The J. M. Smucker Company
Annual Report 2009

Plain-text annual report

(cid:75)(cid:95)(cid:92)(cid:23)(cid:65)(cid:37)(cid:68)(cid:37)(cid:23)(cid:74)(cid:100)(cid:108)(cid:90)(cid:98)(cid:92)(cid:105)(cid:23)(cid:58)(cid:102)(cid:100)(cid:103)(cid:88)(cid:101)(cid:112) (cid:41)(cid:39)(cid:39)(cid:48)(cid:23)(cid:56)(cid:101)(cid:101)(cid:108)(cid:88)(cid:99)(cid:23)(cid:73)(cid:92)(cid:103)(cid:102)(cid:105)(cid:107)(cid:23) FINANCIAL HIGHLIGHTS 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 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 net income: Income before income taxes Merger and integration costs Cost of products sold – restructuring Other restructuring costs Income before income taxes, restructuring, and merger and integration costs Income taxes Income before restructuring and merger and integration costs Year Ended April 30, 2009 2008 $3,757,933 $2,524,774 $ 265,953 $ 3.12 $ 170,379 $ 3.00 $ 321,617 $ 3.77 118,422,123 4,700 $ 396,065 72,666 — 10,229 $ 178,881 $ 3.15 54,622,612 3,250 $ 254,788 7,967 1,510 3,237 $ 478,960 157,343 $ 267,502 88,621 $ 321,617 $ 178,881 CONTENTS Our Culture Letter to Shareholders Business Overview Our Commitment to Sustainability Our Store and Café Recipes Five-Year Summary of Selected Financial Data Summary of Quarterly Results of Operations Stock Price Data Comparison of Five-Year Cumulative Total Shareholder Return Management’s Discussion and Analysis Report of Management on Internal Control Over Financial Reporting Report of Management on Responsibility for 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 Directors and Officers Properties Corporate and Shareholder Information 1 2 4 11 12 13 15 16 16 17 18 28 28 29 30 31 36 62 62 63  Why We Are, Who We Are ...Our Culture ® A culture of dotting the i’s and crossing the t’s… Of doing the right things and doing things right… ® A culture of growth — individual and as a company. It’s who we are. It’s because of who we are. It’s a result of living our Basic Beliefs… Our Commitment to Each Other. To our consumers and to our customers. As we look to the future of unlimited possibilities, we recognize the principles that are instrumental to our success… A culture deeply rooted in our Basic Beliefs… Guideposts for decisions at every level... Why we are who we are. Knott’s Buff Black PMS 871 A culture that encourages commitment to each other… Clear communication and collaboration… Vision…A culture of appreciation. ® A family-sense of sharing in a job well done… Where every person makes a difference. ® ® Dear Shareholders and Friends: This past fiscal year has been one of the most remark- able and unprecedented in our Company’s history. We delivered excellent results across the business while successfully completing the largest merger in our history. In November 2008, we added Folgers—the #1 U.S. Retail coffee brand—to our portfolio. The strategic rationale for this transaction is compelling: W Expands our portfolio of strong, #1 food brands in North America. W Adds a nearly $2 billion brand that delivers strong profitability and increased cash flow. W Continues to enhance our size and scale. W Expands our product offerings to consumers throughout the day and evening. W Enhances our organization with talented new employees and provides all employees with growth opportunities as part of a Company strongly rooted in our Basic Beliefs of Quality, People, Ethics, Growth, and Independence. Fiscal Year 2009 Our fiscal year results are particularly gratifying given challenges in the broader economy and record commod- ity costs that pressured margins during the first half of the year. Our results reflect the continued imple- mentation of our Strategy and the considerable talent and dedication of our employees: W Sales were $3.8 billion, up 49 percent over last year. W Net income per share was $3.12, up from $3.00 last year, a four percent increase. W Cash flow from operations exceeded $440 million. Total cash and investments as of April 30, 2009, were $470 million. W In addition to our regular dividend payments, a special one-time dividend of $5.00 per share was issued to Smucker shareholders of record as of September 30, 2008. This one-time dividend was part of the overall Folgers transaction and an example of how we continue to provide long- term value to our shareholders. Long-Term Performance We are confident that our exceptional employees and strong portfolio of leading, icon brands will continue to deliver long-term growth. As we look forward, we expect to grow sales by six percent and earnings per share by eight percent or more over the long term. Several favorable factors will fuel continued momentum: W We remain committed to a clear and proven strategy of owning and marketing leading food brands in North America. W Market share continues to grow across almost every category in which we compete and more than 75 percent of our sales come from #1 food brands. W Consumers are eating more meals at home. W Families continue to look for value and our brands offer a variety of choices. Value refers not only to the price consumers pay, but the quality, convenience, and overall product experience they receive for the price. Quality has been one of our Basic Beliefs throughout our history and product safety is at the forefront of everything we do. We deeply value the trust that our consumers place in The J. M. Smucker Company and we work every day to preserve that trust. W The addition of Folgers has enabled the Company to leverage its distribution, sales, operations, and administrative functions and we are on track to achieve $80 million in stated synergies within the first 18 months of owning the Coffee business. Leveraging our increased scale will enable us to grow bottom-line profitability at a faster pace than our top-line growth. W We have an outstanding team, and they have delivered record core business results this year, while integrating the largest merger in our history. The commitment of our employees to the values and principles upon which the Company was founded will continue to guide how we do business in both prosperous and uncertain economic times. 2 At Smucker, Our Purpose is to bring families together to share memorable meals and moments. We have always defined success by more than financial performance. We believe how we do things is just as important as what we do. Our Purpose and Our Brands We offer consumers diverse brands and products that are part of everyday meals, casual get-togethers, and special occasions. And, more than just providing a meal or snack, The J.M. Smucker Company has a meaningful impact on society with a portfolio of brands that brings families together to share memorable meals and moments. These moments are repeated millions of times each day across North America and research suggests that time spent together builds stronger, healthier families. The world has changed dramatically since our Company was founded over 110 years ago. Life is more hurried, yet consumers continue to find comfort in simple pleasures enjoyed with family and friends. We take great pride in the small, but important role that our brands play in the lives of our consumers by offering trusted products during all parts of the day: W Each morning families awake to the fresh aroma of Folgers or Dunkin’ Donuts coffee and pour a glass of W And, in the evening, friends and family sit down to talk about their day while enjoying a cup of Folgers coffee with a piece of Pillsbury cake or a brownie. Bringing families together is best accomplished by employees who feel like family themselves. At Smucker, we maintain a unique family feeling by genuinely living our Basic Beliefs of Quality, People, Ethics, Growth, and Independence. Our Purpose is what brings Smucker employees to work every day. Our Strategy is what guides our organization in a common direction and is the framework for serving our consumers, customers, employees, suppliers, com- munities, and shareholders. We look forward to the continued successful integration of the Coffee business, leveraging our increased scale, and providing consumers with trusted, simple pleasures that are “good and good for you,” “easy for you,” and that “make you smile.” refreshing R.W. Knudsen Family juice. They start the We believe the best is yet to come for the Company and day together with warm biscuits made from Martha all our valued constituents. White flour and covered with Smucker’s preserves or Jif peanut butter. W For a meal or a snack, children and adults alike enjoy the homemade taste of peanut butter and jelly with Sincerely, a convenient Smucker’s Uncrustables sandwich. Tim Smucker Richard Smucker 3 Business Overview U.S. RETAIL COFFEE MARKET SEGMENT Folgers, Dunkin’ Donuts, and Millstone the U.S. Retail segments and was also representing the Coffee business for Procter & Gamble at the time of the merger. This continuity of representation, The Folgers merger added $856 million in sales and in combination with our experienced and talented $241 million in segment profit during fiscal 2009. Smucker sales force, has enabled us to hit the Folgers became the 12th brand in our Company’s ground running with our customers. portfolio that enjoys the #1 market share position in W A smooth transition and partnership with Procter & its category. As part of the merger, we also acquired the Millstone coffee brand and the licensing rights to manufacture and distribute Dunkin’ Donuts coffee products through retail channels. Dunkin’ Donuts coffee and Millstone coffee participate in the growing gourmet segment of the coffee category. The momentum of the Coffee business is significant. Coffee segment sales and profits for the period of Smucker ownership have exceeded the financial expecta- tions we established upon the close of the transaction in November 2008. We attribute this success to several factors: W The passion, dedication, and focus of our employees. W The strong, #1 market share position of the Folgers Gamble. Since the close of the transaction in November, a number of significant integration milestones have been achieved: W Our coffee organization is in place. W Customers can order and receive Folgers products along with the rest of our Smucker products. Smucker systems and processes are in place at all four of the coffee manu- facturing facilities. During fiscal 2009, Folgers coffee introduced an en- hanced, proprietary roasting process, which ensures rich, pure Mountain Grown taste in every cup. Folgers coffee beans are now pre-roasted to improve roasting consistency and ensure a rich taste. coffee brand across the United States. In addition to this unprecedented innovation, the W Continued rapid growth of Dunkin’ Donuts coffee in retail. Coffee business introduced Folgers Brazilian Blend, Folgers Gourmet Selections Brazilian Sunrise, and W Consumers are enjoying more meals at home in the Dunkin’ Donuts Dark. current economic environment. W The Folgers, Dunkin’ Donuts, and Millstone coffee brands are perfect complements to our other U.S. Retail products and position us well to offer consumers even more choices throughout the day and evening. W Advantage Sales and Marketing is our single national broker for the grocery business within We have been privileged to partner with Miriam Weinstein, the author of the thought-provoking and inspiring book, The Surprising Power of Family Meals, which details the far-reaching benefits of family mealtime and cites research that families that eat together are stronger, smarter, healthier, and happier. 4 During the second half of fiscal 2009, we were to pair beautifully with its famous jelly partner, and we pleased to update and release some of the best televi- offer consumers an increasing number of ways to enjoy sion advertising for our Folgers brand emphasizing the this “good for you” and affordable source of protein. core brand equity of Folgers: The Best Part of Wakin’ Up. In fiscal 2009, we introduced Reduced Fat Jif-to-Go — We look forward to introducing new television advertis- ing in fiscal 2010. We were honored this past year when Dunkin’ Donuts coffee was named the #2 most successful new prod- uct introduction in retail during calendar year 2008 by Information Resources, Inc. (IRI). U.S. RETAIL CONSUMER MARKET SEGMENT Smucker’s, Jif, and Hungry Jack individual servings of peanut butter for consumer convenience while away from home. We also introduced Sales and profits within our U.S. Retail Consumer another better for you alternative to our Jif product line Market Segment grew by 10 percent and seven percent, with the addition of Jif Natural peanut butter spread — respectively, in fiscal 2009. a no-stir, shelf-stable offering. Fruit Spreads and Peanut Butter The “Great American As the peanut butter category leader, we have made PB&J” has been part of family meals for generations and significant investments in advertising, new products, is particularly relevant for the comfort and value it offers and technology in recent years. During the past year we in the current economic environment. As consumers ran three new television advertising spots highlighting reach for what is America’s favorite sandwich, we continue to offer both traditional and new alternatives. During fiscal 2009, we introduced how Jif peanut butter helps bring families together to share memorable meals and moments. This campaign built on the brand’s core “choosy moms” equity. Toppings Smucker’s ice cream toppings help make desserts memorable at holiday celebrations, warm-weather gatherings, and other special occasions. Adding to the dessert experience in fiscal 2009 were Smuck- er’s Spoonables in Dark Chocolate or Apple Cinnamon and Magic Shell Cupcake flavored ice cream topping. Potatoes, Pancakes, Smucker’s Orchard’s Finest preserves. Consumers can enjoy this new fruit spreads offering in Strawberry, Blue- berry, Cherry, and Triple Berry. Consumers have trusted Knott’s Berry Farm jellies, jams, preserves, and syrups since 1920, and during fiscal 2009 we added this brand to our Company’s portfolio. Knott’s Berry Farm products complement our existing fruit spreads and expand our offerings, par- ticularly in the western part of the United States. Peanut butter, our second