)

Net Cash Used for Investing Activities

(15,847)

(120,817)

(162,539)

Financing Activities

Proceeds from long-term debt
Repayments of long-term debt
Revolving credit arrangements – net
Repayments of short-term debt
Dividends paid
Purchase of treasury shares
Other – net

Net Cash Used for Financing Activities
Effect of exchange rate changes on cash

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year

—
(17,000)
(8,434)
—
(62,656)
(81,717)
678

(169,129)
566

13,871
58,085

100,000
(37,500)
33,155
(113,622)
(56,057)
(16,869)
18,613

(72,280)
(3,133)

(46,466)
104,551

—
—
—
—
(45,724)
(1,148)
6,835

(40,037)
526

(65,461)
170,012

Cash and Cash Equivalents at End of Year

$ 71,956

$ 58,085

$104,551

( ) Denotes use of cash

See notes to consolidated financial statements.

Statements of Consolidated Shareholders’ Equity

(cid:2)(cid:2)The J. M. Smucker Company

Common
Shares
Outstanding

Common
Shares

Additional
Capital

Retained
Deferred
Income Compensation

Amount
Due from
ESOP Trust

Accumulated
Other
Comprehensive
Income (Loss)

Total
Shareholders’
Equity

(Dollars in thousands,
except per share data)

Balance at May 1, 2003

49,767,540 $12,442 $ 815,767 $323,064 $(2,825) $(8,093) $(16,184) $1,124,171

Net income
Foreign currency

translation adjustment
Minimum pension liability

adjustment

Unrealized gain on

available-for-sale securities

Unrealized gain on cash
flow hedging derivatives

Comprehensive Income

Stock plans
Cash dividends declared –

$0.94 a share

Tax benefit of stock plans
Other

111,350

407,167

101

10,543

(528)

(3,244)

(46,821)

3,013

509

6,697

3,403

545

954

545

954

122,949

6,872

(46,821)
3,013
509

Balance at April 30, 2004

50,174,707

12,543

829,323

387,065

(6,069)

(7,584)

(4,585)

1,210,693

Net income
Foreign currency

translation adjustment
Minimum pension liability

adjustment
Unrealized loss on

available-for-sale securities

Unrealized loss on cash
flow hedging derivatives

Comprehensive Income

Business acquired
Purchase of treasury shares
Stock plans
Cash dividends declared –

$1.02 a share

Tax benefit of stock plans
Other

129,073

8,032,997
(368,678)
701,360

2,008
(92)
176

393,250
(7,790)
20,779

(8,987)

(59,320)

1,496

4,548

540

15,277

(10,310)

(275)

(266)

(275)

(266)

133,499

395,258
(16,869)
22,451

(59,320)
4,548
540

Balance at April 30, 2005

58,540,386

14,635

1,240,110

447,831

(4,573)

(7,044)

(159)

1,690,800

Net income
Foreign currency

translation adjustment
Minimum pension liability

adjustment
Unrealized loss on

available-for-sale securities

Unrealized loss on cash

flow hedging derivatives

Comprehensive Income

Purchase of treasury shares
Stock plans
Cash dividends declared –

$1.09 a share

Tax benefit of stock plans
Other

143,354

(1,936,423)
345,081

(484)
86

(41,910)
12,753

(39,323)

(3,954)

(62,795)

1,645

519

19,512

8,710

(650)

(204)

(650)

(204)

170,722

(81,717)
8,885

(62,795)
1,645
519

Balance at April 30, 2006

56,949,044 $14,237 $1,212,598 $489,067 $(8,527) $(6,525) $ 27,209

$1,728,059

See notes to consolidated financial statements.

Notes to Consolidated Financial Statements

(cid:2)(cid:2)The J. M. Smucker Company

(Dollars in thousands, except per share data)

(cid:3) Note A: Accounting Policies (cid:3)
Principles of Consolidation: The consolidated financial statements include the accounts of the Company, its wholly-owned sub-
sidiaries, and any majority-owned investment. Intercompany transactions and accounts are eliminated in consolidation.
Use of Estimates: The preparation of consolidated financial statements in conformity with U.S. generally accepted account-
ing principles requires management to make certain estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Significant estimates in these consolidated financial
statements include: restructuring costs, allowances for doubtful trade receivables, estimates of future cash flows
associated with assets, asset impairments, useful lives for depreciation and amortization, loss contingencies, net real-
izable value of inventories, accruals for trade marketing and merchandising programs, income taxes, and the deter-
mination of discount and other rate assumptions for defined benefit pension and other postretirement benefit
expenses. Actual results could differ from these estimates.
Revenue Recognition: The Company recognizes revenue, net of estimated returns and allowances, when all of the follow-
ing criteria have been met: a valid customer order with a determinable price has been received; the product has been
shipped and title has transferred to the customer; there is no further significant obligation to assist in the resale of
the product; and collectibility is reasonably assured.
Major Customer: Sales to Wal-Mart Stores, Inc., and subsidiaries amounted to approximately 18 percent, 16 percent, and
16 percent of net sales in 2006, 2005, and 2004, respectively. These sales are primarily included in the U.S. retail
market. Trade receivables at April 30, 2006 and 2005, included amounts due from Wal-Mart Stores, Inc., and sub-
sidiaries of $22,087 and $22,951, respectively. No other customer exceeded ten percent of net sales for any year.
Shipping and Handling Costs: Shipping and handling costs are included in cost of products sold.
Trade Marketing and Merchandising Programs: In order to support the Company’s products, various promotional activities are
conducted through the retail trade, distributors, or directly with consumers, including in-store display and product
placement programs, feature price discounts, coupons, and other similar activities. The Company regularly reviews
and revises, when it deems necessary, estimates of costs to the Company for these promotional programs based on
estimates of what will be redeemed by the retail trade, distributors, or consumers. These estimates are made using
various techniques including historical data on performance of similar promotional programs. Differences between
estimated expense and actual performance are generally not material and are recognized as a change in manage-
ment’s estimate in a subsequent period. However, as the Company’s total promotional expenditures, including
amounts classified as a reduction of net sales, represent approximately 25 percent of 2006 net sales, the likelihood
exists of materially different reported results if factors such as the level and success of the promotional programs or
other conditions differ from expectations. Operating results for the year ended April 30, 2006, include an increase of
approximately $6.7 million to net sales reflecting a change in estimate of the expected liability for trade merchan-
dising programs.
Advertising Expense: Advertising costs are expensed as incurred. Advertising expense was $56,647, $50,002, and $54,027
in 2006, 2005, and 2004, respectively.
Product Development Cost: Total product development costs including research and development costs and product for-
mulation costs were $10,781, $10,397, and $7,496 in 2006, 2005, and 2004, respectively.
Stock Compensation: As provided under Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation (“SFAS 123”), the Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (“APB 25”), and related interpretations in accounting for its employee stock

options. Under APB 25, because the exercise price of the Company’s employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is recognized. Compensation expense related
to restricted shares, deferred shares, performance units, and performance share awards was $7,255, $1,609, and
$1,512 in 2006, 2005, and 2004, respectively. Compensation expense is recognized over a vesting period starting with
the issuance of the award and ending with four years of service or the attainment of a defined age and years of service.

On April 12, 2006, the Executive Compensation Committee of the Company’s Board of Directors approved accelerat-
ing the vesting of previously issued stock options that had exercise prices greater than $39.31, the closing price of the
Company’s common shares on the New York Stock Exchange on April 11, 2006. As a result, approximately 441,000
stock options with exercise prices of either $43.38 or $44.17 became immediately exercisable. Approximately
110,000 and 331,000 of these options would originally have vested in 2007 and 2008, respectively. The Company
accelerated vesting in order to minimize future noncash compensation expense associated with stock options upon
adoption of Statement of Financial Accounting Standards No. 123 (revised), Share-Based Payments (“SFAS 123R”),
which will occur for the Company on May 1, 2006. By accelerating the vesting of those options, the Company will not
incur pretax compensation expense of approximately $2.7 million and $1.0 million in 2007 and 2008, respectively,
that otherwise would have been required to be recognized in the respective periods upon adoption of SFAS 123R
related to these options. The impact of the immediate vesting of the 441,000 options in 2006 is reflected in the SFAS
123 pro forma compensation expense below.

If compensation costs for stock options granted had been determined based on the fair market value method of SFAS
123, the Company’s pro forma net income and earnings per share would have been as follows:

Year Ended April 30,

2006

2005

2004

Net income, as reported

$143,354

$129,073

$111,350

Add: Total stock-based compensation expense included in the

determination of net income as reported, net of tax benefit

4,825

1,026

950

Less: Total stock-based compensation expense determined

under fair value-based methods for all awards, net of tax benefit

(9,177)

(4,686)

(3,748)

Net income, as adjusted

Earnings per common share:

Net income, as reported

$139,002

$125,413

$108,552

$ 2.48

$ 2.26

$ 2.24

Add: Total stock-based compensation expense included in the

determination of net income as reported, net of tax benefit

0.08

0.02

Less: Total stock-based compensation expense determined

under fair value-based methods for all awards, net of tax benefit

(0.16)

(0.08)

Net income, as adjusted

$ 2.40

$ 2.20

$ 2.18

Net income, as reported – assuming dilution

$ 2.45

$ 2.24

$ 2.21

Add: Total stock-based compensation expense included in the

determination of net income as reported, net of tax benefit –

assuming dilution

0.09

0.01

Less: Total stock-based compensation expense determined

under fair value-based methods for all awards,

net of tax benefit – assuming dilution

(0.16)

(0.08)

(0.07)

Net income, as adjusted – assuming dilution

$ 2.38

$ 2.17

$ 2.15

The fair value of each option grant was estimated at the date of grant or modification using the Black-Scholes option-
pricing model with the following weighted-average assumptions:

Average expected term (years)