largest category, continues 6 For every occasion, our goal is to help families share special moments by offering a variety of quality products that are good and good for you, convenient, and that make you smile. and Syrup Everybody’s happy when it’s Hungry Jack, and during fiscal 2009 we made sure this was true for breakfast, lunch, or dinner. Hungry Jack Buttermilk or Blueberry wheat-blend pancakes offer consumers another “good for you” value alternative in the morning. New Hungry Jack potatoes in Redskin & Yukon Gold add variety and “easy for you” convenience to lunch and dinner. U.S. RETAIL OILS AND BAKING MARKET SEGMENT Crisco, Pillsbury, Eagle Brand, Martha White, White Lily, PET, and Magnolia Sales and profits within our U.S. Retail Oils and Baking Market Segment grew by 14 percent and 25 percent, respectively, in fiscal 2009. Over the past five years our U.S. leadership position in the baking aisle has continued to strengthen. Our portfolio of baking brands includes Crisco, Pillsbury, Eagle Brand, Martha White, White Lily, PET, and Magnolia. When all the categories in which these brands compete are combined, we are the largest supplier in the total baking category and our momentum has never been 7 stronger. Our success can be attributed to a focus on quality, innovation, and seamless implementation. Our consumers continually seek new and unique ways to meet their everyday and special-occasion baking needs. For the first time in many years, we are bringing Pillsbury cookies to the center of the store with the introduction of Funfetti, Chocolate Chunk, and Reduced-Sugar cookie mix varieties. The introduction of Pillsbury Brownie Minis brownie mix in Milk Chocolate and Chocolate Fudge prove that fun, convenience, and portion control can combine to create a delectable treat. And, whether you choose to frost Pillsbury Brownie Minis or a Pillsbury cake, frosting has never been easi- er— or more fun—than with our new, easy-to-dispense aerosol can that delivers the same great-tasting frosting as our ready-to-spread products. Consumers can frost an entire cake with a single can of Pillsbury Easy Frost frosting in a variety of flavors including Chocolate, Vanilla, and Cream Cheese. The Martha White brand has a rich history, and through the years has been indispensable in kitchens across the South. We aim to preserve the traditions of the brand, while offering Martha White consumers modern-day, convenient products. Our Crisco olive oil products are now available nationally and offer consumers a trusted brand in the “good for you” olive oil category. The growing success of these products was aided during the year with television advertising and other consumer support that highlighted the many uses for olive oil, including dressing a crisp salad, grilling flavorful vegetables, or baking a golden chicken. SPECIAL MARKETS SEGMENT Our Special Markets segment is primarily comprised of products that are distributed through channels other than traditional U.S. Retail markets. The businesses in this segment include Canada, Foodservice, Natural Foods, and International. Compared to fiscal 2008, our Special Markets segment grew sales and segment profits by 24 percent and 21 percent, respectively. Canada We offer Canadian consumers a variety of brands that hold the #1 position in the Canadian mar- ketplace including Smucker’s fruit spreads and toppings, Europe’s Best premium frozen fruits and vegetables, Carnation evaporated milk, Eagle Brand sweetened condensed milk, Robin Hood flour and baking mixes, and Bick’s pickles and condiments. Canadian sales were up 28 percent versus fiscal 2008, primarily driven by acquisitions. During fiscal 2009, we offered the Canadian consumer even more Crisco brand choices when we expanded distribution of Crisco olive oil into Canada with six new product offerings. “Good for you,” whole-wheat, all purpose flour was also introduced during the year under both the Robin Hood and Five Roses brands. Moving into fiscal 2010, Folgers coffee will be an increasingly important part of our Canadian portfolio. We will focus on expanding distribution and look forward to making Folgers coffee available to even more Canadian consumers. Foodservice The economy has been particularly challenging for the foodservice industry this year as con- sumers choose to eat more meals at home. With the addition of Folgers coffee, our overall Foodservice We strongly believe in the power of family meals as a way for family members to connect with one another and establish an important ritual that allows family and friends to grow together. 8 business grew by 34 percent in fiscal 2009. Our core business was down slightly, but fared better than the overall industry due to the strength of our branded products. Our first full year of Snack’n Waffles product sales was strong. Snack’n Waffles ready-to-eat, pre-sweetened waffles offer consumers a convenient, hand-held waffle to enjoy at home or on the go. Better for you, whole- grain varieties of Maple, Cinnamon, and Blueberry were introduced this year. Investments in our Scottsville manufacturing facil- Smucker Natural Foods, Inc., continues to meet ity have positioned us for continued growth of both consumer expectations for products that are “good and Smucker’s Uncrustables sandwiches and Snack’n Waffles good for you” and made in a sustainable manner. The ready-to-eat waffles. business is an industry sustainability leader, receiving The addition of coffee to the portfolio will expand our the California Waste Reduction Awards Program (WRAP) offerings to traditional customers and positions us well Award for the ninth consecutive year. with new customers, in new channels, including office New products introduced this past year include settings where coffee is a staple. R.W. Knudsen Family Organic Yumberry and Organic Smucker Natural Foods Smucker Natural Foods, Inc., formerly Smucker Quality Beverage, Inc., has been renamed to better reflect the broader set of products Goji Berry. Santa Cruz Organic ready-to-drink, Fair-Trade- CertifiedTM teas in Raspberry, Peppermint, Lemon, and Mango flavors were also introduced during the year. offered under the R.W. Knudsen Family and Santa Cruz International Consumers in more than 65 countries Organic brands and the strategic focus of the business beyond the United States and Canada continue to enjoy going forward. Over the years, the business has evolved our brands and products. Sales and profits grew by to offer natural food products in categories including three percent and 72 percent, respectively, during the beverages, peanut butter, dessert toppings, and fruit fiscal year. Puerto Rico is our largest export market and sauces. Across the categories in which it competes, our brands continue to enjoy #1 market positions across almost every category in which we compete. Our International business provides important insights into emerging trends and helps us maintain a global perspective on our consumers, customers, and suppliers. Special moments shared with one another provide the opportunity to teach valuable life lessons or to share stories that tie families together. 10 Our Commitment to Sustainability Create a better tomorrow by focusing on our environmental impact and social responsibility. OUR STRATEGIC FOCUS Since 1897, our Company has considered both environmental and social sustainability to be one of our many responsibilities as a good corporate citizen. Today, sustainability remains a key strategic focus area W Received the Waste Reduction Awards Program (WRAP) Award, administered by the California Integrated Waste Management Board, at our Chico, California, manufacturing facility for the ninth year. W Increased focus on the identification and implemen- tation of environmental sustainability opportunities for the Company. We keep our environmental impact across the Company by putting Green Teams in and social responsibilities at the forefront with a clear place at every manufacturing facility. set of sustainability goals that set the direction for our organization: W Reduce utility usage by 25% over next five years W Create zero waste – 75% reduction over five years W Maintain a social sustainability leadership role W Constructing a solar warehouse at our Chico, California, manufacturing facility that will have a zero-energy footprint upon completion. W Continuing to offer consumers a variety of organic products that restore, maintain, and enhance eco- logical harmony. OUR ENVIRONMENTAL IMPACT OUR SOCIAL RESPONSIBILITIES The Company has implemented and managed Smucker has a long track record of promoting a variety of programs, including the utilization of initiatives and programs that support and enhance the renewable energy technology, improved wastewater quality of life in the communities in which we operate. management, increased usage of sustainable raw ma- Education has always been a primary focus of our terials, and reuse of resources rather than consuming social sustainability resources. Examples include: new ones. Specific examples include: W Reduced the use of resin in Jif peanut butter jars by 2.2 million pounds —enough resin to produce 34 million jars. W Played a key role in the establishment of the Heartland Education initiative in Ohio, which focuses on improving education through a partner- ship between community organizations, parents, W Reduced delivery truck traffic and energy con- sumption when we began producing plastic bottles for Crisco products at our own manufac- schools, and local businesses. W Continuing to support United Way and Boys turing facility in Cincinnati, rather than having & Girls Clubs of the bottles shipped to us by a third party. W Received LEED Certification for new buildings and renovations on our Corporate Campus and America with our time and financial resources. other locations. 11 Bring this ad to The J.M. Smucker Company Store and Café and receive 10% off your entire purchase of $25 or more!* ADV062809 All the Goodness of Smucker’s®... In a Store! For over 110 years, The J.M. Smucker Company has been committed to bringing you quality products from its family of brands and helping families create memorable mealtime moments. Smucker’s Wall of Jam Today, we are pleased to continue this proud tradition by presenting our brands, our history, and our culture through a unique sensory experience at our Company Store. Company Museum Browse products and merchandise, learn about our Company’s heritage, and enjoy delicious recipes. We can also help you with gift baskets for friends, family, and business associates through the newly added custom gift basket corner. The Café Brand Products & Merchandise Custom Gift Baskets Unique Gift Sets Open Mon-Sat 9am-6pm • Route 57, 1/4 mi. N. of Route 30 • 333 Wadsworth Rd., Orrville, Ohio 44667 Phone: 330-684-1500 • www.smuckers.com With a Name Like Smucker’s, It Has to Be Good.® ©/™/® The J.M. Smucker Company. Pillsbury, the Barrelhead logo, and the Doughboy character are trademarks of The Pillsbury Company, LLC, used under license. *Offer valid through 12/31/09. Limit one coupon per customer per day. Asparagus with Citrus Dressing Prep time: 15 minutes Cook time: 6 minutes Ready in: 40 minutes Makes 4 to 5 servings Prep time: 10 minutes Cook time: 5 minutes Ready in: 15 minutes Makes 6 servings Prep time: 40 minutes Cook time: 1 minute Ready in: 1 hour Makes 8 servings Raspberry Mocha Mousse Parfaits Berries and Cream Cake Roll Cheesy Potato Pancakes with Sausage Prep time: 20 minutes Bake time: 10 minutes Ready in: 3 hours 15 minutes Makes 12 servings Ingredients 1 lb. asparagus 5 cups water 1 1/2 teaspoons salt, divided 3 tablespoons orange juice 2 tablespoons fresh lemon juice 2 teaspoons sugar 1 teaspoon Dijon-style mustard 1/4 teaspoon black pepper 1/3 cup Crisco® Light Olive Oil or Crisco Puritan® Omega-3 DHA Canola Oil Ingredients 4 (1 oz.) squares unsweetened chocolate 1 (14 oz.) can Eagle Brand® Sweetened Condensed Milk 1 1/2 teaspoons vanilla extract 1 tablespoon Folgers® Instant Coffee Crystals 1 teaspoon hot water 1 cup (1/2 pint) heavy cream 1 can refrigerated whipped cream 2 cups frozen Nature’s PeakTM Select Raspberries or fresh red raspberries Ingredients 1 (12 oz.) package breakfast sausage patties Crisco® Original No-Stick Cooking Spray 1 cup Hungry Jack® Buttermilk Complete Pancake & Waffle Mix 1 1/2 cups Hungry Jack® Mashed Potato flakes 2 1/2 cups milk 2 large eggs 2 tablespoons Crisco® Pure Vegetable Oil 2 tablespoons Hungry Jack® Regular Syrup (optional) 1/2 cup shredded carrots 1/4 cup sliced green onion 1/4 cup grated Parmesan cheese 1/2 cup shredded sharp Cheddar cheese Ingredients Crisco® No-Stick Cooking Spray with Pillsbury® Flour 4 large eggs, separated 3/4 cup granulated sugar 1 teaspoon vanilla extract 3/4 cup Pillsbury SOFTASILK® Cake Flour, or Pillsbury BEST® All Purpose Flour 3/4 teaspoon baking powder 1/4 teaspoon salt Powdered sugar 1 cup Smucker’s® Strawberry Preserves, or Smucker’s® Low SugarTM Strawberry Reduced Sugar Preserves 1 cup heavy cream Fresh fruit and mint sprigs for garnish (optional) ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ Ingredients Crisco® Original No-Stick Cooking Spray 1 1/4 cups Pillsbury BEST® All Purpose Flour 1/2 cup sugar 1 teaspoon baking powder 1/4 teaspoon salt 2 tablespoons Crisco® Pure Canola Oil 1 large egg 1/2 cup Smucker’s® Chunky Natural Peanut Butter, plus 1 tablespoon 1/2 cup Smucker’s® Low SugarTM Strawberry Reduced Sugar Preserves Ingredients 1/2 cup cornstarch 1/4 cup Pillsbury BEST® All Purpose Flour 1/4 cup soy sauce 1/4 cup sugar 2 large eggs, lightly beaten 2 green onions, chopped 2 cloves garlic, crushed 1 tablespoon sesame seeds 1 teaspoon salt 1 1/2 lbs. chicken wings, separated at joints, tips discarded Crisco® Pure Vegetable Oil Ingredients SALAD 2 (15 oz.) cans black beans, rinsed and drained 1/2 large sweet onion (such as Vidalia®), chopped fine 2 tomatoes, seeded and chopped 1/2 cup (about 8 oz.) chopped fresh mushrooms 1 fresh jalapeño pepper, seeded and minced PINEAPPLE BLUE CHEESE DIP 1/2 cup mayonnaise 1/2 cup sour cream 1/4 cup crumbled blue cheese 1 (8 oz.) can crushed pineapple, drained 1/8 teaspoon salt 1/8 teaspoon black pepper 1 teaspoon sugar APRICOT-PINEAPPLE SALSA 1 (24 oz.) container tropical mixed fruit, drained 1/4 cup Smucker’s® Apricot-Pineapple Preserves or Smucker’s® Apricot Preserves 1 tablespoon fresh lime juice 1 tablespoon fresh cilantro, chopped DRESSING 1/2 cup Crisco® Pure Vegetable Oil 1 teaspoon chili powder 1 clove garlic, minced 1/2 teaspoon salt Juice from 1 lime Cilantro (optional) Ingredients BURGER PATTIES 1 1/4 lbs. ground beef chuck 2 teaspoons jerk spice seasoning 1/2 teaspoon salt Cayenne pepper, to taste Crisco® Butter Flavor No-Stick Cooking Spray 4 slices provolone cheese, halved 8 (4-inch) pita pockets, with top 1/4 of pita cut off Caribbean Mini-Burgers with Apricot-Pineapple Salsa Hawaiian Chicken Wings with Pineapple Blue Cheese Dip Prep time: 15 minutes Bake time: 25 minutes Ready in: 1 hour 30 minutes Makes 16 servings Prep time: 15 minutes Cook time: 10 minutes Ready in: 25 minutes Makes 8 mini-burgers Prep time: 15 minutes Cook time: 10 minutes Ready in: 3 hours Makes 4 servings Prep time: 10 minutes Ready in: 10 minutes Makes 6 servings Peanut Butter Berry Bars Black Bean Salad crisco.com ©/® The J. M. Smucker Company ©/® The J. M. Smucker Company crisco.com hungryjack.com ©/TM/® The J. M. Smucker Company Pillsbury and Pillsbury BEST are trademarks of The Pillsbury Company, LLC, used under license. SPRAY skillet or griddle with no-stick cooking spray. Heat skillet over medium-high heat or electric griddle to 375°F. COMBINE pancake mix and potato flakes in large bowl. Whisk together milk, eggs and oil in medium bowl. Whisk in syrup, if desired. Add liquids to dry ingredients, stirring just until large lumps disappear. Blend in carrots, onion, Parmesan cheese and cooked sausage. POUR 1/4 cup batter for each pancake onto hot skillet or griddle. Cook 3 minutes. Turn. Cook an additional 2 to 3 minutes or until golden brown. Place 3 or 4 pancakes on dinner plate. Sprinkle with Cheddar cheese before serving. PLACE 5 cups water and 1 teaspoon salt in large deep skillet; bring to a boil. Add asparagus spears. Boil, uncovered, 4 to 5 minutes for thin spears, 8 to 10 minutes for thick spears, or until crisp-tender. Drain well. Transfer asparagus to serving plate. POUR sweetened condensed milk into large bowl. Beat in melted chocolate and vanilla. Dissolve coffee in hot water. Add to chocolate mixture, beating until smooth. Chill 15 minutes. Chill beaters and mixing bowl from electric mixer 10 minutes in preparation for next step. Raspberry Mocha Mousse Parfaits (Pictured on page 5 ) Directions MELT chocolate in a microwave-safe dish on HIGH (100% power) in 20-second intervals until melted. Stir until smooth. Cheesy Potato Pancakes with Sausage (Pictured on page 5 ) Directions COOK and crumble sausage patties in large skillet over medium heat until fully browned. Drain, if necessary. Asparagus with Citrus Dressing (Pictured on page 5 ) Directions SNAP off tough asparagus ends; discard. Peel ends of spears with sharp paring knife or vegetable peeler, if desired. BEAT cream in chilled bowl with chilled beaters until stiff. Fold into chilled chocolate mixture. Reserve 8 raspberries for garnish. Layer parfait glasses as follows: 1/4 cup chocolate mousse, refrigerated whipped cream, 1/4 cup raspberries, 1/4 cup chocolate mousse. Refrigerate parfaits 20 minutes before serving. Just before serving, garnish each with refrigerated whipped cream and single raspberry. COMBINE orange juice, lemon juice, sugar, mustard, pepper and remaining 1/2 teaspoon salt in jar with tight fitting lid; shake well. Add oil; shake well again. Pour as much dressing as desired over warm asparagus. Serve at room temperature. TIP: This salad can also be served chilled. Do not top spears with dressing until just prior to serving. Berries and Cream Cake Roll (Pictured on page 5 ) Directions HEAT oven to 375°F. Spray 15 x 10 x 1-inch jelly roll pan with no-stick cooking spray with flour. BEAT egg whites on high speed 4 to 5 minutes or until stiff peaks form. Beat egg yolks in separate bowl 3 minutes or until slightly thick and light yellow in color. Add sugar and vanilla to egg yolks; continue to beat 1 minute. Sift together flour, baking powder and salt in small bowl. Add to egg yolk mixture. Fold in beaten egg white. Pour into prepared pan, spreading batter evenly. BAKE 8 to 10 minutes or until golden brown. Sprinkle powdered sugar onto clean kitchen towel. Loosen cake edges from pan. Immediately invert onto towel. Gently roll towel and cake into a log, starting at long end. Cool completely, about 45 minutes. Chill beaters and mixing bowl from electric mixer 10 minutes in preparation for next step. STIR preserves slightly for easier spreading. Beat cream in chilled bowl with chilled beaters until stiff. Unroll cake; spread carefully with preserves, then with whipped cream. Reroll cake without towel. Wrap in plastic wrap. Chill 2 to 3 hours or overnight. SPRINKLE with powdered sugar; garnish with fruit and mint, if desired, before serving. ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ ✥ Hawaiian Chicken Wings with Pineapple Blue Cheese Dip (Pictured on page 9 ) Directions COMBINE cornstarch, flour, soy sauce, sugar, eggs, green onions, garlic, sesame seeds and salt in large resealable food storage bag. Mix thoroughly. Caribbean Mini-Burgers with Apricot-Pineapple Salsa (Pictured on page 9 ) Directions CRUMBLE ground beef in medium bowl; add seasoning, salt and cayenne. Gently combine ingredients well. Shape meat into eight 4-inch patties. Refrigerate until ready to grill. COMBINE flour, sugar, baking powder and salt in medium bowl. Add oil and egg. Mix with fork to make fine crumbs. Reserve 1/2 cup of mixture for topping. Press remaining crumbs into bottom of prepared pan. Bake 10 to 12 minutes or until surface is dry. Mix 1/2 cup reserved crumbs and 1 tablespoon peanut butter with fork until evenly moistened; set aside. COAT cool grill grate with no-stick cooking spray. Heat grill to medium-high (350°F to 400°F). Grill patties 3 to 5 minutes per side or until juices run clear. Top each burger with half slice of cheese during last 2 minutes of grilling. Place a burger in each pita; top with Apricot-Pineapple Salsa. Peanut Butter Berry Bars (Pictured on page 9 ) Directions HEAT oven to 375°F. Coat 8 x 8-inch pan with no-stick cooking spray. SPREAD 1/2 cup peanut butter gently over partially baked crust, letting heat from bars soften peanut butter. Spread preserves over peanut butter. Sprinkle with peanut butter crumbs. Bake 15 to 17 minutes or until center is set. Cool. Cut into bars. HEAT 2 inches oil in a deep fryer or deep heavy skillet. Fry chicken pieces, a few at a time, 8 to 10 minutes or until golden brown and no longer pink in center, turning to brown evenly. Drain on paper towels. CUT pineapple from fruit mix in quarters; chop remaining fruit into 3/8-inch pieces. Place fruit in small bowl. Add preserves, lime juice and cilantro; stir to combine. SERVE at room temperature or chilled. Garnish with cilantro sprigs, if desired. WHISK together dressing ingredients in small bowl. Pour dressing over bean mixture; toss well. RINSE chicken; pat dry. Add to cornstarch mixture. Toss to coat. Marinate at least 2 hours. COMBINE all dip ingredients; refrigerate until ready to serve. Makes about 2 cups. ©/® The J. M. Smucker Company Pillsbury BEST is a trademark of The Pillsbury Company, LLC, used under license. ©/TM/® The J. M. Smucker Company Pillsbury BEST is a trademark of The Pillsbury Company, LLC, used under license. Black Bean Salad Directions crisco.com pillsburybaking.com smuckers.com ©/® The J. M. Smucker Company Vidalia is a trademark of The Georgia Department of Agriculture. crisco.com pillsburybaking.com smuckers.com COMBINE salad ingredients in medium bowl. crisco.com pillsburybaking.com eaglebrand.com folgers.com PINEAPPLE BLUE CHEESE DIP crisco.com smuckers.com ©/® The J. M. Smucker Company © The J. M. Smucker Company crisco.com FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA The following table presents selected financial data for each of the five years in the period ended April 30, 2009. 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 Financial Condition” and the consolidated financial statements and notes thereto. Year Ended April 30, (Dollars in thousands, except per share data) 2009 2008 2007 2006 2005 Statements of Income: Net sales Income from continuing operations Discontinued operations $3,757,933 $ 265,953 — $2,524,774 $ 170,379 — $2,148,017 $ 157,219 — $2,154,726 $ 143,354 — $2,043,877 $ 130,460 (1,387) Net income $ 265,953 $ 170,379 $ 157,219 $ 143,354 $ 129,073 Financial Position: Total assets Cash and cash equivalents Long-term debt Shareholders’ equity Other Data: Capital expenditures Common shares repurchased Weighted-average shares Weighted-average shares – assuming dilution Earnings per common share: $8,192,161 456,693 910,000 4,939,931 $3,129,881 171,541 789,684 1,799,853 $2,693,823 199,541 392,643 1,795,657 $2,649,744 71,832 428,602 1,728,059 $2,635,894 57,580 431,560 1,690,800 $ 108,907 — 84,823,849 85,285,211 $ 76,430 2,927,600 56,226,206 56,720,645 $ 57,002 1,067,400 56,432,839 57,056,421 $ 63,580 1,892,100 57,863,270 58,425,361 $ 87,576 368,678 57,086,734 57,748,780 Income from continuing operations Discontinued operations $ 3.14 — $ 3.03 — $ 2.79 — $ 2.48 — $ 2.29 (0.03) Net income $ 3.14 $ 3.03 $ 2.79 $ 2.48 $ 2.26 Income from continuing operations – assuming dilution Discontinued operations – assuming dilution $ 3.12 — $ 3.00 — $ 2.76 — $ 2.45 — $ 2.26 (0.02) Net income – assuming dilution $ 3.12 $ 3.00 $ 2.76 $ 2.45 $ 2.24 Dividends declared per common share $ 6.31 $ 1.22 $ 1.14 $ 1.09 $ 1.02 15 SUMMARY OF QUARTERLY RESULTS OF OPERATIONS The following is a summary of unaudited quarterly results of operations for the years ended April 30, 2009 and 2008. (Dollars in thousands, except per share data) 2009 2008 Quarter Ended Net Sales Gross Profit July 31, 2008 October 31, 2008 January 31, 2009 April 30, 2009 July 31, 2007 October 31, 2007 January 31, 2008 April 30, 2008 $ 663,657 843,142 1,182,594 1,068,540 $ 561,513 707,890 665,373 589,998 $207,779 243,419 401,041 399,190 $185,984 218,488 195,453 182,239 Net Income Earnings per Common Share Earnings per Common Share – Assuming Dilution $42,291 51,453 77,941 94,268 $40,761 50,166 42,401 37,051 $0.78 0.95 0.68 0.80 $0.72 0.88 0.75 0.68 $0.77 0.94 0.68 0.80 $0.71 0.87 0.75 0.67 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 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 and special dividends declared. There were approximately 305,072 shareholders as of June 18, 2009, of which 78,401were registered holders of common shares. 2009 2008 Quarter Ended High Low Dividends July 31, 2008 October 31, 2008 January 31, 2009 April 30, 2009 July 31, 2007 October 31, 2007 January 31, 2008 April 30, 2008 $55.58 56.69 46.00 46.49 $64.32 58.09 53.70 52.59 $40. 18 40.08 37.22 34.09 $55.60 50.79 42.75 46.84 $0.32 5.32 0.32 0.35 $0.30 0.30 0.30 0.32 16 COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN Among The J. M. Smucker Company, the S&P 500 Index, and the S&P Packaged Foods & Meats Index • ◆ ■ ◆ • ■ ◆ • ■ ◆ • ■ ■ • ◆ $180 $160 $140 $120 $100 ■ $80 $60 $40 $20 $0 4/04 4/05 4/06 4/07 4/08 4/09 ■ ◆ • The J. M. Smucker Company S&P 500 S&P Packaged Foods & Meats The J. M. Smucker Company S&P 500 S&P Packaged Foods & Meats April 30, 2004 2005 2006 2007 2008 2009 $100.00 100.00 100.00 $ 96.90 106.34 107.02 $ 78.48 122.73 103.56 $114.38 141.43 123.71 $104.53 134.82 121.47 $93.15 87.21 96.14 The above graph compares the cumulative total shareholder return for the five years ended April 30, 2009, for the Company’s common shares, the S&P 500 Index, and the S&P Packaged Foods and Meats Index. These figures assume all dividends are reinvested when received and are based on $100 invested in the Company’s common shares and the referenced index funds on April 30, 2004. Copyright © 2009, S&P, a division of The McGraw-Hill Companies, Inc. All rights reserved. www.researchdatagroup.com/S&P.htm 17 MANAGEMENT’S DISCUSSION AND ANALYSIS EXECUTIVE SUMMARY basic beliefs still serve as a foundation for the Company’s deci- For more than 100 years, The J. M. Smucker Company sion making and actions. (“Company”), headquartered in Orrville, Ohio, has been com- The Company’s strategic vision is to own and market food mitted to offering consumers trusted, quality products that brands which hold the number one market position in their help families create memorable mealtime moments. Today, category, with an emphasis on North America. In support of the Company is the leading marketer and manufacturer of this vision, the Company in recent years has expanded its port- fruit spreads, retail packaged coffee, peanut butter, shortening folio of number one and leading, icon brands through the and oils, sweetened condensed milk, ice cream toppings, and acquisition of brands such as Folgers, Jif, Crisco, Pillsbury, Eagle health and natural foods beverages in North America. Brand, and Hungry Jack in the United States and Robin Hood, Its family of brands includes Smucker’s, Folgers, Jif, Crisco, Five Roses, Carnation, Europe’s Best, and Bick’s in Canada. Pillsbury, Eagle Brand, R.W. Knudsen Family, Hungry Jack, White The Company’s strategic long-term annual growth objectives Lily, and Martha White in the United States, along with Robin are to increase net sales by six percent and earnings per share Hood, Five Roses, Carnation, Europe’s Best, and Bick’s in Canada. by eight percent or greater. While year-to-year the net sales In addition to these brands, the Company markets products contribution from acquisitions will vary, the Company expects under numerous other brands, including Dunkin’ Donuts, organic growth, including new products, to add three to four Millstone, Dickinson’s, Laura Scudder’s, Adams, Double Fruit percent per year and acquisitions to contribute the remainder. (Canada), and Santa Cruz Organic. The Company has four reportable segments: U.S. retail con- sumer market, U.S. retail oils and baking market, U.S. retail coffee market, and special markets. The Company’s three U.S. retail market segments in total comprised nearly 80 percent of the Company’s net sales in fiscal 2009 and represent a major por- tion of