Risk-free interest rate

Dividend yield

Volatility

2006

5.71

4.90%

2.00%

25.20%

Year Ended April 30,
2005

7.00

3.74%

2.25%

26.31%

2004

5.00

3.21%

2.50%

26.80%

Fair value of options granted

$ 8.76

$ 11.64

$ 9.45

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have
no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly sub-
jective assumptions, including the expected share price volatility and average expected term.
Income Taxes: The Company accounts for income taxes using the liability method. Accordingly, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between financial statement car-
rying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differ-
ences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax
rate is recognized in income or expense in the period that the change is effective. Tax benefits are recognized when
it is probable that the deduction will be sustained. A valuation allowance is established when it is more likely than
not that all or a portion of a deferred tax asset will not be realized.
Cash and Cash Equivalents: The Company considers all short-term investments with a maturity of three months or less
when purchased to be cash equivalents.
Trade Receivables: In the normal course of business, the Company extends credit to customers. Trade receivables, less
allowance for doubtful accounts, reflect the net realizable value of receivables, and approximate fair value. In the
domestic markets, the Company’s products are primarily sold through brokers to food retailers, food wholesalers,
club stores, mass merchandisers, discount stores, military commissaries, health and natural foods stores, foodservice
distributors, and chain operators including: hotels and restaurants, schools and other institutions. The Company’s
operations outside the United States are principally in Canada where the Company’s products are primarily sold
through brokers to a concentration of food retailers and other retail and foodservice channels similar to those in
domestic markets, and by a direct sales force to other food manufacturers. The Company believes there is no con-
centration of risk with any single customer whose failure or nonperformance would materially affect the Company’s
results other than as discussed in Major Customer. On a regular basis, the Company evaluates its trade receivables
and establishes an allowance for doubtful accounts based on a combination of specific customer circumstances, credit
conditions, and historical write-offs and collections. A receivable is considered past due if payments have not been
received within the agreed upon invoice terms. The allowance for doubtful accounts at April 30, 2006 and 2005, was
$1,210 and $976, respectively. Trade receivables are charged off against the allowance after management determines
the potential for recovery is remote.
Inventories: Inventories, excluding grain-based inventories in Canada, are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. In Canada, grain-based inventories are valued on the basis of replace-
ment market prices prevailing at the end of the period.
Derivative Financial Instruments: The Company utilizes derivative instruments such as commodity futures and options con-
tracts, interest rate swaps, and foreign currency futures contracts to hedge exposure to changes in commodity prices,
interest rates, and foreign currency exchange rates. The Company accounts for these derivative instruments in accor-
dance with Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging

Activities (“SFAS 133”). SFAS 133 requires that all derivative instruments be recognized in the financial statements
and measured at fair value regardless of the purpose or intent for holding them. For derivatives that are designated
as a fair value hedge and used to hedge an existing asset or liability, both the derivative and hedged item are recog-
nized at fair value with any changes recognized immediately in the Statements of Consolidated Income. For deriva-
tives designated as a cash flow hedge that are used to hedge an anticipated transaction, changes in fair value are
deferred and recorded in shareholders’ equity as a component of accumulated other comprehensive income (loss) to
the extent the hedge is effective and then recognized in the Statements of Consolidated Income in the period during
which the hedged transaction affects earnings. The Company utilizes regression analysis to determine correlation
between the value of the hedged item and the value of the derivative instrument utilized to identify instruments that
meet the criteria for hedge accounting. Any ineffectiveness associated with the hedge or changes in fair value of deriv-
atives that are nonqualifying are recognized immediately in the Statements of Consolidated Income. By policy, the
Company has not historically entered into derivative financial instruments for trading purposes or for speculation.
For additional information, see Note N: Derivative Financial Instruments.
Property, Plant, and Equipment: Property, plant, and equipment are recorded at cost and are depreciated on a straight-line
basis over the estimated useful lives of the assets (3 to 20 years for machinery and equipment, and 10 to 40 years for
buildings, fixtures, and improvements).

The Company leases certain land, buildings, and equipment for varying periods of time, with renewal options. Leases
of cold storage facilities are continually renewed. Rent expense in 2006, 2005, and 2004 totaled $19,866, $18,191,
and $16,311, respectively. Rent expense for cold storage facilities, which is based on quantities stored, amounted to
$4,527, $5,206, and $3,365 in 2006, 2005, and 2004, respectively.
Impairment of Long-Lived Assets: In accordance with Statement of Financial Accounting Standards No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, long-lived assets, except goodwill and indefinite-lived intangible
assets, are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recover-
able. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets
to future net cash flows estimated by the Company to be generated by such assets. If such assets are considered to
be impaired, the impairment to be recognized is the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of by sale are recorded as held for sale at the lower of carrying value
or estimated net realizable value.
Goodwill and Other Intangible Assets: Goodwill is the excess of the purchase price paid over the fair value of the net assets of
the business acquired. In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, goodwill and indefinite-lived intangible assets are not amortized but are reviewed at least annu-
ally for impairment. The Company conducts its annual test for impairment of goodwill and indefinite-lived intangible
assets as of February 1, of each year. In addition, the Company will test for impairment if events or circumstances
occur that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Finite-lived
intangible assets are amortized over their estimated useful lives.
Other Investments in Securities: The Company maintains funds for the payment of benefits associated with nonqualified
retirement plans. These funds include investments considered to be available-for-sale marketable securities. The fair
value of these investments included in other assets at April 30, 2006 and 2005, was $30,217 and $23,982, respectively.
Foreign Currency Translation: Assets and liabilities of the Company’s foreign subsidiaries are translated using the exchange
rates in effect at the balance sheet date, while income and expenses are translated using average rates. Translation
adjustments are reported as a component of shareholders’ equity in accumulated other comprehensive income (loss).
Recently Issued Accounting Standards: In November 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 151, Inventory Costs — an amendment of ARB No. 43 (“SFAS 151”). SFAS 151
clarifies that abnormal amounts of idle facility expense, freight, handling costs, and spoilage should be expensed as
incurred and not included in overhead absorbed and capitalized as an inventoriable cost. Further, SFAS 151 requires

that allocation of fixed production overheads to conversion costs should be based on normal capacity of the produc-
tion facilities. SFAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005, (May 1,
2006, for the Company). Companies must apply the standard prospectively. The Company does not expect the impact
of adopting this standard to have a material impact on its results of operations or financial position.

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123 (revised), Share-Based Payments (“SFAS 123R”). SFAS 123R is a revision of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), supersedes Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and also amends Statement
of Financial Accounting Standards No. 95, Statement of Cash Flows. SFAS 123R requires that the cost of transactions
involving share-based payments be recognized in the financial statements based on a fair value-based measurement
and is effective for fiscal years beginning after June 15, 2005, (May 1, 2006, for the Company). The Company cur-
rently accounts for share-based payments to employees using the intrinsic value method under APB 25 and, as such,
generally recognizes no compensation cost for employee stock options. The adoption of SFAS 123R will have an
impact on the Company’s results of operations of approximately $0.02 per common share in fiscal 2007. However, any
expense recognized will be noncash and is not expected to have a significant impact on the Company’s overall finan-
cial position. The Company has elected to use the modified prospective method of adoption of SFAS 123R. For peri-
ods after May 1, 2006, the impact of adoption of SFAS 123R will depend on levels of share-based compensation
granted in the future. If the Company had adopted SFAS 123R in prior periods, the expense recognized would have
approximated the impact of SFAS 123 as described in Stock Compensation. SFAS 123R also requires the benefits of
tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an
operating cash flow as currently required. This new requirement will reduce net operating cash flows and increase,
by the same amount, net financing cash flows in periods after adoption.

In May 2005, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 154,
Accounting Changes and Error Corrections — a replacement of APB Opinion No. 20 and FASB Statement No. 3. The
statement requires that all voluntary changes in accounting principle be reported by retrospectively applying the
principle to all prior periods that are presented in the financial statements and is effective for fiscal years beginning
after December 15, 2005, (May 1, 2006, for the Company), with early adoption permitted for changes made after
issuance of the statement. The Company does not expect the impact of adopting this standard to have a material
impact on its results of operations or financial position.
Risks and Uncertainties: The Company insures its business and assets in each country against insurable risks, to the extent
that it deems appropriate, based upon an analysis of the relative risks and costs. The Company believes that the risk
of loss from noninsurable events would not have a material adverse effect on the Company’s operations as a whole.

The raw materials used by the Company are primarily commodities and agricultural-based products. Glass, plastic,
caps, carton board, and corrugate are the principle packaging materials used by the Company. The fruit, pickle, and
condiment raw materials used by the Company in the production of its food products are purchased from independ-
ent growers and suppliers. Sweeteners, peanuts, oils, wheat and flour, and other ingredients are obtained from var-
ious other sources. The cost and availability of some of these commodities has fluctuated, and may continue to
fluctuate over time. Raw materials are available from numerous sources and the Company believes that it will con-
tinue to be able to obtain adequate supplies.

Approximately 38 percent of the Company’s employees, located at 11 facilities, are covered by union contracts. The con-
tracts vary in term depending on the location with eight contracts set to expire in 2007.
Reclassifications: Certain prior year amounts have been reclassified to conform to current year classifications.

The Statements of Consolidated Cash Flows for the fiscal years ended April 30, 2005 and 2004, have been revised to
separately disclose the operating, investing, and financing activities of the cash flows attributable to the Company’s
discontinued operations, which were previously reported on a combined basis.

(cid:3) Note B: Multifoods Acquisition (cid:3)

On June 18, 2004, the Company completed its acquisition of International Multifoods Corporation (“Multifoods”) in a
tax-free stock and cash transaction valued at approximately $871 million. The acquisition of Multifoods added the
Pillsbury flour, baking mixes, and ready-to-spread frostings; Hungry Jack pancake mixes, syrup, and potato side
dishes; and Martha White baking mixes and ingredients to the U.S. retail market business. Multifoods’ primary
Canadian brands include: Robin Hood flour and baking mixes, Bick’s pickles and condiments, and Golden Temple flour
and rice.

Under the terms of the acquisition agreement, Multifoods’ shareholders received $25 per share in a combination of
80 percent Company common shares and 20 percent cash. Approximately $98 million in cash was paid and 8,032,997
common shares were issued to the Multifoods’ shareholders, valued at approximately $386 million using the average
closing price of the Company’s common shares for three days prior to the close of the transaction. In addition, the
Company repaid Multifoods’ secured debt of approximately $151 million, assumed $216 million of 6.602 percent,
senior, unsecured notes, and incurred $10 million of capitalized acquisition costs. In addition, the Company incurred
costs of $17,934, $17,954, and $1,266 in 2006, 2005, and 2004, respectively, that were directly related to the acqui-
sition and integration of Multifoods. Due to the nature of these costs, they were expensed as incurred.

The purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their fair
values at the date of acquisition. The Company determined the estimated fair values based on independent appraisals,
discounted cash flow analyses, quoted market prices, and estimates made by management. To the extent the pur-
chase price exceeded the fair value of the net identifiable tangible and intangible assets acquired, such excess was
recorded as goodwill. The results of Multifoods’ operations are included in the Company’s consolidated financial state-
ments from the date of the acquisition.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of
acquisition.

Assets acquired:

Current assets

Property, plant, and equipment

Intangible assets not subject to amortization

Goodwill

Deferred income taxes

Other assets

Total assets acquired

Liabilities assumed:

Current liabilities

Postretirement benefits other than pensions

Other noncurrent liabilities

Total liabilities assumed

Net assets acquired

$ 202,891

164,355

154,000

422,796

66,574

35,651

$1,046,267

$ 124,448

26,680

24,533

$ 175,661

$ 870,606

The $422,796 of goodwill was assigned to the U.S. retail market and special markets and will not be deductible for
tax purposes.