the strategic focus area for the Company – the sale of branded food products with leadership positions to consumers through retail outlets in North America. The special markets segment represents sales outside of the U.S. retail market seg- ments and includes the Company’s Canada, foodservice, natu- ral foods (formerly beverage), and international business areas. In each of the U.S. retail market segments, the Company’s products are sold primarily to food retailers, food wholesalers, drug stores, club stores, mass merchandisers, discount and dollar stores, and military commissaries. In the special markets segment, the Company’s products are distributed domesti- cally and in foreign countries through retail channels, foodser- RESULTS OF OPERATIONS On November 6, 2008, the Company completed a merger transaction with The Folgers Coffee Company (“Folgers”), previously a subsidiary of The Procter & Gamble Company (“P&G”), valued at approximately $3.7 billion. In addition to the Folgers merger, the Company completed a series of other acquisitions during 2009 and 2008, including the Knott’s Berry Farm brand, Europe’s Best, Inc., the Canadian Carnation brand canned milk business, and Eagle Family Foods Holdings, Inc. (“Eagle”), for aggregate cash consideration of approximately $279 million and the assumption of $115 million in debt. The transactions have been accounted for as purchase business combinations and the results of each business are included in the Company’s consolidated financial statements from the date of the transaction. — Summary of 2009 — vice distributors and operators (i.e., restaurants, schools and The Company realized strong sales and margin growth in 2009. universities, healthcare operators), and health and natural Despite the impact of a global recession and credit crisis, the foods stores and distributors. STRATEGIC ELEMENTS impact of the Folgers transaction and improved profitability in the Company’s U.S. retail oils and baking market segment con- tributed to the strong 2009 performance. Company net sales increased 49 percent, led by the contributions from Folgers. The Company remains rooted in its Basic Beliefs of Quality, The Company generally benefited from the consumer trend of People, Ethics, Growth, and Independence, established by its preparing and eating more meals at home. Operating and net founder and namesake more than a century ago. Today, these income increased 59 percent and 56 percent, respectively. Net 18 income per common share – assuming dilution increased 2008 Compared to 2007 approximately four percent reflecting the impact of additional common shares issued, increased interest expense, and (Dollars in millions) 2008 2007 increased merger and integration costs, all related to the Folgers Net sales $2,524.8 $2,148.0 $ 376.8 18% transaction. — Net Sales — 2009 Compared to 2008 Year Ended April 30, (Dollars in millions) 2009 2008 Increase (Decrease) % Net sales Adjust for $ 3,757.9 $2,524.8 $ 1,233.1 49% Adjust for noncomparable items: Acquisitions Divestitures Foreign currency exchange Net sales without acquisitions, divestitures, and foreign currency exchange (279.7) — (279.7) — (80.7) 80.7 (29.5) — (29.5) $2,215.6 $2,067.3 $ 148.3 7% Year Ended April 30, Increase (Decrease) % noncomparable items: Acquisitions (1,032.4) 35.2 Foreign currency exchange Net sales without acquisitions and foreign currency exchange — — (1,032.4) 35.2 Net sales increased $376.8 million, or 18 percent, in 2008 from 2007. The acquired Eagle businesses contributed $236.2 mil- lion in net sales in 2008. Excluding acquisitions, the divested Canadian nonbranded, grain-based foodservice and industrial $ 2,760.7 $2,524.8 $ 235.9 9% businesses (“divested Canadian businesses”) sold in 2007, and foreign currency exchange, net sales increased seven percent Net sales were $3,757.9 million in 2009, an increase of $1,233.1 over the same period mostly due to the impact of pricing. Also million, or 49 percent, compared to 2008. Acquisitions con- contributing to net sales growth in 2008 were gains in the tributed approximately $1,032.4 million of the increase, includ- Smucker’s, Jif, Crisco, and Hungry Jack brands. ing $924.8 million from Folgers, while the foreign currency exchange impact, primarily due to the weakening Canadian dollar, reduced net sales by approximately $35.2 million. Excluding acquisitions and foreign currency exchange, net sales increased nine percent. The increase reflects a 10 percent net pricing gain which offset a one percent volume and mix decline. Over the last several years, the Company has implemented price increases necessary to offset rising costs. While pricing was the main driver of the net sales growth, excluding acqui- sitions, a number of categories experienced volume gains, including Smucker’s fruit spreads, toppings, and syrups, Pillsbury baking mixes and frostings, Hungry Jack pancakes, syrups, and potato side dishes, and Eagle Brand canned milk. Sales increases for these categories reflect recent back-to- home meal trends. Volume declines were concentrated in oils and flour, as anticipated, due to significant price increases taken over the prior year in these categories, and peanut butter products due to the U.S. Food and Drug Administration’s (“FDA”) recall of another manufacturer’s foodservice peanut butter and ingredient peanut products during the first quarter of the 2009 calendar year. — Operating Income — The following table presents components of operating income as a percentage of net sales. Gross profit Selling, distribution, and administrative expenses: Advertising Marketing and selling Distribution General and administrative Total selling, distribution, and administrative expenses Amortization Restructuring and merger and integration costs Other operating expense (income) – net Operating income Year Ended April 30, 2009 33.3% 2008 31.0% 2007 32.7% 2.1% 2.2% 2.4% 7.2 3.5 5.1 17.9% 1.1% 2.2 0.1 12.0% 7.5 3.4 6.2 19.3% 0.1% 0.4 (0.1) 11.3% 7.6 3.5 7.0 20.5% 0.1% 0.1 0.2 11.8% 19 2009 Compared to 2008 $70.2 million higher in 2009 compared to 2008, as integra- Overall, gross profit increased $469.3 million and improved tion activities related to Folgers commenced and a defined from 31.0 percent in 2008 to 33.3 percent of net sales in 2009. benefit settlement charge related to the Company’s divested The primary driver of the gross profit improvement was the Canadian businesses was finalized, reducing operating addition of Folgers. The Company improved gross profit on its margin by 2.2 percentage points. base business by approximately 12 percent despite higher costs, estimated at $135 million, on many key ingredients as compared to 2008. During the year, current pricing came more in line with these higher costs, contributing to the gross profit increase. In addition, costs on certain raw materials have stabilized, and in some cases decreased, allowing the Company to continue to recover margin lost over the past few years while also returning some pricing to customers. Selling, distribution, and administrative (“SD&A”) expenses increased $187.0 million, or 38 percent, in 2009 compared to 2008. An increase in marketing and distribution expenses, much of which was related to the addition of Folgers, accounted for approximately 63 percent of the SD&A increase. Most SD&A expenses, particularly selling and corporate over- head, increased at a lesser rate than net sales resulting in an overall decrease in SD&A expense as a percent of net sales from 19.3 percent to 17.9 percent, further contributing to the improvement in operating margin. Amortization expense increased $36.2 million to 1.1 percent of net sales compared to 0.1 percent of net sales in the same period in 2008 reflecting the addition of finite-lived intangible assets associated with the Folgers transaction. Although the val- uation of these intangible assets is still subject to revision, the Company does not expect future amortization expense to vary 2008 Compared to 2007 Operating income increased 12 percent in 2008 to $284.2 mil- lion compared to 2007, while decreasing as a percentage of net sales from 11.8 percent in 2007 to 11.3 percent in 2008. The impact of the lower margin Eagle businesses, record costs for soybean oil and wheat, and the mix of products sold during the year resulted in a decline in gross profit as a per- centage of net sales from 32.7 percent in 2007 to 31.0 percent in 2008. The margin on the Eagle businesses was impacted by a significant increase in milk costs and an unfavorable mix of nonbranded sales during the year and accounted for approxi- mately one-half of the decrease in gross profit as a percentage of net sales. The impact of price increases taken during the year across all businesses, while essentially offsetting higher raw material cost increases of approximately $150 million compared to 2007, was not sufficient to maintain margins. SD&A increased 10 percent from 2007 to $486.6 million in 2008, resulting from increased marketing spending and addi- tional costs related to the acquired Eagle businesses. However, corporate overhead expenses increased at a lesser rate than net sales resulting in SD&A as a percent of net sales improving from 20.5 percent in 2007 to 19.3 percent in 2008. Higher restructuring and merger and integration costs in 2008 com- pared to 2007 also negatively impacted operating income. materially from the amounts recorded on an annualized basis. Other operating income – net of $3.9 million was recognized in 2008 resulting from a net insurance settlement. Other oper- Other operating expense – net of $3.6 million was recognized ating expense – net of $2.7 million was recognized in 2007 in 2009 consisting of losses on disposal of assets. Other oper- consisting of losses on disposal of assets. ating income – net of $3.9 million was recognized in 2008 resulting from a net insurance settlement related to storm damage at a third-party distribution and warehouse facility in Memphis, Tennessee. — Interest Income and Expense — Interest expense increased $20.3 million in 2009 compared to 2008, resulting from the October 23, 2008, issuance of $400.0 million in Senior Notes with a weighted-average interest Operating income increased 59 percent in 2009 compared to rate of 6.60 percent, and the addition of Folgers’ $350.0 mil- 2008 and improved from 11.3 percent to 12.0 percent of net lion LIBOR-based variable rate debt at the merger date. sales. Restructuring and merger and integration costs were Interest income decreased $6.3 million during 2009 compared 20 to 2008 primarily due to a decrease in the average investment effective tax rate for 2008 was primarily attributable to a lower balance and lower interest rates throughout the year. state tax rate resulting from the favorable resolution of uncer- Interest expense increased $18.8 million in 2008 compared to 2007, resulting from the May 31, 2007, issuance of $400.0 million in Senior Notes with an interest rate of 5.55 percent, a portion of which was used to repay short-term debt used in financing the Eagle acquisition. The investment of excess proceeds resulted in an increase in interest income of $4.0 million during 2008 compared to 2007. — Income Taxes — Income taxes increased $45.7 million, or 54 percent, during 2009 compared to 2008, slightly less than the percentage increase in income before taxes as the effective tax rate was 32.9 percent in 2009 compared to 33.1 percent in 2008 primarily as a result of an increase in the domestic manufacturers deduction. tain tax positions. — Segment Results — With the addition of Folgers, the Company added the U.S. retail coffee market reportable segment representing the domestic sales of Folgers, Millstone, and Dunkin’ Donuts branded coffee to retail customers. Coffee sales to other than domestic retail customers are included in the special markets segment. In addition, corporate organizational changes made in association with the Folgers transaction have resulted in the Company presenting two new reportable segments – U.S. retail consumer market and U.S. retail oils and baking market. The U.S. retail consumer market segment primarily includes sales of Smucker’s, Jif, and Hungry Jack branded products while Income taxes in 2008 were $84.4 million, up $0.6 million, or the U.S. retail oils and baking market segment includes sales one percent, from 2007. The increase in income taxes that of Crisco, Pillsbury, Eagle Brand, White Lily, and Martha White would have resulted from higher income in 2008 as compared branded products, each to domestic retail customers. As a result to 2007 was mostly offset by a decrease in the effective tax rate of the change in segment reporting, all historical information from 34.8 percent in 2007 to 33.1 percent in 2008. The lower has been reclassified to conform to the new presentation. (Dollars in millions) Net sales: U.S. retail consumer market U.S. retail oils and baking market U.S. retail coffee market Special markets Segment profit: U.S. retail consumer market U.S. retail oils and baking market U.S. retail coffee market Special markets Segment profit margin: U.S. retail consumer market U.S. retail oils and baking market U.S. retail coffee market Special markets Year Ended April 30, Year Ended April 30, 2009 2008 % Increase (Decrease) 2008 2007 % Increase (Decrease) 10% 14 n/a 24 7% 25 n/a 21 $1,103.3 995.5 855.6 803.6 $ 249.3 124.2 241.0 111.7 $998.6 876.0 — 650.2 $233.2 99.6 — 92.0 22.6% 12.5 28.2 13.9 23.4% 11.4 n/a 14.2 8% 40 n/a 8 7% (2) n/a 26 $998.6 876.0 — 650.2 $233.2 99.6 — 92.0 $920.5 626.6 — 601.0 $ 217.9 101.9 — 73.0 23.4% 11.4 n/a 14.2 23.7% 16.3 n/a 12.1 21 U.S. Retail Consumer Market sales to 12.5 percent despite higher costs on many key ingre- Net sales in the U.S. retail consumer market segment increased dients. Current pricing is more in line with these higher costs 10 percent in 2009 to $1,103.3 million compared to $998.6 resulting in margin recoveries in oils, canned milk, and million in 2008. The Knott’s Berry Farm and Europe’s Best acqui- regional baking brands. sitions contributed approximately $25.7 million of the net sales. Volume gains in Smucker’s fruit spreads, toppings, and syrups, and Hungry Jack pancakes, syrups, and potato side dishes, combined with price increases, offset volume declines in peanut butter and Smucker’s Uncrustables sandwiches of approximately two and three percent, respectively. During January 2009, the FDA initiated a recall of another manufac- turer’s foodservice peanut butter and ingredient peanut prod- ucts. As a result, volume in the retail peanut butter category declined approximately seven percent in the food, drug, and mass retail stores channel as estimated by Information Resources, Inc. for the 12-week period ended April 19, 2009. The Company’s products experienced a lesser decline and Net sales in the U.S. retail oils and baking market segment were $876.0 million in 2008, an increase of 40 percent, com- pared to $626.6 million in 2007. Excluding the contribution of $198.9 million from the acquired Eagle business in 2008, net sales increased eight percent as sales gains were realized in Pillsbury baking mixes and Crisco oils. Segment profit decreased two percent in 2008 to $99.6 million, and declined from 16.3 percent to 11.4 percent of net sales, reflecting the impact of the Eagle business combined with record costs for soybean oil and wheat. The margin on the Eagle business was impacted by an increase in milk costs and an unfavorable mix of nonbranded sales. these category pressures appeared to be reversing in the final U.S. Retail Coffee Market month of the fiscal year with volume growth in April. U.S. retail The U.S. retail coffee market segment contributed $855.6 mil- consumer market segment profit increased seven percent to lion to net sales in 2009 as the business benefited from growth $249.3 million in 2009 compared to $233.2 million in 2008 in the coffee category, primarily driven by the Folgers brand. while decreasing as a percentage of net sales from 23.4 percent Additionally, the continued expansion of the Dunkin’ Donuts to 22.6 percent. Profit margins were impacted by cost increases brand in the gourmet category contributed approximately on certain raw materials, declines in peanut butter sales during $106.8 million to net sales. The U.S. retail coffee market seg- the year, and other unfavorable sales mix changes. ment contributed $241.0 million in segment profit represent- Net sales in the U.S. retail consumer market segment were $998.6 million in 2008, an increase of eight percent compared to $920.5 million in 2007, with gains in Smucker’s fruit spreads and Smucker’s Uncrustables sandwiches, Jif, and Hungry Jack. Segment profit in the U.S. retail consumer market increased ing a profit margin of 28.2 percent, the highest of any of the Company’s reportable segments, reflecting favorable green coffee market conditions, reduced marketing expenditures, and minimal allocations of operating support during its tran- sitional year. seven percent in 2008 to $233.2 million, but decreased as a Special Markets percentage of net sales from 23.7 percent to 23.4 percent, pri- The special markets segment is comprised of the Canada, marily due to changes in sales mix. foodservice, natural foods (formerly beverage), and interna- U.S. Retail Oils and Baking Market tional strategic business areas. Net sales in the U.S. retail oils and baking market segment Net sales in the special markets segment were $803.6 million increased 14 percent in 2009 to $995.5 million from $876.0 in 2009, an increase of 24 percent from 2008, as acquisitions million in 2008. Increases in Pillsbury, Crisco, and Eagle Brand and pricing gains offset unfavorable foreign currency canned milk, primarily due to the effect of price increases exchange. The merger with Folgers added $69.2 million of the taken in the later part of 2008, and volume gains in baking increase and the Knott’s Berry Farm, Europe’s Best, and the mixes, frostings, and canned milk accounted for the increase. Canadian Carnation canned milk business acquisitions con- While total volume in the segment was down almost four per- tributed $81.9 million. The gains from merger and acquisitions cent, much of the decline was expected and reflects the and pricing more than offset volume declines in the foodser- impact of last year’s price increases in oils and flour. Segment vice portion control business resulting from a general decline profit increased 25 percent in 2009 to $124.2 million from in away-from-home dining, and Smucker Uncrustables and $99.6 million in 2008 and improved from 11.4 percent of net other peanut butter products correlated to the FDA recall of 22 another manufacturer’s foodservice peanut butter and ingredi- Cash provided by operating activities was approximately ent peanut products. Consumer demand for natural foods $444.8 million in 2009, a record, and increased $265.3 million products was also soft due to the current economic environ- compared to 2008, as the impact of the Folgers business has ment. Special markets segment profit increased 21 percent added to net income adjusted for noncash items. from 2008 to $111.7 million in 2009, while decreasing as a per- centage of net sales from 14.2 percent in 2008 to 13.9 percent in 2009 as profit margins were impacted by the acquisitions. Net cash used for investing activities was approximately $174.8 million in 2009, compared to $262.5 million in 2008, consisting of $77.3 million used for business acquisitions, pri- Net sales in the special markets segment were $650.2 million marily the Knott’s Berry Farm brand, and capital expenditures in 2008, an increase of eight percent compared to 2007. of approximately $108.9 million. Capital expenditures increased Excluding the divested Canadian businesses, net sales in the $32.5 million, or 42 percent, but decreased as a percent of net special markets segment increased 24 percent in 2008 com- sales from 3.0 percent to 2.9 percent. pared to 2007. Acquisitions, including Eagle, the Canadian Carnation business, and Europe’s Best, contributed $70.8 mil- lion while foreign currency exchange contributed $29.5 mil- lion to the increase in net sales. Segment profit in the special markets segment increased 26 percent to $92.0 million in 2008 compared to 2007 as the segment benefited from the impact of acquisitions and improved profitability on Smucker’s Uncrustables sandwiches. FINANCIAL CONDITION — Liquidity — Year Ended April 30, Cash provided by financing activities during 2009 consisted primarily of the proceeds from the Company’s issuance of $400.0 million in Senior Notes. A portion of the proceeds was used to fund the payment of a $5.00 per share one-time spe- cial dividend, totaling approximately $274.0 million, on October 31, 2008. In addition, quarterly dividend payments of approximately $110.9 million were made in 2009, resulting in total dividend payments of $384.9 million. — Capital Resources — The following table presents the Company’s capital structure. April 30, 2009 2008 (Dollars in thousands) 2009 2008 2007 (Dollars in thousands) Net cash provided by operating activities Net cash used for investing activities Net cash provided by (used for) financing activities $444,828 $179,521 $272,970 Current portion of long-term debt 276,726 — Note payable $ 350,000 $ — (174,816) (262,486) (27,041) Long-term debt Total debt Shareholders’ equity 12,601 49,839 (117,625) Total capital 910,000 789,684 $1,536,726 $ 789,684 4,939,931 1,799,853 $6,476,657 $2,589,537 The Company’s principal source of funds is cash generated In addition to borrowings outstanding, the Company has from operations, supplemented by borrowings against the available a $180.0 million revolving credit facility with a group Company’s revolving credit facility. Total cash and cash equiv- of three banks that expires in 2011. alents increased to $456.7 million at April 30, 2009, compared to $171.5 million at April 30, 2008, due to the strong cash flow generated by the Folgers business. The Company’s working capital requirements are greatest during the first half of its fiscal year, primarily due to the need to build coffee and oil and baking inventory levels in advance Total debt at April 30, 2009, includes $400.0 million in Senior Notes with a weighted-average interest rate of 6.6 percent issued on October 23, 2008, and $350.0 million resulting from the Company’s guarantee of Folgers’ LIBOR-based vari- able rate note due November 7, 2009, with a weighted-aver- age interest rate of 1.8 percent at April 30, 2009. of the “fall bake” and holiday season, additional coffee inven- Approximately $627 million of debt will mature in 2010. tories in advance of the Atlantic hurricane season, and the sea- Additional cash requirements for 2010 will include capital sonal procurement of fruit and vegetables. expenditures of approximately $120 million, quarterly dividends 23 of approximately $165 million, and interest payments on debt Accounting Standards Board Interpretation No. 48, Accounting obligations of approximately $75 million for the year. Absent for Uncertainty in Income Taxes (“FIN 48”), since the Company any other material acquisitions or other significant invest- is unable to reasonably estimate the timing of cash settlements ments, the Company believes that cash on hand, combined with the respective taxing authorities. The Company’s unrecog- with cash provided by operations and borrowings available nized tax benefits as of April 30, 2009, were $13,794. under existing credit facilities, will be sufficient to meet cash requirements for the next twelve months, including capital expenditures, the payment of quarterly dividends, and princi- pal and interest on debt outstanding. OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS The Company does not have off-balance sheet arrangements, financings, or other relationships with unconsolidated 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 con- dition, or cash flows. The following table summarizes the Company’s contractual obligations at April 30, 2009. (Dollars in millions) Less Than Total One Year One to Three Years Three to Five Years More Than Five Years Debt obligations $1,536.7 $ 626.7 $10.0 $100.0 $800.0 CRITICAL ACCOUNTING ESTIMATES AND POLICIES The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires man- agement to make estimates and assumptions that in certain circumstances affect amounts reported in the accompanying consolidated financial statements. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial state- ments, giving due consideration to materiality. The Company does not believe there is a great likelihood that materially dif- ferent amounts would be reported under different conditions or using different assumptions related to the accounting poli- cies described below. However, application of these account- ing 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 cus- Operating lease obligations Purchase obligations Other long-term liabilities 38.7 8.6 11.0 8.3 10.8 tomer; there is no further significant obligation to assist in the 596.5 564.9 23.2 3.4 5.0 resale of the product; and collectibility is reasonably assured. A provision for estimated returns and allowances is recorded 118.5 — — — 118.5 as a reduction of sales at the time revenue is recognized. Total $2,290.4 $1,200.2 $44.2 $111.7 $934.3 Trade Marketing and Merchandising Programs. In order to support the Company’s products, various promotional activi- Purchase obligations in the above table include agreements to ties are conducted through the retail trade, distributors, or purchase goods or services that are enforceable and legally directly with consumers, including in-store display and prod- binding on the Company. Included in this category are certain uct placement programs, feature price discounts, coupons, obligations related to normal, ongoing purchase obligations and other similar activities. The Company regularly reviews and in which the Company has guaranteed payment to ensure revises, when it deems necessary, estimates of costs to the availability of raw materials and packaging supplies. The Company for these promotional programs based on estimates Company expects to receive consideration for these purchase of what will be redeemed by the retail trade, distributors, or obligations in the form of materials. The purchase obligations consumers. These estimates are made using various techniques in the above table do not represent the entire anticipated pur- including historical data on performance of similar promotional chases in the future, but represent only those items for which programs. Differences between estimated expense and actual the Company is contractually obligated. The table excludes performance are recognized as a change in management’s esti- the liability for unrecognized tax benefits under Financial mate in a subsequent period. As the Company’s total promo- 24 tional expenditures, including amounts classified as a reduction of both cash flows and discount rates and different estimates of net sales, represent approximately 25 percent of 2009 net could yield different results. There are no events or changes in sales, the likelihood exists of materially different reported results circumstances of which management is aware indicating that if factors such as the level and success of the promotional pro- the carrying value of the Company’s long-lived assets may not grams or other conditions differ from expectations. be recoverable. Income Taxes. The future tax benefit arising from the net Goodwill and Indefinite-Lived Intangible Assets. The deductible temporary differences and tax carryforwards is annual evaluation of goodwill and indefinite-lived intangible approximately $94.7 million and $59.7 million, at April 30, assets requires the use of estimates about future operating 2009 and 2008, respectively. Management believes that the results for each reporting unit to determine estimated fair Company’s earnings during the periods when the temporary value. Changes in forecasted operations can materially affect differences become deductible will be sufficient to realize the these estimates. Additionally, other changes in the estimates related future income tax benefits. For those jurisdictions and assumptions, including the discount rate and expected where the expiration date of tax carryforwards or the pro- long-term growth rate, which drive the valuation techniques jected operating results