Upon acquisition, certain executives of Multifoods were terminated, triggering change of control provisions contained
in their employment contracts. In addition, the Company centralized all administrative and supply chain functions
performed in Minnetonka, Minnesota, with the Company’s existing structure to leverage existing administrative, sell-
ing, marketing, and distribution networks. As a result, the Minnetonka location closed on June 30, 2005, resulting in
the relocation or involuntary termination of all employees. Severance agreements were entered into with all affected
employees.

The Company has recognized the severance costs as a liability assumed as of the acquisition date, resulting in addi-
tional goodwill. The following table summarizes the activity with respect to the severance reserves.

Accrual charged to goodwill

Cash payments

Balance at April 30, 2005

Cash payments

Accrual charged to expense

Balance at April 30, 2006

Change of
Control

Other
Employee
Separation

$ 12,271

(12,271)

$ 11,076

(8,073)

$ —

$ 3,003

—

(3,585)

582

$ —

(cid:3) Note C: Discontinued Operations (cid:3)

During 2005, the Company sold several businesses consistent with its stated long-term strategy. In June 2004, the
Company sold its Australian subsidiary, Henry Jones Foods (“HJF”) to SPC Ardmona Ltd. The transaction generated
proceeds of approximately $35.7 million in cash and resulted in a gain of approximately $9 million ($1.5 million, net
of tax). In October 2004, the Company sold its Brazilian subsidiary, Smucker do Brasil, Ltda., to Cargill, Incorporated,
generating proceeds of approximately $6.9 million in cash and resulting in a loss of approximately $5.9 million ($2.8
million, net of tax).

In addition, in February 2005, the Company sold the Multifoods U.S. foodservice and bakery products businesses, as
well as the Canadian foodservice locations operated under the Gourmet Baker name, which were acquired as part of
Multifoods. The sale to Value Creations Partners, Inc. generated proceeds of approximately $39.8 million. No gain or
loss was recorded on this transaction.

The financial position, results of operations, and cash flows of these three businesses are reported as discontinued
operations.

The following table summarizes the operating results of the discontinued operations included in the Statements of
Consolidated Income.

Net sales

Income from discontinued operations before income tax

(Loss) income from discontinued operations

Year Ended April 30,
2005

2004

$135,658

$ 47,456

3,338

(1,387)

1,649

Interest expense of $600 was allocated to the U.S. foodservice and bakery business for the year ended April 30, 2005.

(cid:3) Note D: Restructuring (cid:3)

During 2003, the Company announced its plan to restructure certain operations as part of its ongoing efforts to refine
its portfolio, optimize its production capacity, improve productivity and operating efficiencies, and improve the
Company’s overall cost base as well as service levels in support of its long-term strategy. The Company’s strategy is
to own and market leading North American icon brands sold in the center of the store.

To date, the Company closed its fruit processing operations at its Watsonville, California, and Woodburn, Oregon, loca-
tions and subsequently sold these facilities; completed the combination of two manufacturing facilities in Ripon,
Wisconsin, into one expanded site; completed a restructuring program to streamline operations in Europe and the
United Kingdom, including the exit of a contract packaging arrangement and certain segments of its retail business;
completed the sale of its U.S. industrial ingredient business; completed the realignment of distribution warehouses;
and sold the Salinas, California, facility after production was relocated to plants in Orrville, Ohio, and Memphis,
Tennessee.

Upon completion, the restructurings will result in the elimination of approximately 535 full-time positions.

The Company expects to incur total restructuring costs of approximately $46 million related to these initiatives, of
which $41.7 million has been incurred since the announcement of the initiative. The balance of the costs and remain-
ing cash payments, estimated to be approximately $4.9 million, will be incurred through 2007.

The following table summarizes the activity with respect to the restructuring and related asset impairment charges
recorded and reserves established and the total amount expected to be incurred.

Employee
Separation

Long-Lived
Asset Charges

Equipment
Relocation

Other Costs

Total

Total expected restructuring charge

$16,400

$11,000

$7,800

$10,800

$46,000

Balance at May 1, 2003

$ 1,116

$ —

$ 1,116

Charge to expense

Cash payments

Noncash utilization

Balance at April 30, 2004

Charge to expense

Cash payments

Noncash utilization

Balance at April 30, 2005

Charge to expense

Cash payments

Noncash utilization

5,702

(2,421)

6,113

—

(6,113)

$ 4,397

$ —

6,222

(6,660)

(737)

1,002

—

(1,002)

$ 3,222

$ —

2,984

(4,512)

1,699

—

(1,699)

827

(827)

—

$ —

3,548

(3,548)

—

$ —

2,414

(2,414)

—

3,184

(843)

(1,192)

$ 1,149

2,548

(2,159)

(1,538)

15,826

(4,091)

(7,305)

$ 5,546

13,320

(12,367)

(3,277)

$ —

$ 3,222

2,888

(2,323)

(565)

9,985

(9,249)

(2,264)

Balance at April 30, 2006

$ 1,694

$ —

$ 1,694

Remaining expected restructuring charge

$ 376

$ 1,131

$1,011

$ 1,814

$ 4,332

Approximately $2,263, $2,466, and $8,464 of the total restructuring charges of $9,985, $13,320, and $15,826 in
2006, 2005, and 2004, respectively, were reported in costs of products sold in the accompanying Statements of
Consolidated Income, while the remaining charges were reported in other restructuring costs. The restructuring costs
included in cost of products sold include long-lived asset charges and inventory disposition costs. Total expected
employee separation costs of approximately $16,400 are being recognized over the estimated future service period
of the related employees. The obligation related to employee separation costs is included in salaries, wages, and addi-
tional compensation, in the Consolidated Balance Sheets.

Long-lived asset charges include accelerated depreciation related to machinery and equipment that will be used by
the production facilities until they close. Other costs include miscellaneous expenditures associated with the
Company’s restructuring initiative and are expensed as incurred. These costs include employee relocation, profes-
sional fees, and other closed facility costs.

(cid:3) Note E: Reportable Segments (cid:3)

The Company operates in one industry: the manufacturing and marketing of food products. The Company has two
reportable segments: U.S. retail market and special markets. The U.S. retail market segment includes the consumer
and consumer oils and baking business areas. This segment primarily represents the domestic sales of Smucker’s, Jif,
Crisco, Pillsbury, Hungry Jack, and Martha White branded products to retail customers. The special markets segment
is comprised of the international, foodservice, beverage, and Canada strategic business areas. Special markets seg-
ment products are distributed domestically and in foreign countries through retail channels, foodservice distributors
and operators (i.e., restaurants, schools and universities, health care operations), other food manufacturers, and
health and natural foods stores.

The following table sets forth reportable segment and geographical information.

Net sales:

U.S. retail market

Special markets

Total net sales

Segment profit:

U.S. retail market

Special markets

Total segment profit

Interest income

Interest expense

Amortization expense

Restructuring costs

Merger and integration costs

Corporate administrative expenses

Other unallocated income

Year Ended April 30,
2005

2006

2004

$1,484,873

$1,405,191

$1,002,306

669,853

638,686

367,250

$2,154,726

$2,043,877

$1,369,556

$ 305,121

$ 295,045

$ 231,068

68,033

64,049

47,649

$ 373,154

$ 359,094

$ 278,717

6,630

(24,026)

(7,445)

(9,985)

(17,934)

(109,223)

4,399

4,683

(22,555)

(1,971)

(13,320)

(17,954)

(103,843)

480

2,761

(6,209)

(2,414)

(15,826)

(1,266)

(80,468)

1,875

Income from continuing operations before income taxes

$ 215,570

$ 204,614

$ 177,170

Net sales:

Domestic

International:

Canada

All other international

Total international

Total net sales

Assets:

Domestic

International:

Canada

All other international

Total international

Total assets

Long-lived assets:

Domestic

International:

Canada

All other international

Total international

Total long-lived assets

$1,746,111

$1,677,863

$1,278,243

$ 368,017

$ 338,798

$ 64,295

40,598

27,216

27,018

$ 408,615

$ 366,014

$ 91,313

$2,154,726

$2,043,877

$1,369,556

$2,101,109

$2,107,999

$1,592,829

$ 539,750

$ 517,343

$ 33,213

8,885

10,552

58,083

$ 548,635

$ 527,895

$ 91,296

$2,649,744

$2,635,894

$1,684,125

$1,662,389

$1,709,622

$1,214,258

$ 410,833

$ 364,334

$ 12,508

5,027

6,087

6,508

$ 415,860

$ 370,421

$ 19,016

$2,078,249

$2,080,043

$1,233,274

Segment profit represents revenue less direct and allocable operating expenses.

The following table presents product sales information.

Peanut butter

Shortening and oils

Fruit spreads

Flour and baking ingredients

Baking mixes and frostings

Portion control

Juices and beverages

Toppings and syrups

Uncrustables frozen sandwiches

Pickles and condiments

Industrial ingredients

Other

Total

2006

19%

Year Ended April 30,
2005

20%

2004

28%

—

100%

(cid:3) Note F: Earnings per Share (cid:3)

The following table sets forth the computation of earnings per common share and earnings per common share –
assuming dilution.

Numerator:

Income from continuing operations for earnings per

common share and earnings per common share –

assuming dilution

Denominator:

Denominator for earnings per common share –

weighted-average shares

Effect of dilutive securities:

Stock options

Restricted stock

Year Ended April 30,

2006

2005

2004

$143,354

$130,460

$111,298

57,863,270

57,086,734

49,816,926

435,361

126,730

533,875

128,171

502,166

76,655

Denominator for earnings per common share –

assuming dilution

58,425,361

57,748,780

50,395,747

Income from continuing operations per common share

$ 2.48

$ 2.29

$ 2.23

Income from continuing operations per common share –

assuming dilution

$ 2.45

$ 2.26

$ 2.21

Options to purchase 200,967 common shares at $47.78 to $57.09 per share were outstanding during 2006 but were
not included in the computation of earnings per common share – assuming dilution, as the options’ exercise prices
were greater than the average market price of the common shares and, therefore, the effect would be antidilutive.

(cid:3) Note G: Marketable Securities (cid:3)

The Company invests in debt securities. Under the Company’s investment policy, it will invest in securities deemed to
be investment grade at time of purchase. Currently, these investments are defined as mortgage-backed obligations,
corporate bonds, municipal bonds, federal agency notes, and commercial paper. The Company determines the appro-
priate categorization of its debt securities at the time of purchase and reevaluates such designation at each balance
sheet date. The Company has categorized all debt securities as available for sale because it currently has the intent
to convert these investments into cash if and when needed. Classification of these available-for-sale marketable secu-
rities as current or noncurrent is based on whether the conversion to cash is expected to be necessary for current
operations, which is currently consistent with the securities maturity date.