of the Company indicate that realiza- employed to estimate the fair value of the reporting unit could tion is not likely, a valuation reserve has been provided. change and, therefore, impact the assessments of impairment 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, statutory tax rates, and projected future taxable income levels. Under current accounting rules, 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 determina- tion is made. In the ordinary course of business, the Company is exposed to uncertainties related to tax filing positions and periodically assesses these tax positions for all tax years that remain subject to examination, based upon the latest information available. For uncertain tax positions, the Company has recorded tax reserves, including any applicable interest and penalty charges, in accordance with FIN 48. Long-Lived Assets. Historically, long-lived assets have been reviewed for impairment whenever events or changes in cir- cumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of assets to be held and in the future. Pension and Other Postretirement Benefit Plans. To deter- mine 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 cov- ered employee works. Various actuarial assumptions 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 discount the obligations of the plans, the long-term rates of return on the plans’ assets, assumed pay increases, 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 2010 expense recognition, the Company will use a discount rate of 7.4 percent and 5.4 per- cent, and a rate of compensation increase of 4.1 percent and 4.0 percent, for U.S. and Canadian plans, respectively. The Company anticipates using an expected rate of return on plan assets of 7.75 percent for U.S. plans. For the Canadian plans, the Company will use an expected rate of return on plan assets of 7.0 percent for the hourly plan and 7.5 percent for all other plans. used is measured by a comparison of the carrying amount of Recovery of Trade Receivables. In the normal course of busi- the assets to future net cash flows estimated to be generated ness, the Company extends credit to customers that satisfy by such assets. If such assets are considered to be impaired, predefined criteria. The Company evaluates the collectibility of the impairment to be recognized is the amount by which the trade receivables based on a combination of factors. When carrying amount of the assets exceeds the fair value of the aware that a specific customer may be unable to meet its assets. However, determining fair value is subject to estimates financial obligations, such as in the case of bankruptcy filings 25 or deterioration in the customer’s operating results or financial sures as of April 30, 2009, are not expected to result in a sig- position, the Company records a specific reserve for bad debt nificant impact on future earnings or cash flows. to reduce the related receivable to the amount the Company reasonably 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 receivables are past due, historical collection experience, and an evaluation of cur- rent and projected economic conditions at the balance sheet Revenues from customers outside the U.S. represented 11 per- cent of net sales during 2009. Thus, certain revenues and expenses have been, and are expected to be, subject to the effect of foreign currency fluctuations and these fluctuations may have an impact on operating results. date. Actual collections of trade receivables could differ from Commodity Price Risk. Raw materials and other commodities management’s estimates due to changes in future economic or used by the Company are subject to price volatility caused by industry conditions or specific customers’ financial conditions. supply and demand conditions, political and economic vari- DERIVATIVE FINANCIAL INSTRUMENTS AND MARKET RISK 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 state- ments. The Company is exposed to market risk related to changes in interest rates, foreign currency exchange rates, and commodity prices. ables, and other unpredictable factors. To manage the volatil- ity 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 to the extent effective, and reclassified into cost of products sold in the period during which the hedged transaction affects earn- ings. The mark-to-market gains or losses on nonqualifying, excluded, and ineffective portions of hedges are recognized in Interest Rate Risk. The fair value of the Company’s cash and cost of products sold immediately. short-term investment portfolio at April 30, 2009, approxi- mates 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. Based on the Company’s overall interest rate exposure as of and during the year ended April 30, 2009, including derivative and other instruments sensitive to interest rates, a hypothetical 10 percent movement in interest rates would not materially affect the Company’s results of opera- tions. Interest rate risk can also be measured by estimating 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, 2009, the fair value of the Company’s long-term debt would increase by approximately $67.8 million. The following sensitivity analysis presents the Company’s potential loss of fair value resulting from a hypothetical 10 per- cent change in market prices. (Dollars in thousands) Raw material commodities: High Low Average Year Ended April 30, 2009 2008 $16,374 $13,229 3,949 9,785 3,289 8,474 Fair value was determined using quoted market prices and was based on the Company’s net derivative position by com- modity at each quarter end during the fiscal year. The calcula- tions are not intended to represent actual losses in fair value that the Company expects to incur. In practice, as markets Foreign Currency Exchange Risk. The Company has opera- move, the Company actively manages its risk and adjusts tions outside the U.S. with foreign currency denominated hedging strategies as appropriate. The commodities hedged assets and liabilities, primarily denominated in Canadian cur- have a high inverse correlation to price changes of the deriva- rency. Because the Company has foreign currency denomi- tive commodity instrument; thus, the Company would expect nated assets and liabilities, financial exposure may result, that any gain or loss in fair value of its derivatives would gen- primarily from the timing of transactions and the movement erally be offset by an increase or decrease in the fair value of of exchange rates. The foreign currency balance sheet expo- the underlying exposures. 26 FORWARD-LOOKING STATEMENTS and strategies intended to promote growth in the Certain statements included in this Annual Report contain for- ward-looking statements within the meaning of federal secu- rities laws. The forward-looking statements may include statements concerning the Company’s current expectations, estimates, assumptions, and beliefs concerning future events, Company’s businesses; ✷ general competitive activity in the market, including competitors’ pricing practices and promotional spend- ing levels; ✷ the impact of food safety concerns, involving either the conditions, plans, and strategies that are not historical fact. Company or its competitors’ products; Any statement that is not historical in nature is a forward-look- ing statement and may be identified by the use of words and ✷ the concentration of certain of the Company’s busi- nesses with key customers and suppliers and the abil- phrases such as “expects,” “anticipates,” “believes,” “will,” ity to manage and maintain key relationships; “plans,” and similar phrases. Federal securities laws provide a safe harbor for forward-look- ing statements to encourage companies to provide prospec- tive 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 for- ward-looking statements as such statements are by nature ✷ the loss of significant customers or a substantial reduc- tion in orders from these customers or the bankruptcy of any such customer; ✷ changes in consumer coffee preferences, and other factors affecting the coffee business, which represents a substantial portion of the Company’s business; ✷ the ability of the Company to obtain any required subject to risks, uncertainties, and other factors, many of financing; which are outside of the Company’s control and could cause actual results to differ materially from such statements and ✷ the timing and amount of the Company’s capital expenditures, restructuring, and merger and integra- from the Company’s historical results and experience. These tion costs; risks and uncertainties include, but are not limited to those set forth under the caption “Risk Factors” in the Company’s ✷ impairments in the carrying value of goodwill, other intangible assets, or other long-lived assets or changes Annual Report on Form 10-K, as well as the following: in useful lives of other intangible assets; ✷ volatility of commodity markets from which raw materials, particularly green coffee beans, wheat, soybean oil, milk, and peanuts are procured and the related impact on costs; ✷ risks associated with hedging and derivative strategies employed by the Company to manage commodity pric- ✷ the outcome of current and future tax examinations, changes in tax laws, and other tax matters, and their related impact on the Company’s tax positions; ✷ foreign currency and interest rate fluctuations; ✷ political or economic disruption due to the global recession and credit crisis; ing risks, including the risk that such strategies could ✷ other factors affecting share prices and capital markets result in significant losses and adversely impact the generally; and Company’s liquidity; ✷ the successful completion of the integration of the coffee business with the Company’s business, operations, and culture and the ability to realize synergies and other potential benefits of the merger within the time frames currently contemplated; ✷ crude oil price trends and their impact on transportation, energy, and packaging costs; ✷ the ability to successfully implement price changes; ✷ the success and cost of introducing new products and the competitive response; ✷ the other factors described under “Risk Factors” in regis- tration statements filed by the Company with the Securities and Exchange Commission and in the other reports and statements filed by the Company with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K and proxy materials. Readers are cautioned not to unduly rely on such forward- looking statements, which speak only as of the date made, when evaluating the information presented in this annual report. The Company does not assume any obligation to update or revise these forward-looking statements to ✷ the success and cost of marketing and sales programs reflect new events or circumstances. 27 REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Shareholders The J. M. Smucker Company Management of The J. M. Smucker Company is responsible for establishing and maintaining adequate accounting and internal con- trol 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 control over financial reporting as of April 30, 2009. 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”). On November 6, 2008, the Company completed the merger with The Folgers Coffee Company (“Folgers”). As permitted by the Securities and Exchange Commission, management excluded the non-integrated Folgers operations from its assessment of inter- nal control over financial reporting as of April 30, 2009. Non-integrated Folgers operations constituted approximately six per- cent of total assets (excluding goodwill and other intangible assets) as of April 30, 2009, and 12 percent of net sales for the year then ended. Folgers operations will be included in the Company’s assessment as of April 30, 2010. Based on the Company’s assessment of internal control over financial reporting under the COSO criteria, management con- cluded the Company’s internal control over financial reporting was effective as of April 30, 2009. Ernst & Young LLP, independent registered public accounting firm, audited the effectiveness of the Company’s internal control over financial reporting as of April 30, 2009, and their report thereon is included on page 29 of this report. Timothy P. Smucker Chairman of the Board and Co-Chief Executive Officer Richard K. Smucker Executive Chairman and Co-Chief Executive Officer Mark R. Belgya Vice President and Chief Financial Officer REPORT OF MANAGEMENT ON RESPONSIBILITY FOR FINANCIAL REPORTING Shareholders The J. M. Smucker Company Management of The J. M. Smucker Company is responsible for the preparation, integrity, accuracy, and consistency of the con- solidated financial statements and the related financial information in this report. Such information has been prepared in accor- dance 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 commu- nicated throughout the Company. There is a program of audits performed by the Company’s internal audit staff designed to eval- uate the adequacy of and adherence to these controls, policies, and procedures. Ernst & Young LLP, independent registered public accounting firm, has audited the Company’s financial statements in accor- dance with the standards of the Public Company Accounting Oversight Board (United States). Management has made all finan- cial 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 regularly 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 reg- ularly 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 internal 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 of the Board and Co-Chief Executive Officer Richard K. Smucker Executive Chairman and Co-Chief Executive Officer Mark R. Belgya Vice President and Chief Financial Officer 28 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 The J. M. Smucker Company’s internal control over financial reporting as of April 30, 2009, 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 included in the accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial 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 con- trol over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operat- ing effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered neces- sary 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 regarding the relia- bility of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. 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 transactions and dispo- sitions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the com- pany; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or dis- position 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, pro- jections 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 the policies or procedures may deteriorate. As indicated in the accompanying Report of Management on Internal Control Over Financial Reporting, the Company completed the merger with The Folgers Coffee Company (“Folgers”) in 2009. As permitted by the Securities and Exchange Commission, management excluded the non-integrated Folgers operations from its assessment of internal control over financial reporting as of April 30, 2009. Non-integrated Folgers operations constituted approximately six percent of total assets (excluding goodwill and other intangible assets) as of April 30, 2009, and 12 percent of net sales for the year then ended. Our audit of internal con- trol over financial reporting of The J. M. Smucker Company as of April 30, 2009, did not include an evaluation of the internal con- trols over financial reporting of the non-integrated operations of Folgers. In our opinion, The J. M. Smucker Company maintained, in all material respects, effective internal control over financial report- ing as of April 30, 2009, 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, 2009 and 2008, and the related statements of con- solidated income, shareholders’ equity, and cash flows for each of the three years in the period ended April 30, 2009, and our report dated June 22, 2009, expressed an unqualified opinion thereon. Akron, Ohio June 22, 2009 29 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, 2009 and 2008, and the related statements of consolidated income, shareholders’ equity, and cash flows for each of the three years in the period ended April 30, 2009. These financial statements are the responsibility of the Company’s management. 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 state- ments are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and dis- closures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The J. M. Smucker Company at April 30, 2009 and 2008, and the consolidated results of its operations and its cash flows for each of the three years in the period ended April 30, 2009, in conformity with U.S. generally accepted account- ing principles. As discussed in Note O, effective May 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes. Also, as discussed in Note H, effective April 30, 2007, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 158, Employees Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statement Nos. 87, 88, 106, and 132(R). 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, 2009, 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 22, 2009, expressed an unqualified opinion thereon. Akron, Ohio June 22, 2009 30 STATEMENTS OF CONSOLIDATED INCOME The J. M. Smucker Company (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 Amortization Merger and integration costs Other restructuring costs Other operating expense (income) – net Operating Income Interest income Interest expense Other income (expense) – net Income Before Income Taxes Income taxes Net Income Earnings per common share: Net Income Net Income – Assuming Dilution Year Ended April 30, 2009 2008 2007 $3,757,933 2,506,504 — 1,251,429 673,565 40,314 72,666 10,229 3,624 451,031 6,993 (62,478) 519 396,065 130,112 $2,524,774 1,741,100 1,510 $2,148,017 1,435,981 9,981 782,164 486,592 4,073 7,967 3,237 (3,879) 284,174 13,259 (42,145) (500) 254,788 84,409 702,055 441,286 1,528 61 2,120 2,689 254,371 9,225 (23,363) 771 241,004 83,785 $ 265,953 $ 170,379 $ 157,219 $ $ 3.14 3.12 $ 3.03 $ 3.00 $ $ 2.79 2.76 See notes to consolidated financial statements. 31 CONSOLIDATED BALANCE SHEETS The J. M. Smucker Company ASSETS (Dollars in thousands) Current Assets Cash and cash equivalents 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 noncurrent assets Total Other Noncurrent Assets April 30, 2009 2008 $ 456,693 $ 171,541 266,037 162,426 409,592 194,334 603,926 72,235 280,568 99,040 379,608 62,632 1,398,891 776,207 51,131 273,343 901,614 48,593 45,461 202,564 586,502 39,516 1,274,681 874,043 (436,248) (377,747) 838,433 496,296 2,791,391 1,132,476 3,098,976 12,813 51,657 614,000 16,043 94,859 5,954,837 1,857,378 $8,192,161 $3,129,881 32 LIABILITIES AND SHAREHOLDERS’ EQUITY (Dollars in thousands) Current Liabilities Accounts payable Salaries, wages, and additional compensation Accrued trade marketing and merchandising Income taxes Dividends payable Current portion of long-term debt Notes payable 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 – 118,422,123 in 2009 and 54,622,612 in 2008 (net of 10,179,989 and 10,807,615 treasury shares, respectively), at stated value Additional capital Retained income Amount due from ESOP Trust Accumulated other comprehensive (loss) income Total Shareholders’ Equity April 30, 2009 2008 $ 198,954 61,251 54,281 17,690 41,448 276,726 350,000 60,886 $ 119,844 35,808 32,350 1,164 17,479 — — 32,752 1,061,236 239,397 910,000 66,401 38,182 1,145,808 30,603 789,684 47,978 41,583 175,950 35,436 2,190,994 1,090,631 — — 29,606 4,547,921 424,504 (4,830) (57,270) 13,656 1,181,645 567,419 (5,479) 42,612 4,939,931 1,799,853 $8,192,161 $3,129,881 See notes to consolidated financial statements. 33 STATEMENTS OF CONSOLIDATED CASH FLOWS 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 Asset impairments and other restructuring charges Share-based compensation expense 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 Defined benefit pension contributions Income taxes Other – net Year Ended April 30, 2009 2008 2007 $265,953 $170,379 $157,219 79,450 40,314 9,093 22,105 — 25,525 (78,631) 34,669 38,792 67,883 (34,665) 22,941 (48,601) 58,497 4,073 1,510 11,531 (1,903) 18,215 (17,599) (35,022) (16,208) 6,988 (3,538) (22,302) 4,900 57,346 1,528 10,089 11,257 — 22,530 23,848 (8,146) 5,218 1,034 (10,955) (15,079) 17,081 Net Cash Provided by Operating Activities 444,828 179,521 272,970 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 Other – net (77,335) (108,907) — — 3,013 2,965 5,448 (220,949) (76,430) 3,407 (229,405) 257,536 3,532 (177) Net Cash Used for Investing Activities (174,816) (262,486) Financing Activities Proceeds from long-term debt Repayments of long-term debt Revolving credit arrangements – net Dividends paid Purchase of treasury shares Proceeds from stock option exercises Other – net Net Cash Provided by (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 400,000 — — (384,876) (4,025) 1,976 (474) 12,601 2,539 285,152 171,541 400,000 (148,000) — (68,074) (152,521) 17,247 1,187 49,839 5,126 (28,000) 199,541 (60,488) (57,002) 84,054 (20,000) 26,272 2,313 (2,190) (27,041) — — (28,144) (63,632) (52,125) 25,766 510 (117,625) (595) 127,709 71,832 Cash and Cash Equivalents at End of Year $456,693 $171,541 $199,541 ( ) Denotes use of cash See notes to consolidated financial statements. 34 STATEMENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY The J. M. Smucker Company (Dollars in thousands, except per share data) Common Shares Outstanding Common Shares Additional Capital Retained Income Deferred Compen- sation Amount Accumulated Other Due from Comprehensive Income (Loss) ESOP Trust Total Shareholders’ Equity Balance at May 1, 2006 56,949,044 $ 14,237 $ 1,212,598 $ 489,067 $(8,527) $(6, 525) $ 27,209 $ 1,72 8,059 157,219 (1,100,194) 931,000 (275) 233 (23,915) 24,247 (27,935) 8,527 Balance at April 30, 2007 56,779,850 14,195 1,216,091 (2,991,920) 834,682 (748) 209 (66,075) 20,398 (85,698) Balance at April 30, 2008 54,622,612 13,656 1,181,645 (64,720) 553,631 170,379 3,161 11,231 (68,519) (2,374) 567,419 265,953 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 Purchase of treasury shares Stock plans Cash dividends declared – $1.14 per share Adjustments to initially apply Statement of Financial Accounting Standards No. 158, net of tax of $7,377 Tax benefit of stock plans Other Net income Foreign currency translation adjustment Pensions and other postretirement liabilities Unrealized loss on available-for-sale securities Unrealized gain on cash flow hedging derivatives Comprehensive Income Purchase of treasury shares Stock plans Cash dividends declared – $1.22 per share Adjustments to initially apply Financial Accounting Standards Board Interpretation No. 48 Tax benefit of stock plans Other Net income Foreign currency translation adjustment Pensions and other postretirement liabilities Unrealized loss on available-for-sale securities Unrealized loss on cash flow hedging derivatives Comprehensive Income Purchase of treasury shares Purchase business combination Stock plans Cash dividends declared – $6.31 per share Tax benefit of stock plans Other 2,437 427 1,644 138 (14,098) 508 157,219 2,437 427 1,644 138 161,865 (52,125) 33,007 (64,720) (14,098) 3,161 508 — (6,017) 17,757 1,795,657 170,379 20,861 20,861 (2,920) (2,920) (379) 7,293 (379) 7,293 195,234 (152,521) 20,607 (68,519) (2,374) 11,231 538 538 — (5,479) 42,612 1,799,853 265,953 (47,024) (47,024) (43,479) (43,479) (2,798) (2,798) (6,581) (6,581) 166,071 (4,025) 3,366,353 17,522 (408,845) 2,353 649 (81,685) (20) (3,982) (23) 63,166,532 714,664 15,792 178 3,350,561 17,344 (408,845) 2,353 649 Balance at April 30, 2009 118,422,123 $29,606 $4,547,921 $424,504 $ — $(4,830) $(57,270) $4,939,931 See notes to consolidated financial statements. 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The J. M. Smucker Company (Dollars in thousands, except per share data) NOTE A: ACCOUNTING POLICIES 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 accounting 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: allowances for doubtful trade receivables, estimates of future cash flows associated with assets, asset impairments, useful lives for depreciation and amortization, loss contingencies, net realizable value of inventories, accruals for trade marketing and mer- chandising programs, income taxes, and the determination 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 following 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 col- lectibility is reasonably assured. Major Customer: Sales to Wal-Mart Stores, Inc. and subsidiaries amounted to approximately 24 percent, 20 percent, and 20 per- cent of net sales in 2009, 2008, and 2007, respectively. These sales are primarily included in the three U.S. retail market segments. No other customer exceeded 10 percent of net sales for any year. Trade receivables at April 30, 2009 and 2008, included amounts due from Wal-Mart Stores, Inc. and subsidiaries of $73,196 and $34,210, respectively. 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 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 performance are rec- ognized as a change in management’s estimate in a subsequent period. As the Company’s total promotional expenditures, including amounts classified as a reduction of net sales, represent approximately 25 percent of 2009 net sales, the likelihood exists of materially different reported results if factors such as the level and success of the promotional programs or other con- ditions differ from expectations. Advertising Expense: Advertising costs are expensed as incurred. Advertising expense was $77,363, $55,522, and $51,446 in 2009, 2008, and 2007, respectively. Research and Development Cost: Total research and development costs, including product formulation costs, were $14,498, $9,547, and $9,680 in 2009, 2008, and 2007, respectively. Share-Based Payments: Compensation expense is recognized over the requisite service period, which includes a one-year per- formance period plus the defined forfeiture period, which is typically four years of service or the attainment of a defined age and years of service. Compensation expense recognized related to share-based awards was $22,105, $11,531, and $11,257 in 2009, 2008, and 2007, respectively. Of the total compensation expense for share-based awards recorded, $8,062 is included in merger and integration costs in the Statements of Consolidated Income in 2009. The related tax benefit recognized in the Statements of Consolidated Income was $7,261, $3,820, and $3,913 in 2009, 2008, and 2007, respectively. As of April 30, 2009, total compensation cost related to nonvested share-based awards not yet recognized was approximately $31,186. The weighted-average period over which this amount is expected to be recognized is approximately three years. Corporate income tax benefits realized upon exercise or vesting of an award in excess of that previously recognized in earnings, referred to as an excess tax benefit, is presented in the Statements of Consolidated Cash Flows as a financing activity. Realized excess tax benefits are credited to additional capital in the Consolidated Balance Sheets. Realized shortfall tax benefits, amounts 36 which are less than that previously recognized in earnings, are first offset against the cumulative balance of excess tax benefits, if any, and then charged directly to income tax expense. For 2009, 2008, and 2007, the actual tax deductible benefit realized from share-based compensation was $2,353, $11,231, and $3,161, including $2,372, $11,107, and $3,346, respectively, of excess tax benefits realized upon exercise or vesting of share-based compensation, and classified as other-net under financing activities on the Statements of Consolidated Cash Flows. Income Taxes: The Company accounts for income taxes using the liability method. Accordingly, deferred tax assets and liabili- ties are recognized for the future tax consequences attributable to differences between financial statement carrying 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 differences 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. 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. A tax benefit is recognized when it is more likely than not to be sustained. 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 mar- kets, the Company’s products are sold primarily to food retailers, food wholesalers, drug stores, club stores, mass merchandisers, discount and dollar stores, and military commissaries. 