Securities categorized as available for sale are stated at fair value, with unrealized gains and losses reported as a
component of other comprehensive income or loss. Approximately $31,101, $67,094, and $28,957 of proceeds have
been realized upon maturity or sale of available-for-sale marketable securities in 2006, 2005, and 2004, respectively,
resulting in no gains or losses. The Company uses specific identification to determine the basis on which securities
are sold.

The following table is a summary of available-for-sale marketable securities.

U.S. corporate securities

Mortgage-backed securities

Federal agency note

Balance at April 30, 2006

U.S. corporate securities

Mortgage-backed securities

Balance at April 30, 2005

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Cost

Estimated
Fair Value

$10,020

$ —

(93)

$ 9,927

35,931

4,994

—

(1,824)

(39)

34,107

4,955

$50,945

$ —

$ (1,956)

$48,989

Gross
Unrealized
Gains

Gross
Unrealized
Losses

$ —

$ (492)

132

(214)

Estimated
Fair Value

$27,520

49,293

Cost

$28,012

49,375

$77,387

$ 132

$ (706)

$76,813

The contractual maturities of these available-for-sale marketable securities were as follows:

Due in one year or less

Due after one to five years

Mortgage-backed securities

Total marketable securities

April 30, 2006

April 30, 2005

Cost

Estimated
Fair Value

Cost

Estimated
Fair Value

$15,014

$14,882

$17,910

$17,739

—

35,931

34,107

10,102

49,375

9,781

49,293

$50,945

$48,989

$77,387

$76,813

Marketable securities in an unrealized loss position at April 30, 2006, are presented in the following table by length
of time the securities were in an unrealized loss position.

Less than 12 months

More than 12 months

Balance at April 30, 2006

Cost

$16,608

34,337

Estimated
Fair Value

$16,063

32,926

$50,945

$48,989

Unrealized
Loss

$ 545

1,411

$1,956

Number
of Securities

Based on management’s evaluation at April 30, 2006, considering the nature of the investments, the credit worthi-
ness of the issuers, and the intent and ability of the Company to hold the securities for the period necessary to recover
the cost of the securities, the decline in the fair values was determined to be temporary.

(cid:3) Note H: Goodwill and Other Intangible Assets (cid:3)

A summary of changes in the Company’s goodwill during the years ended April 30, 2006 and 2005, by reportable seg-
ment is as follows:

Balance at May 1, 2004

Acquisition

Divestiture

Other

Balance at April 30, 2005

Acquisition

Other

Balance at April 30, 2006

U.S. Retail Market

Special Markets

Total

$507,062

403,515

—

$ 16,598

23,443

(1,420)

2,010

$523,660

426,958

(1,420)

2,010

$910,577

$ 40,631

$951,208

(3,247)

(5,233)

(189)

(1,572)

(3,436)

(6,805)

$902,097

$ 38,870

$940,967

Included in the loss on sale of discontinued operations during the year ended April 30, 2005, is the disposal of approxi-
mately $7,483 of goodwill associated with HJF and the Company’s Brazilian subsidiary. Included in the other category
in 2006 were tax adjustments made related to various items recognized in goodwill that are deductible for tax purposes.

The Company’s other intangible assets and related accumulated amortization are as follows:

April 30, 2006
Accumulated
Amortization

Acquisition
Cost

Net

Acquisition
Cost

April 30, 2005
Accumulated
Amortization

Net

Finite-lived intangible assets:

Patents

$ 1,000

$392

$ 608

$ 1,000

$292

$ 708

Total intangible assets subject to

amortization

$ 1,000

$392

$ 608

$ 1,000

$292

$ 708

Indefinite-lived intangible assets:

Trademarks

$472,307

$ —

$472,307

$469,050

$ —

$469,050

Total intangible assets not subject

to amortization

$472,307

$ —

$472,307

$469,050

$ —

$469,050

Total other intangible assets

$473,307

$392

$472,915

$470,050

$292

$469,758

Amortization expense for finite-lived intangible assets was approximately $100, $361, and $490 in 2006, 2005, and
2004, respectively. The weighted-average useful life of the finite-lived intangible asset is ten years. Based on the cur-
rent amount of intangible assets subject to amortization, the estimated amortization expense for each of the suc-
ceeding five years is $100.

Pursuant to Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, the
Company is required to review goodwill and indefinite-lived intangible assets at least annually for impairment. The
annual impairment review of all appropriate assets was performed as of February 1, 2006. Goodwill impairment is
tested at the reporting unit level which are the Company’s operating segments. No impairment was required to be
recorded as a result of the annual impairment review.

(cid:3) Note I: Pensions and Other Postretirement Benefits (cid:3)

The Company has pension plans covering substantially all of its domestic and Canadian employees. Benefits are based
on the employee’s years of service and compensation. The Company’s plans are funded in conformity with the fund-
ing requirements of applicable government regulations.

In addition to providing pension benefits, the Company sponsors several unfunded, defined postretirement plans that
provide health care and life insurance benefits to certain retired domestic and Canadian employees. These plans are
contributory, with retiree contributions adjusted periodically, and contain other cost-sharing features, such as
deductibles and coinsurance. Covered employees generally are eligible for these benefits when they reach age 55 and
have attained ten years of credited service.

Net periodic benefit cost included the following components:

Year Ended April 30,

Service cost

Interest cost

Defined Benefit Pension Plans

2006

2005

2004

Other
Postretirement Benefits
2006

2005

Benefit obligation at end of the year

$128,964

$112,730

$ 15,920

$ 13,226

Fair value of plan assets at end of the year

132,710

105,601

—

Funded status of the plans

$ 3,746

$ (7,129)

$(15,920)

$(13,226)

Service cost

Interest cost

Company contributions

Participant contributions

Benefits paid

Net periodic benefit cost (income)

$ 2,992

$ 1,494

6,429

3,181

938

(7,119)

850

5,128

2,713

715

(6,494)

(534)

272

771

609

—

(609)

1,138

$ 136

568

442

—

(442)

703

The following table sets forth additional information related to the Company’s defined benefit pension plans.

(Decrease) increase in minimum liability included in

other comprehensive income or loss

Accumulated benefit obligation for all pension plans

April 30,

2006

2005

$(13,527)

379,764

$ 16,122

373,744

The following table sets forth additional information related to the Company’s defined benefit pension plans with an
accumulated benefit obligation in excess of plan assets and defined benefit pension plans with a projected benefit obli-
gation in excess of plan assets.

Plans with an accumulated benefit obligation in excess of plan assets:

Accumulated benefit obligation

Fair value of plan assets

Plans with a projected benefit obligation in excess of plan assets:

Projected benefit obligation

Fair value of plan assets

April 30,

2006

2005

$ 73,313

35,695

$187,002

140,372

138,400

95,494

268,490

197,233

The Company employs a total return on investment approach for the defined benefit pension plans’ assets. A mix of
equities and fixed income investments are used to maximize the long-term rate of return on assets for the level of
risk. The objectives of this strategy are to achieve full funding of the accumulated benefit obligation, and to achieve
investment experience over time that will minimize pension expense volatility and hold to a feasible minimum the
Company’s contributions required to maintain full funding status. In determining the expected long-term rate of
return on defined benefit pension plans’ assets, management considers the historical rates of return, the nature of
investments, the asset allocation, and expectations of future investment strategies.

The Company’s pension plans’ asset target and actual allocations are as follows:

Equity securities

Debt securities

Cash and other investments

Actual Allocation
April 30,

2006

54%

100%

2005

61%

100%

Target
Allocation

50%

100%

Included in equity securities are 317,522 of the Company’s common shares at April 30, 2006 and 2005. The market
value of these shares is $12,467 at April 30, 2006. The Company paid dividends of $343 on these shares during 2006.

The Company expects to contribute approximately $11 million and $2 million to the pension and other postretirement
benefit plans, respectively, in 2007. The Company expects to make the following benefit payments for all benefit plans:
$24 million in 2007, $25 million in 2008, $34 million in 2009, $27 million in 2010, $28 million in 2011, and $154 mil-
lion in 2012 through 2016.

Certain of the Company’s active employees participate in multiemployer plans that provide defined postretirement
health care benefits. The aggregate amount contributed to these plans, including the charge for net periodic postre-
tirement benefit costs, totaled $929, $1,408, and $1,639 in 2006, 2005, and 2004, respectively.

(cid:3) Note J: Savings Plans (cid:3)
ESOP: The Company sponsors an Employee Stock Ownership Plan and Trust (“ESOP”) for certain domestic, nonrepre-
sented employees. The Company has entered into loan agreements with the Trustee of the ESOP for purchases by the
ESOP of the Company's common shares in amounts not to exceed a total of 1,134,120 unallocated common shares of
the Company at any one time. These shares are to be allocated to participants over a period of not less than 20 years.

ESOP loans bear interest at one-half percentage point over prime, are secured by the unallocated shares of the plan,
and are payable as a condition of allocating shares to participants. Interest incurred on ESOP debt was $506, $407,
and $356 in 2006, 2005, and 2004, respectively. Contributions to the plan, representing compensation expense, are
made annually in amounts sufficient to fund ESOP debt repayment and were $558, $476, and $497 in 2006, 2005,
and 2004, respectively. Dividends on unallocated shares are used to reduce expense and were $380, $398, and $395
in 2006, 2005, and 2004, respectively. The principal payments received from the ESOP in 2006, 2005, and 2004 were
$519, $540, and $509, respectively.

Dividends on allocated shares are credited to participant accounts and are used to purchase additional common
shares for participant accounts. Dividends on allocated and unallocated shares are charged to retained earnings by
the Company.

As permitted by Statement of Position 93-6, Employers’ Accounting for Employee Stock Ownership Plans, the
Company will continue to recognize future compensation using the cost basis as all shares currently held by the ESOP
were acquired prior to 1993. At April 30, 2006, the ESOP held 345,006 unallocated and 667,957 allocated shares. All
shares held by the ESOP were considered outstanding in earnings per share calculations for all periods presented.
Defined Contribution Plans: The Company offers employee savings plans for all domestic and Canadian employees not cov-
ered by certain collective bargaining agreements. The Company’s contributions under these plans are based on a
specified percentage of employee contributions. Charges to operations for these plans in 2006, 2005, and 2004 were
$4,213, $4,654, and $3,455, respectively.

(cid:3) Note K: Stock Benefit Plans (cid:3)

The Company provides for equity-based incentives to be awarded to key employees through the 1998 Equity and
Performance Incentive Plan, the 1987 Stock Option Plan, and the Amended and Restated 1997 Stock-Based Incentive
Plan, and to nonemployee directors through the Nonemployee Director Stock Option Plan adopted in 2002.
1998 Equity and Performance Incentive Plan: This plan provides for the issuance of stock options and restricted stock, which
may include performance criteria, as well as stock appreciation rights, deferred shares, restricted stock units, per-
formance shares, and performance units. At April 30, 2006, there were 1,393,913 common shares available for future
issuance under this plan, excluding performance shares and performance units granted, but not yet earned, as of
April 30, 2006, and discussed in greater detail below. Of this total amount available for issuance, the amount of
restricted shares and deferred shares available for issuance is limited to 558,585 common shares. Restricted shares
and deferred shares issued under this plan are subject to a risk of forfeiture for at least three years in the event of
termination of employment or failure to meet performance criteria, if any. Restricted shares and deferred shares
issued to date under the plan are generally subject to a four-year forfeiture period, but may provide for the earlier
termination of restrictions in the event of the retirement, the attainment of a defined age and service requirements,
permanent disability or death of an employee, or a change in control of the Company. Options granted under this plan
become exercisable at the rate of one-third per year, beginning one year after the date of grant, and the option price
is equal to the market value of the shares on the date of the grant.

The Company issued 189,240 restricted shares and 10,400 deferred shares in 2006 with a grant-date fair value of
$50.11, and 133,500 restricted shares in 2004, with a grant-date fair value of $38.15. No restricted or deferred shares
were granted in 2005. Also in 2006, the Company granted performance units and performance shares to certain exec-
utives. At the end of the one-year performance period, the performance units and performance shares are converted
into restricted shares based on the results of the performance period compared to the pre-established performance
criteria. The performance units and performance shares granted in 2006 were converted into 63,310 restricted
shares in June 2006 at a fair value of $40.15 per share. The restricted shares are subject to a forfeiture period as
discussed above.
1987 Stock Option Plan: Options granted under this plan become exercisable at the rate of one-third per year, beginning
one year after the date of grant, and the option price is equal to the market value of the shares on the date of the
grant. There are 4,494 common shares available for future grant under this plan.
Amended and Restated 1997 Stock-Based Incentive Plan: This plan was initially adopted by shareholders of Multifoods in 1997.
Effective with the Company’s acquisition of Multifoods, the Company assumed the plan. After the acquisition, only
former employees of Multifoods that are employed by the Company will be eligible to receive awards under the plan.
There are 247,901 common shares available for future grant under this plan.

As a result of the acquisition, the Company also assumed two additional stock benefit plans. However, no common
shares are available for future grant under these plans.
Nonemployee Director Stock Option Plan: This plan provides for the issuance of stock options to nonemployee directors annu-
ally, on September 1, of each year. Options granted under this plan become exercisable six months after the date of
grant, and the option price is equal to the market value of the shares on the date of the grant. There are 36,510
common shares available for future grant under this plan.

A summary of the Company’s stock option activity, and related information follows:

Outstanding at May 1, 2003

Granted

Exercised

Forfeited

Outstanding at April 30, 2004

Assumed in the Multifoods acquisition

Granted

Exercised

Forfeited

Outstanding at April 30, 2005

Granted

Exercised

Forfeited

Outstanding at April 30, 2006

Exercisable at April 30, 2004

Exercisable at April 30, 2005

Exercisable at April 30, 2006

Weighted-
Average
Exercise
Price

$28.03

43.32

25.22

33.98

$30.64

41.77

44.21

30.87

47.31

$35.53

47.78

24.84

48.46

$36.03

$25.58

32.68

36.03

Options

2,616,085

388,000

(385,455)

(55,057)

2,563,573

921,824

549,000

(740,024)

(122,191)

3,172,182

12,000

(191,464)

(54,606)

2,938,112

1,407,281

2,024,247

2,938,112

The following table summarizes the range of exercise prices and weighted-average exercise prices for options out-
standing and exercisable at April 30, 2006, under the Company’s stock benefit plans.

Range of
Exercise Prices

$16.87-$25.30

$25.31-$38.00

$38.01-$57.09

Outstanding

556,530

1,135,908

1,245,674

Weighted-
Average
Exercise Price

$22.26

32.91

45.03

Weighted-
Average
Remaining
Contractual
Life (years)

3.5

5.6

7.0

Exercisable

556,530

1,135,908

1,245,674

Weighted-
Average
Exercise Price

$22.26

32.91

45.03

(cid:3) Note L: Long-Term Debt and Financing Arrangements (cid:3)

Long-term debt consists of the following:

6.77% Senior Notes due June 1, 2009

7.70% Series A Senior Notes due September 1, 2005

7.87% Series B Senior Notes due September 1, 2007

7.94% Series C Senior Notes due September 1, 2010

4.78% Senior Notes due June 1, 2014

6.60% Senior Notes due November 13, 2009

Total long-term debt

Current portion of long-term debt

Total long-term debt less current portion

April 30,

2006

2005

$ 75,000

—

33,000

10,000

100,000

210,602

17,000

33,000

10,000

100,000

213,560

$428,602

$448,560

—

17,000

$428,602

$431,560

The notes are unsecured and interest is paid annually on the 6.60 percent Senior Notes and semiannually on the
remaining notes. The 6.60 percent Senior Notes are guaranteed by Diageo plc. The guarantee may terminate, in lim-
ited circumstances, prior to the maturity of the notes. Among other restrictions, the note purchase agreements con-
tain certain covenants relating to liens, consolidated net worth, and sale of assets as defined in the agreements. The
Company is in compliance with all covenants.

The Company has available a $180 million revolving credit facility with a group of three banks. Interest on the revolv-
ing credit facility is based on prevailing U.S. prime, Canadian Base Rate, LIBOR, or Canadian CDOR, as determined
by the Company, and is payable either on a quarterly basis, or at the end of the borrowing term. At April 30, 2006,
the Company had approximately $28.6 million outstanding under the revolving credit facility at a weighted average
interest rate of 4.08 percent. At April 30, 2006, the Company had standby letters of credit of approximately $16.9 mil-
lion outstanding.

Interest paid totaled $29,374, $29,075, and $10,364 in 2006, 2005, and 2004, respectively. This differs from interest
expense due to the timing of payments, amortization of the fair value adjustment on the 6.60 percent Senior Notes,
amortization of deferred interest rate swap gains, and interest capitalized of $507, $1,000, and $1,850 in 2006, 2005,
and 2004, respectively.

(cid:3) Note M: Contingencies (cid:3)

The Company, like other food manufacturers, is from time to time subject to various administrative, regulatory, and
other legal proceedings arising in the ordinary course of business. The Company is not currently party to any pend-
ing proceedings which could reasonably be expected to have a material adverse effect on the Company.

In September 2002, Multifoods sold its foodservice distribution business to Wellspring Distribution Corporation
(“Wellspring”) while continuing to guarantee certain real estate and tractor-trailer fleet lease obligations of the busi-
ness. As a result of the Company’s acquisition of Multifoods, the Company now is obligated under these guarantees.
The guarantee requires the lessor to pursue collection and other remedies against Wellspring before demanding pay-
ment from the Company. In addition, the Company’s obligation related to the tractor-trailer fleet lease is limited to 75
percent of the amount outstanding after the lessor has exhausted its remedies against Wellspring. The fleet guaran-
tee will expire in September 2006, and the real estate guarantees will expire in September 2010.

The possibility that the Company would be required to honor the contingent liabilities under the guarantee is largely
dependent upon the future operations of Wellspring and the value of the underlying leased properties. The Company
currently has no liability recorded related to the guarantee. Should a reserve be required in the future, it would be
recorded at the time the obligation was considered to be probable and estimable.

At April 30, 2006, the Company’s guarantees outstanding for the lease obligations of Wellspring were $9,218 related
to the tractor-trailer fleet lease and $8,633 related to the real estate lease.

(cid:3) Note N: Derivative Financial Instruments (cid:3)

The Company is exposed to market risks, such as changes in interest rates, currency exchange rates, and commodity
pricing. To manage the volatility relating to these exposures, the Company enters into various derivative transactions.
Commodity Price Management: In connection with the purchase of raw materials used by the Company’s flour and baking
business in Canada, and the consumer oils and baking business in the United States, the Company enters into com-
modity futures and options contracts to manage the price volatility and reduce the variability of future cash flows
related to anticipated inventory purchases of wheat, flour, and edible oils. The Company also enters into commodity
futures and options related to the delivery of natural gas to its manufacturing plants in the United States. The deriv-
ative instruments generally have maturities of less than one year. Certain of the derivative instruments associated
with the Company’s oils business meet the hedge criteria according to Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities, and are accounted for as cash flow hedges.
The mark-to-market gains or losses on qualifying hedges are deferred and included as a component of other com-
prehensive income or loss to the extent effective, and reclassified into cost of products sold in the period during which
the hedged transaction affects earnings.

In order to qualify as a hedge of commodity price risk, it must be demonstrated that the changes in the fair value of
the commodities futures contracts are highly effective in hedging price risks associated with the commodity pur-
chased. Hedge ineffectiveness is measured on a quarterly basis. The mark-to-market gains or losses on nonqualify-
ing, excluded, and ineffective portions of hedges are recognized in cost of products sold immediately.

The mark-to-market value of all derivative commodity instruments is included in current assets on the Consolidated
Balance Sheets. As of April 30, 2006 and 2005, the deferred gain, net of tax, included in accumulated other compre-
hensive income (loss) was $720 and $916, respectively. The entire amount at April 30, 2006, is expected to be rec-
ognized in earnings as the related commodity is utilized during 2007. The impact of commodities futures contracts
and options recognized in earnings was a gain of $637 in 2006, a loss of $10,915 in 2005, and a gain of $3,967 in
2004. Included in these amounts are amounts related to nonqualifying, excluded, and ineffective portions of hedges
resulting in a gain of $1,742 in 2006, a loss of $2,389 in 2005, and a gain of $351 in 2004.
Interest Rate Hedging: The Company’s policy is to manage interest cost using a mix of fixed- and variable-rate debt. To
manage this mix in a cost efficient manner, the Company may periodically enter into interest rate swaps in which the
Company agrees to exchange, at specified intervals, the difference between fixed and variable interest amounts cal-
culated by reference to an agreed-upon notional principal amount. The interest rate swap agreements effectively
modify the Company’s exposure to interest risk by converting a portion of the Company’s fixed-rate debt to a floating
rate. The interest rate swap and the instrument being hedged is marked to market in the balance sheet. The mark-
to-market value of both the fair value hedging instruments and the underlying debt obligations are recorded as equal
and offsetting gains or losses in other income or expense. No other cash payments are made unless the contract is
terminated prior to maturity, in which case the amount paid or received in settlement is established by agreement at
the time of termination, and usually represents the net present value, at current rates of interest, of the remaining
obligations to exchange payments under the terms of the contract. Any gains or losses upon the early termination of
the interest rate swap contracts are deferred and recognized over the remaining life of the contract. At April 30, 2006
and 2005, the balance of the deferred gains related to terminated swaps was $1,395 and $2,334, respectively, and is
included in other noncurrent liabilities on the Consolidated Balance Sheets.
Foreign Exchange Rate Hedging: The Company may periodically utilize forward currency exchange contracts with maturities
of less than one year. These contracts are used to hedge the effect of foreign exchange fluctuations on future cash
payments related to purchases of certain assets. These contracts are accounted for as cash-flow hedges with associ-
ated mark-to-market gains and losses deferred and included as a component of other comprehensive income or loss.
These gains or losses are reclassified to earnings in the period the futures contracts are executed. The mark-to-
market value of all foreign exchange rate derivatives are included in other current assets on the Consolidated Balance
Sheets. Included in accumulated other comprehensive income (loss) was a deferred gain, net of tax, of $8 at April 30, 2005.

(cid:3) Note O: Other Financial Instruments (cid:3)

Financial instruments, other than derivatives, that potentially subject the Company to significant concentrations of
credit risk consist principally of cash investments, marketable securities, and trade receivables. The Company places
its cash investments with high quality financial institutions and limits the amount of credit exposure to any one insti-
tution. The Company’s marketable securities are in debt securities. Under the Company’s investment policy, it will
invest in securities deemed to be investment grade at time of purchase. Currently, these investments are defined as
mortgage-backed obligations, corporate bonds, municipal bonds, federal agency notes, and commercial paper. The
Company determines the appropriate categorization of its debt securities at the time of purchase and reevaluates
such designation at each balance sheet date. The Company has categorized all debt securities as available for sale
because it currently has the intent to convert these investments into cash if and when needed. With respect to trade
receivables, concentration of credit risk is limited due to the large number of customers. The Company does not
require collateral from its customers. The fair value of the Company’s financial instruments, other than certain of its
fixed-rate long-term debt, approximates their carrying amounts. The fair value of the Company’s fixed-rate long-term
debt, estimated using current market rates and a discounted cash flow analysis, was approximately $423,845 at
April 30, 2006.

The following table provides information on the carrying amount and fair value of financial instruments, including
derivative financial instruments.

Marketable securities

Current

Noncurrent

Long-term debt

April 30, 2006

Carrying
Amount

Fair Value

April 30, 2005

Carrying
Amount

Fair Value

$ 14,882

$ 17,739

34,107

59,074

6.77% Senior Notes due June 1, 2009

75,000

78,262

7.70% Series A Senior Notes due September 1, 2005

7.87% Series B Senior Notes due September 1, 2007

7.94% Series C Senior Notes due September 1, 2010

4.78% Senior Notes due June 1, 2014

6.60% Senior Notes due November 13, 2009

Derivative financial instruments (net assets)

—

33,000

10,000

100,000

210,602

1,030

—

34,193

10,974

93,121

207,295

1,030

75,000

17,000

33,000

10,000

100,000

213,560

1,754

82,185

17,347

36,051

11,654

98,892

219,668

1,754

(cid:3) Note P: Income Taxes (cid:3)

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax reporting. Significant components of
the Company’s deferred tax assets and liabilities are as follows:

Deferred tax liabilities:

Intangible assets

Depreciation and amortization

Pension and other employee benefits

Other

Total deferred tax liabilities

Deferred tax assets:

Loss carryforwards

Post-employment and other employee benefits

Tax credit carryforwards

Intangible assets

Other

Total deferred tax assets

Valuation allowance for deferred tax assets

Total deferred tax assets less allowance

Net deferred tax liability

April 30,

2006

2005

$134,011

$130,711

64,293

11,409

4,522

68,228

9,001

4,815

$214,235

$212,755

$ 37,867

$ 64,160

35,461

12,203

4,990

12,216

41,237

12,139

7,103

13,109

$102,737

$137,748

(24,024)

(24,280)

$ 78,713

$113,468

$135,522

$ 99,287

The following table summarizes domestic and foreign loss carryforwards at April 30, 2006.

Loss carryforwards:

Federal net operating loss

Federal capital loss

State net operating loss

Foreign capital loss

Total loss carryforwards

Related Tax
Deduction

Deferred
Tax Asset

Expiration Date

$ 65,737

$23,008

2022 to 2024

19,380

140,492

7,646

7,049

5,236

2,574

2009 to 2011

2007 to 2027

Indefinite

$233,255

$37,867

The following table summarizes tax credit carryforwards at April 30, 2006.

Tax credit carryforwards:

Foreign tax credit

Alternative minimum tax credit

Total tax credit carryforwards

Deferred
Tax Asset

Expiration Date

$ 9,512

2010 to 2015

2,691

Indefinite

$12,203

The valuation allowance at April 30, 2006, includes approximately $23,119 for the above domestic and foreign loss
and tax credit carryforwards. Approximately $10,197 of the valuation allowance, if subsequently recognized as a tax
benefit, would be allocated to reduce goodwill.

Domestic income and foreign withholding taxes have not been recorded on undistributed earnings of foreign sub-
sidiaries since these amounts are considered to be permanently reinvested. Any additional taxes payable on the earn-
ings of foreign subsidiaries, if remitted, would be partially offset by domestic tax credits and deductions for foreign
taxes already paid. It is not practical to estimate the amount of additional taxes that might be payable on such undis-
tributed earnings.

Income from continuing operations before income taxes is as follows:

Domestic

Foreign

Year Ended April 30,

2006

2005

2004

$210,157

$187,780

$169,004

5,413

16,834

8,166

Income from continuing operations before income taxes

$215,570

$204,614

$177,170

The components of the provision for income taxes are as follows:

Current:

Federal

Foreign

State and local

Deferred

Year Ended April 30,

2006

2005

2004

$34,460

$28,645

$52,604

(81)

4,713

33,124

4,490

4,772

36,247

2,692

4,463

6,113

Total income tax expense – continuing operations

$72,216

$74,154

$65,872

Total income tax expense – discontinued operations

$ —

$ 4,725

$ 1,597

A reconciliation of the statutory federal income tax rate and the effective income tax rate follows:

Percent of Pretax Income

Statutory federal income tax rate

Increase (decrease) in income taxes resulting from:

State and local income taxes, net of federal income tax benefit

Other items – net

Effective income tax rate

Income taxes paid

2006

35.0%

0.8

(2.3)

33.5%

Year Ended April 30,
2005

35.0%

1.8

(0.6)

36.2%

2004

35.0%

0.7

1.5

37.2%

$5,882

$60,359

$70,927

(cid:3) Note Q: Accumulated Other Comprehensive Income (Loss) (cid:3)

Comprehensive income is included in the Statements of Consolidated Shareholders’ Equity. The components of accu-
mulated other comprehensive income (loss) as shown on the Consolidated Balance Sheets are as follows:

Balance at May 1, 2003

Reclassification adjustments

Current period credit

Income tax expense

Balance at April 30, 2004

Reclassification adjustments

Current period credit (charge)

Income tax benefit

Balance at April 30, 2005

Reclassification adjustments

Current period credit (charge)

Income tax (expense) benefit

Foreign
Currency
Translation
Adjustment

Minimum
Pension
Liability
Adjustment

Unrealized
Gain (Loss) on
Available-for-Sale
Securities

Unrealized Gain
on Cash Flow
Hedging
Derivatives

Accumulated
Other
Comprehensive
Income (Loss)

$ (6,698)

$ (9,426)

$ (296)

$ 236

$(16,184)

—

6,697

—

5,582

(2,179)

—

872

(327)

(381)

1,889

(554)

(381)

15,040

(3,060)

$ (1) $ (6,023)

$ 249

$ 1,190

$ (4,585)

—

15,185

(16,122)

—

5,812

—

(436)

161

(1,889)

(1,797)

1,467

156

6,129

$15,276

$(16,333)

(26)

$ 924

$ (159)

—

19,512

—

13,527

(4,817)

—

(1,025)

375

(1,467)

1,146

117

(1,467)

33,160

(4,325)

Balance at April 30, 2006

$34,788

$ (7,623)

$ (676)

$ 720

$ 27,209

(cid:3) Note R: Common Shares (cid:3)
Voting: The Company’s Amended and Restated Articles of Incorporation (“the Articles”) provide that each holder of an
outstanding common share is entitled to one vote on each matter submitted to a vote of the shareholders except for
the following specific matters:

(cid:4) any matter that relates to or would result in the dissolution or liquidation of the Company;
(cid:4) the adoption of any amendment of the articles of incorporation, or the regulations of the Company, or the adoption
of amended articles of incorporation, other than the adoption of any amendment or amended articles of incorpo-

ration that increases the number of votes to which holders of common shares are entitled or expand the matters

to which time phase voting applies;

(cid:4) any proposal or other action to be taken by the shareholders of the Company, relating to the Company’s rights

agreement or any successor plan;

(cid:4) any matter relating to any stock option plan, stock purchase plan, executive compensation plan, or other similar

plan, arrangement, or agreement;

(cid:4) adoption of any agreement or plan of or for the merger, consolidation, or majority share acquisition of the Company
or any of its subsidiaries with or into any other person, whether domestic or foreign, corporate or noncorporate,

or the authorization of the lease, sale, exchange, transfer, or other disposition of all, or substantially all, of the

Company’s assets;

(cid:4) any matter submitted to the Company’s benefit, stock option, compensation, or other similar plan; and
(cid:4) any matter relating to the issuance of common shares, or the repurchase of common shares that the Company’s
Board of Directors determines is required or appropriate to be submitted to the Company’s shareholders under the

Ohio Revised Code or applicable stock exchange rules.

On the matters listed above, common shares are entitled to ten votes per share, if they meet the requirements set
forth in the Articles. Shares which would be entitled to ten votes per share are:

(cid:4) common shares beneficially owned for four consecutive years as of the June 19, 2006, annual meeting record date;
(cid:4) common shares received as a result of the International Multifoods Corporation acquisition on June 18, 2004; or
(cid:4) common shares received through the Company’s various equity plans.

In the event of a change in beneficial ownership, the new owner of that share will be entitled to only one vote with
respect to that share on all matters until four years pass without a further change in beneficial ownership of the
share.
Shareholders’ Rights Plan: Pursuant to a shareholders’ rights plan established in 1999, one share purchase right is associ-
ated with each of the Company’s outstanding common shares.

Under the plan, the rights will initially trade together with the Company’s common shares and will not be exercisable.
In the absence of further action by the directors, the rights generally will become exercisable and allow the holder to
acquire the Company’s common shares at a discounted price if a person or group acquires ten percent or more of the
outstanding common shares. Rights held by persons who exceed the applicable thresholds will be void. Shares held
by members of the Smucker family are not subject to the thresholds. If exercisable, each right entitles the shareholder
to buy one common share at a discounted price. Under certain circumstances, the rights will entitle the holder to buy
shares in an acquiring entity at a discounted price.

The plan also includes an exchange option. In general, if the rights become exercisable, the directors may, at their
option, effect an exchange of part or all of the rights, other than rights that have become void, for common shares.
Under this option, the Company would issue one common share for each right, in each case subject to adjustment in
certain circumstances.

The Company’s directors may, at their option, redeem all rights for $0.01 per right, generally at any time prior to the
rights becoming exercisable. The rights will expire May 14, 2009, unless earlier redeemed, exchanged, or amended
by the directors.

Report of Management on Responsibility for Financial Reporting

(cid:2)

Shareholders
The J. M. Smucker Company

Management of The J. M. Smucker Company is responsible for the preparation, integrity, accuracy, and consistency
of the consolidated financial statements and the related financial information in this report. Such information has
been prepared in accordance with U.S. generally accepted accounting principles and is based on our best estimates
and judgments.

The Company maintains systems of internal accounting controls supported by formal policies and procedures that are
communicated throughout the Company. There is an extensive program of audits performed by the Company’s inter-
nal audit staff and independent registered public accounting firm designed to evaluate the adequacy of and adher-
ence to these controls, policies, and procedures.

Ernst & Young LLP, independent registered public accounting firm, has audited the Company’s financial statements
in accordance with the Standards of the Public Company Accounting Oversight Board. Management has made all
financial records and related data available to Ernst & Young LLP during its audit.

The Company’s audit committee, comprised of three nonemployee members of the Board of Directors, meets regu-
larly with the independent registered public accounting firm and management to review the work of the internal audit
staff and the work, audit scope, timing arrangements, and fees of the independent registered public accounting firm.
The audit committee also regularly satisfies itself as to the adequacy of controls, systems, and financial records. The
manager of the internal audit department is required to report directly to the chair of the audit committee as to inter-
nal audit matters.

It is the Company’s best judgment that its policies and procedures, its program of internal and independent audits,
and the oversight activity of the audit committee work together to provide reasonable assurance that the operations
of the Company are conducted according to law and in compliance with the high standards of business ethics and
conduct to which the Company subscribes.

Timothy P. Smucker
Chairman and
Co-Chief Executive Officer

Richard K. Smucker
President and
Co-Chief Executive Officer

Mark R. Belgya
Vice President,
Chief Financial Officer
and Treasurer

Directors, Officers, and General Managers

(cid:2)(cid:2)The J. M. Smucker Company

(cid:3) Officers & General Managers (cid:3)

Timothy P. Smucker
Chairman and Co-Chief Executive Officer

Sonal P. Robinson
Assistant Secretary

Richard K. Smucker
President and Co-Chief Executive Officer

Gary A. Jeffcott
General Manager, International Market

Mark R. Belgya
Vice President, Chief Financial Officer
and Treasurer

Vincent C. Byrd
Senior Vice President, Consumer Market

John W. Denman
Vice President and Controller

Barry C. Dunaway
Vice President, Corporate Development

Fred A. Duncan
Senior Vice President, Special Markets

Robert E. Ellis
Vice President, Human Resources

M. Ann Harlan
Vice President, General Counsel
and Secretary

Donald D. Hurrle, Sr.
Vice President, Sales, Grocery Market

John F. Mayer
Vice President, Customer Development

John D. Milliken
Vice President, Logistics and
Fruit Processing

Steven Oakland
Vice President and General Manager,
Consumer Oils and Baking

Andrew G. Platt
Vice President, Information
Services and Chief Information Officer

Christopher P. Resweber
Vice President, Marketing Services

Mark T. Smucker
Vice President, International Market
and Managing Director, Canada

Richard F. Troyak
Vice President, Operations

Paul Smucker Wagstaff
Vice President, Foodservice
and Beverage Markets

Adam M. Ekonomon
Assistant General Counsel
and Assistant Secretary

Debra A. Marthey
Assistant Treasurer

Julia L. Sabin
General Manager, Beverage Market

(cid:3) Properties (cid:3)

Corporate Offices:
Orrville, Ohio

Domestic Locations:
Chico, California

Cincinnati, Ohio

Grandview, Washington

Havre de Grace, Maryland

Lexington, Kentucky

Memphis, Tennessee

New Bethlehem, Pennsylvania

Orrville, Ohio

Oxnard, California

Ripon, Wisconsin

Scottsville, Kentucky

Toledo, Ohio

West Fargo, North Dakota*

International Manufacturing Locations:
Burlington, Ontario, Canada

Delhi Township, Ontario, Canada

Dunnville, Ontario, Canada

Livingston, Scotland

Montreal, Quebec, Canada (bakery mix

facility)**

Montreal, Quebec, Canada (flour mill)

Port Colborne, Ontario, Canada**

Ste. Marie, Quebec, Canada

Saskatoon, Saskatchewan, Canada

Sales and Administrative Offices: *
Bentonville, Arkansas
Calgary, Alberta, Canada

Markham, Ontario, Canada

Mexico City, Mexico

Rexdale, Ontario, Canada

* Leased properties
** Land is leased under a long-term

arrangement. However, the building
is owned.

(cid:3) Directors (cid:3)

Vincent C. Byrd
Senior Vice President, Consumer Market
The J. M. Smucker Company

R. Douglas Cowan A
Chairman and Chief Executive Officer
The Davey Tree Expert Company
Kent, Ohio

Kathryn W. Dindo A, E
Vice President and Chief Risk Officer
FirstEnergy Corp.
Akron, Ohio

Paul J. Dolan E
President
Cleveland Indians
Cleveland, Ohio

Fred A. Duncan
Senior Vice President, Special Markets
The J. M. Smucker Company

Elizabeth Valk Long A, E
Former Executive Vice President
Time Inc.
New York, New York

Charles S. Mechem, Jr. E, G
Retired Chairman
Convergys Corporation
Cincinnati, Ohio

Gary A. Oatey G
Chairman and Chief Executive Officer
Oatey Co.
Cleveland, Ohio

Richard K. Smucker
President and Co-Chief Executive Officer
The J. M. Smucker Company

Timothy P. Smucker
Chairman and Co-Chief Executive Officer
The J. M. Smucker Company

William H. Steinbrink G
Former Interim President
Wittenberg University
Springfield, Ohio

A Audit Committee Member
E Executive Compensation Committee

Member

G Nominating and Corporate Governance

Committee Member

Corporate and Shareholder Information

(cid:3)(cid:3)The J. M. Smucker Company

Corporate Offices
The J. M. Smucker Company
Strawberry Lane
Orrville, Ohio 44667
Telephone: (330) 682-3000

Stock Listing
The J. M. Smucker Company’s common shares are listed on
the New York Stock Exchange — ticker symbol SJM.

Corporate Web Site
To learn more about The J. M. Smucker Company, visit
www.smuckers.com.

Annual Meeting
The annual meeting will be held at 11:00 a.m. Eastern
Daylight Time, Thursday, August 17, 2006, in Fisher
Auditorium at the Ohio Agricultural Research and Develop-
ment Center, 1680 Madison Avenue, Wooster, Ohio 44691.

Corporate News and Reports
Corporate news releases, annual reports, and Securities
and Exchange Commission filings, including Forms 10-K,
10-Q, and 8-K, are available free of charge on the Company’s
Web site. They are also available without cost to share-
holders who submit a written request to:

The J. M. Smucker Company
Strawberry Lane
Orrville, Ohio 44667
Attention: Secretary

Certifications
The Company’s Chief Executive Officers and Chief
Financial Officer have certified to the New York Stock
Exchange that they are not aware of any violation by the
Company of New York Stock Exchange corporate gover-
nance standards. The Company has also filed with the
Securities and Exchange Commission certain certifications
relating to the quality of the Company’s public disclosures.
These certifications are filed as exhibits to the Company’s
Annual Report on Form 10-K.

Independent Registered Public Accounting Firm
Ernst & Young LLP
Akron, Ohio

Dividends
The Company’s Board of Directors typically declares
a cash dividend each quarter. Dividends are generally
payable on the first business day of March, June,
September, and December. The record date is
approximately two weeks before the payment date.
The Company’s dividend disbursement agent is
Computershare Investor Services, LLC.

Shareholder Services
The transfer agent and registrar for the Company,
Computershare Investor Services, LLC, is responsible
for assisting registered shareholders with a variety of
matters including:

(cid:2) Shareholder investment program (BYDSSM)

– direct purchase of Company common shares

– dividend reinvestment

– automatic monthly cash investments

(cid:2) Book-entry share ownership
(cid:2) Share transfer matters (including name
changes, gifting, and inheritances)
(cid:2) Direct deposit of dividend payments
(cid:2) Nonreceipt of dividend checks
(cid:2) Lost share certificates
(cid:2) Changes of address
(cid:2) On-line shareholder account access
(cid:2) Form 1099 income inquiries (including requests

for duplicate copies)

Shareholders may contact Shareholder Relations at
the corporate offices regarding other shareholder
inquiries.

Transfer Agent and Registrar
Computershare Investor Services, LLC
2 North LaSalle Street
P.O. Box A3309
Chicago, Illinois 60602-3309
Telephone: (800) 456-1169
Telephone outside the U.S., Canada, and Puerto Rico: (312) 360-5254
Web site: www.computershare.com/contactus

This annual report includes certain forward-looking statements that are based on current expectations and are subject to a number of risks and uncertainties.
Please reference “Forward-Looking Statements” located on page 19 in the Management’s Discussion and Analysis section.

©/TM/® The J. M. Smucker Company, except Pillsbury, Pillsbury BEST, the Barrelhead logo and the Doughboy character are trademarks of The Pillsbury
Company, used under license. Oreo and the Oreo Wafer design are trademarks of Kraft Foods Holdings, Inc., used under license. Splenda and Splenda
design are trademarks of McNeil Nutritionals, LLC.

(cid:2) All the Goodness of Smucker’s® In a Store (cid:2)

Simply Smucker’s® continues to serve as our showcase store featuring our family of

icon brands. In addition to your favorite products from Smucker’s ®, Jif ®, Pillsbury ®,

Crisco ®, Hungry Jack ®, Dickinson’s ®, and Martha White ®, you’ll find a unique selection

of specialty gifts and accessories for the home and kitchen. We can also create

custom gift baskets and gift boxes especially for you! Enjoy our ice cream sundaes

topped with your favorite Smucker’s ® topping or try some of our fresh-baked, delicious

treats in the bakery. Don’t forget to join us for our annual ice cream social in July,

and bring the whole family to our holiday open house in November.

There’s always something new to enjoy at
Simply Smucker’s!
(cid:2)

Visit us when you’re in the neighborhood at

333 Wadsworth Road (Rt. 57, one-quarter mile north of Rt. 30)

Orrville, Ohio 44667

(330) 684-1500

Monday – Saturday 9:00 a.m. to 6:00 p.m. Closed Sunday
www.simplysmuckers.com

The J. M.Smucker Company
Strawberry Lane
Orrville, Ohio 44667
(330) 682-3000

www.smuckers.com

Miniature Breakfast
Quiches (page 3)

Peanut Butter
Fruit Dip (page 5)

Ingredients
Slices bacon, diced
3
1/3 Cup chopped onion
4
1/2 Teaspoon salt
1/4 Teaspoon pepper
11/2 Cups half & half
1

Eggs

(10 oz.) package frozen chopped spinach,
thawed and thoroughly drained

Preparation Time:

15 minutes
Bake Time:
30 minutes

Makes 12 servings

11/2 Cups grated Cheddar cheese
1

(8 oz.) can sliced water chestnuts,
drained and chopped

12 Slices soft white bread, trimmed

Crisco® Butter Flavor No-Stick Spray
Paprika

Preparation Time:

15 minutes
Makes 3 cups

Ingredients
2
Cups skim milk
1/2 Cup light sour cream
1

(3.4 oz.) package vanilla instant pudding
and pie filling mix
Cup Reduced Fat Jif® or Reduced Fat
Smucker’s® Creamy Natural

1/3 Cup sugar

Apple and banana slices
(or any fruit of your choice)

Creamy Macaroni
& Cheese (page 4)

Preparation Time:

5 minutes
Bake Time:
26 minutes

Makes 6 servings

Ultimate
Double Chocolate
Chip Cookies (page 4)

Preparation Time:

10 minutes
Bake Time:

8–13 minutes
Makes 3 dozen

Cheddar & Bacon
Smashed Potatoes
(page 6)

Preparation Time:

5 minutes
Cook Time:
20 minutes

Makes 10 servings

Ingredients

Crisco® No-Stick Spray

1/4 Cup breadcrumbs
1/4 Teaspoon paprika, if desired
2
2

Tablespoons melted butter or margarine
Cups dry small elbow macaroni, cooked
and drained (4 cups cooked)
Tablespoons butter or margarine
Tablespoons Pillsbury BEST®
All Purpose Flour
(12 oz.) can Pet® Evaporated Milk

2
2

1
1/2 Cup water
1/2 Teaspoon salt
2

Cups (8 oz.) shredded Cheddar or sharp
Cheddar cheese
Cup (4 oz.) pasteurized prepared cheese
product, cut into small cubes

Springtime
Cupcakes (page 4)

Preparation Time:

10 minutes

Bake Time:

18 minutes

Makes 24 cupcakes

Ingredients
1

(18.25 oz.) package Pillsbury® Moist
Supreme® Yellow, Classic White, or
Chocolate Cake Mix

Cup water

1/3 Cup Crisco® Vegetable Oil

Eggs

(16 oz.) containers Pillsbury® Creamy
Supreme® Vanilla Frosting
or 2 (12 oz.) containers Pillsbury®
Whipped SupremeTM Vanilla Frosting

Assorted colored sugar, food coloring,
sprinkles, decors, gumdrops and
candy-coated chocolate pieces

Ingredients
1 1/4 Cups firmly packed light brown sugar
3/4 Cup Butter Flavor Crisco®

Oriental Chicken
(pages 6–7)

All-Vegetable Shortening or
3/4 Butter Flavor Crisco® Stick
Tablespoons milk
Tablespoon vanilla extract
Large egg

2
1
1
1 3/4 Cups Pillsbury BEST® All Purpose Flour
1
3/4 Teaspoon baking soda
3/4 Cup semi-sweet chocolate chips
3/4 Cup semi-sweet mini chocolate chips

Teaspoon salt

Ingredients
12 Oz. boneless chicken breasts,
cut into 1/2-inch pieces
Tablespoons Crisco® Vegetable Oil

3
1/2 Teaspoon salt
4

Oz. fresh or frozen, thawed snow
peas

Preparation Time:

15 minutes
Cook Time:
20 minutes

Makes 4 servings

1/4 Cup whole blanched almonds
1/2 Cup Smucker’s® Apricot Preserves
Cup chicken broth
1/3
1 1/2 Tablespoons soy sauce
1 1/2 Tablespoons cornstarch
1/8 Teaspoon ground ginger
4-6 Cups hot cooked rice

Ingredients
2 1/2 Cups water
5
1
1
1

Tablespoons butter
Teaspoon salt
Cup heavy cream, half & half or milk
(4.9 oz.) package Hungry Jack®
Cheddar & Bacon Potatoes
Cups Hungry Jack® Mashed
Potato Flakes

Pumpkin Roll with
Crunchy Peanut
Butter Cream (page 7)

Preparation Time:

45 minutes
Bake Time:

10–13 minutes
Makes 10 servings

Cup powdered sugar
Teaspoons pumpkin pie spice

Ingredients
Cake
1/4
2
1/2 Teaspoon baking powder
1/2 Teaspoon baking soda
3/4 Cup Pillsbury BEST® All Purpose Flour
3
Eggs
3/4 Cup sugar
3/4 Cup solid pack pumpkin (not pie filling)
Filling
1
1
1/3 Cup Jif® Extra Crunchy Peanut Butter
1
Topping

(8 oz.) package cream cheese, softened
Cup powdered sugar

Teaspoon almond extract

Smucker’s® Caramel Sundae SyrupTM
Tablespoons cocktail peanuts, chopped

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Peanut Butter Fruit Dip
Directions
COMBINE milk, sour cream, and pudding mix in medium bowl. Whisk
until smooth. Stir peanut butter and sugar into pudding mixture;
mix until well blended. SERVE with sliced apples or banana chunks.
Store in refrigerator. If dip becomes too thick, stir in additional milk.

Miniature Breakfast Quiches
Directions
HEAT oven to 350°F. In small skillet over medium high heat cook diced
bacon and onion until bacon is crisp and onion is tender. Remove from
heat, drain and set aside. In large mixing bowl beat eggs with salt,
pepper and half & half. Stir in drained spinach, cheese, water chestnuts
and bacon mixture. Set aside. SPRAY one side of each slice of trimmed
bread with no-stick spray. Press one slice, sprayed side down, into each
muffin cup so that corners come up over edges of cup. Spoon about
1/4 cup spinach mixture into each bread-lined cup. SPRINKLE with
paprika. BAKE for 25–30 minutes, or until knife inserted in center
comes out clean.

Springtime Cupcakes
Directions
HEAT oven to 350°F. LINE 24 muffin cups with paper baking cups.
BAKE and cool cupcakes as directed on package using water, oil and
eggs. DECORATE the cooled cupcakes, using the following instructions if
desired. Tint frosting with drops of food coloring to desired shades, dividing
frosting if necessary. Generously frost cupcakes and sprinkle with colored
sugars, sprinkles or decors. To make flowers, flatten a few assorted color
gumdrops and snip around outside edges to make flower petals. Place
gumdrops of contrasting colors in the center of the flattened gumdrops.
Place on top of frosted cupcakes. To make hearts, flatten assorted color
gumdrops and cut into heart shapes. Place candy-coated chocolate pieces
in center of heart shapes and place on top of frosted cupcakes.

Creamy Macaroni & Cheese
Directions
COOK macaroni according to package directions. HEAT oven to 350°F.
Spray a 11/2 quart baking dish with no-stick spray; set aside. Combine
breadcrumbs, paprika and melted butter in a small bowl; set aside.
MELT remaining butter in a 4-quart saucepan; whisk in flour stirring
constantly until bubbly and lightly browned. Add evaporated milk,
water and salt; simmer, stirring until thickened. Stir in cheese; cook over
low heat until the mixture is smooth. Add cooked macaroni; stir until
cheese sauce coats noodles evenly. Pour into prepared baking dish.
Sprinkle with breadcrumb topping. BAKE for 26–28 minutes or until
bubbly and light golden brown.

Oriental Chicken
Directions
HEAT oil in wok or large skillet, add chicken, and cook until no longer pink
in center. Sprinkle chicken with salt. Add snow peas and almonds to wok;
cook and stir two minutes. MIX preserves, chicken broth, soy sauce,
cornstarch, and ginger; stir into wok with cooked chicken and vegetables.
Heat to boiling, stirring constantly, until thickened. Serve over rice.

Ultimate Double Chocolate Chip Cookies
Directions
HEAT oven to 375°F. Combine brown sugar, shortening, milk and vanilla
in large bowl. Beat at medium speed of electric mixer until light and
fluffy. Beat egg into creamed mixture. COMBINE flour, salt and baking
soda. Mix into creamed mixture until just blended. Stir in chocolate
chips. DROP rounded tablespoonfuls of dough 3 inches apart onto
ungreased baking sheet. BAKE for 8 –10 minutes for chewy cookies or
11–13 minutes for crisp cookies. Cool 2 minutes on baking sheet on a
cooling rack; remove cookies to rack to cool completely.

Pumpkin Roll with Crunchy Peanut Butter Cream
Directions
Cake: HEAT oven to 375°F. Sift powdered sugar generously over a 12" x 17"
area of a clean kitchen towel. GREASE 15" x 10" x 1" jelly-roll pan. Line pan
with waxed paper. Grease and flour the waxed paper. COMBINE pumpkin pie
spice, baking powder, soda and flour in a small bowl. BEAT eggs in mixing
bowl with electric mixer; gradually beat in sugar and pumpkin, scraping
bowl between additions. Add flour mixture. Spread batter evenly into pan.
BAKE for 10–13 minutes or until toothpick inserted in center comes out
clean. Immediately loosen the cake around the edges and invert cake onto
the prepared towel. Carefully remove wax paper. Roll the cake beginning at
the narrow end. Cool on a wire rack for 45 minutes.
Filling: BEAT cream cheese, powdered sugar, peanut butter and almond
extract in a medium bowl until well combined. Unroll cake; spread peanut
butter cream evenly to edges of the cake. Roll cake; wrap in plastic wrap
and refrigerate several hours before serving.
Topping: DRIZZLE with caramel syrup and chopped peanuts before serving.

Cheddar & Bacon Smashed Potatoes
Directions
COMBINE water, butter, salt, heavy cream, sauce mix, and cheddar &
bacon potatoes in a 3-quart saucepan. Heat just to boiling, stirring
occasionally; reduce heat and cover. SIMMER for 12–15 minutes, stirring
occasionally, until potatoes are tender. Add potato flakes, stir with
wooden spoon just until incorporated and lumpy texture is achieved.

Variation: For added zest, stir in 2 tablespoons pure horseradish with
potato flakes.