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. The Company believes there is no concentration 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 receiv- able is considered past due if payments have not been received within the agreed upon invoice terms. The allowance for doubt- ful accounts at April 30, 2009 and 2008, was $2,001 and $911, respectively. Trade receivables are charged off against the allowance after management determines the potential for recovery is remote. Inventories: Inventories are stated at the lower of cost or market. Cost for all inventories is determined using the first-in, first-out (“FIFO”) method. As of the date of merger with The Folgers Coffee Company (“Folgers”), the Company initially elected to continue the applica- tion of the last-in, first-out (“LIFO”) method of accounting for certain acquired Folgers retail coffee inventory. After further eval- uation, the Company changed its method of accounting for its retail coffee inventories from the LIFO method of accounting to the FIFO method. The Company believes the change is preferable as the FIFO method better reflects the current value of inven- tories on the Consolidated Balance Sheets, and it provides better matching of revenue and expense in the Statements of Consolidated Income, due to the current and anticipated volatility of the underlying commodity prices. Furthermore, the appli- cation of the FIFO method provides a uniform costing method across the Company’s operations, and will enhance comparabil- ity with peers within the food and beverage industry. The change in accounting method from the LIFO to FIFO method was completed in accordance with Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections. As of April 30, 2009, coffee inventory valued using the LIFO method was the equivalent to the value using the FIFO method. Due to the application of purchase accounting and the lower of cost or market principle, the Company had not recorded a LIFO reserve. Accordingly, there was no impact on the Company’s consolidated financial statements resulting from the change in accounting for inventory. Derivative Financial Instruments: The Company utilizes derivative instruments such as commodity futures and options con- tracts and foreign currency forwards and options contracts to manage exposure to changes in commodity prices and foreign currency exchange rates. The Company accounts for these derivative instruments in accordance 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 designated as a cash flow hedge that are used to hedge an anticipated transaction, changes in 37 fair value are deferred and recorded in shareholders’ equity as a component of accumulated other comprehensive (loss) income 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 measures hedge effectiveness at inception and verifies effectiveness on a quarterly basis using prospective and retrospective testing. Any ineffectiveness associated with the hedge or changes in fair value of derivatives that are nonqualifying are recognized immediately in the Statements of Consolidated Income. By policy, the Company historically has not entered into derivative financial instruments for trading purposes or for speculation. For additional information, see Note M: 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. Rent expense in 2009, 2008, and 2007 totaled $36,547, $23,902, and $20,261, 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 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 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. During 2007, the Company recorded impairment of approximately $8.5 million on long-lived assets associated with the Canadian nonbranded, grain-based foodser- vice and industrial businesses divested during the year. 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 annually for impairment. The Company conducts its annual test for impairment of goodwill and indefinite-lived intangible assets as of February 1, of each year. A discounted cash flow analysis is utilized to estimate the fair value of the Company’s reporting units. For annual impairment testing purposes, the Company’s reporting units are its operating segments. The discount rates utilized in the analysis are devel- oped using a weighted-average cost of capital methodology. In addition to the annual test, the Company will test for impair- ment 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 on a straight-line basis over their estimated useful lives. For additional infor- mation, see Note G: Goodwill and Other Intangible Assets. Other Investments in Securities: The Company maintains funds for the payment of benefits associated with nonqualified retire- ment plans. These funds include investments considered to be available-for-sale marketable securities. At April 30, 2009 and 2008, the fair value of these investments included in other assets was $29,273 and $31,130, respectively. Included in accumu- lated other comprehensive (loss) income at April 30, 2009 and 2008, was an unrealized loss of $2,763 and an unrealized gain of $1,404, 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 (loss) income. Recently Issued Accounting Standards: Effective May 1, 2008, the Company adopted the financial statement presentation requirements of Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”) No. FIN 39-1, An Amendment to FASB Interpretation No. 39, (“FSP FIN 39-1”). Among other amendments, FSP FIN 39-1 requires the Company to make an accounting policy election to offset or not offset fair value amounts recognized for derivative instruments and fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral arising from derivative instruments recognized at fair value with the same counterparty under a master netting arrangement. The effects of FSP FIN 39-1 are to be applied ret- rospectively to all periods presented. The Company has elected to not offset fair value amounts recognized for derivative instru- ments and its cash margin accounts executed with the same counterparty. The Company maintained cash margin accounts of 38 $16,619 and $12,634 at April 30, 2009 and 2008, respectively, that are included in other current assets in the Consolidated Balance Sheets. Prior to adoption, the Company’s cash margin accounts were included in cash and cash equivalents in the Consolidated Balance Sheets as they were not considered material. The retrospective application of FSP FIN 39-1 had no impact on the Company’s financial position or results of operations for all periods presented and resulted in a decrease of $12,056 and $454 in cash provided by operating activities for the years ended April 30, 2008 and 2007, respectively. In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(revised), Business Combinations (“SFAS 141R”). SFAS 141R continues to require the purchase method of accounting to be applied to all business combinations, but it significantly changes the accounting for certain aspects of business combinations. SFAS 141R establishes principles and require- ments for how the Company recognizes the assets acquired and liabilities assumed, recognizes the goodwill acquired, and deter- mines what information to disclose to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R is effective for business combinations made by the Company after May 1, 2009. In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors to be considered in developing renewal or extension assumptions used to determine the useful life of intangible assets under Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets. Its intent is to improve the consistency between the useful life of an intangible asset and the period of expected cash flows used to measure its fair value. This FSP is effective May 1, 2009, for the Company. In June 2008, the FASB issued FSP Emerging Issues Task Force 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities (“FSP EITF 03-6-1”). FSP EITF 03-6-1 clarifies that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents whether paid or unpaid are participating securi- ties and are to be included in the computation of earnings per share under the two-class method described in SFAS No. 128, Earnings per Share. This FSP is effective May 1, 2009, for the Company, and requires all presented prior period earnings per share data to be adjusted retrospectively. In December 2008, the FASB issued FSP No. FAS 132 (R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets (“FSP FAS 132R-1”). FSP FAS 132R-1 provides guidance on employers’ disclosures about plan assets of a defined benefit pension or other postretirement plan. This FSP is effective April 30, 2010, for the Company. The Company is currently assessing the impact, if any, on the consolidated financial statements of recently issued accounting standards that are not yet effective for the Company. 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 raw materials used by the Company in each of its segments are primarily commodities and agricultural-based products. Glass, plastic, steel cans, caps, carton board, and corrugate are the principle packaging materials used by the Company. The fruit and vegetable raw materials used by the Company in the production of its food products are purchased from independent grow- ers and suppliers. Green coffee, peanuts, oils, sweeteners, milk, wheat and flour, corn, and other ingredients are obtained from various suppliers. The cost and availability of many of these commodities have fluctuated, and may continue to fluctuate over time. Green coffee is the world’s second largest traded commodity and is sourced solely from foreign countries. Green coffee supply and price are subject to high volatility due to factors such as weather, pest damage, and political and economic condi- tions in the source countries. Raw materials are generally available from numerous sources and the Company believes that it will continue to be able to obtain adequate supplies. The Company has not historically encountered shortages of key raw materials. The Company considers its relationship with key material suppliers to be good. Approximately 34 percent of the Company’s employees, located at 11 facilities, are covered by union contracts. The contracts vary in term depending on the location with seven contracts expiring in 2010. Reclassifications: Certain prior year amounts have been reclassified to conform to current year classifications. 39 NOTE B: MERGERS AND ACQUISITIONS On November 6, 2008, the Company merged The Folgers Coffee Company (“Folgers”), a subsidiary of The Procter & Gamble Company (“P&G”), with a wholly-owned subsidiary of the Company. Under the terms of the agreement, P&G distributed the Folgers common shares to electing P&G shareholders in a tax-free transaction, which was immediately followed by the conver- sion of Folgers common stock into Company common shares. As a result of the merger, Folgers became a wholly-owned sub- sidiary of the Company. In the merger, P&G shareholders received approximately 63.2 million common shares of the Company valued at approximately $3,366.4 million based on the average closing price of the Company’s common shares for the period beginning two trading days before and concluding two trading days after the announcement of the transaction on June 4, 2008. After closing the transaction on November 6, 2008, the Company had approximately 118 million common shares outstanding. As part of the transaction, the Company’s debt obligations increased by $350.0 million as a result of Folgers’ LIBOR-based vari- able rate note. In addition, on October 23, 2008, the Company issued $400.0 million in Senior Notes with a weighted-average interest rate of 6.6 percent. A portion of the proceeds was used to fund the payment of a $5.00 per share one-time special div- idend on the Company’s common shares, totaling approximately $274.0 million, on October 31, 2008. The transaction with Folgers, the leading marketer and manufacturer of retail packaged coffee products in the U.S., is consistent with the Company’s strategy to own and market number one brands in North America. For accounting purposes, the Company is the acquiring enterprise. The merger was accounted for as a purchase business combination. Accordingly, the results of the Folgers business are included in the Company’s consolidated financial statements from the date of the merger. The aggregate purchase price was approximately $3,735.8 million, including $19.4 million of capitalized transaction-related expenses and $350.0 million of Folgers’ debt. In addition, the Company incurred costs of $63.4 million in 2009 that were directly related to the merger and integration of Folgers. Due to the nature of these costs, they were expensed as incurred. Total transaction costs of $82.8 million incurred to date include approximately $8.1 million in noncash expense items. The Folgers purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of merger. 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 purchase price exceeded the estimated fair value of the net identifiable tangible and intangible assets acquired, such excess was allocated to goodwill. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the transaction date. Assets acquired: Current assets Property, plant, and equipment Intangible assets Goodwill Other noncurrent assets Total assets acquired Liabilities assumed: Current liabilities Deferred tax liabilities Other noncurrent liabilities Total liabilities assumed Net assets acquired 40 $ 300,532 322,580 2,515,000 1,638,063 4,278 $4,780,453 $ 87,283 953,666 3,750 $1,044,699 $3,735,754 Total Folgers goodwill was assigned to the U.S. retail coffee market segment. Of the total goodwill, $1,627.5 million is not deductible for tax purposes. Although subject to adjustment following the completion of the valuation process, the Folgers pur- chase price allocation is substantially complete. The purchase price allocated to the identifiable intangible assets acquired is as follows: Intangible assets with finite lives: Customer and contractual relationships (20-year estimated useful life) Technology (12-year estimated useful life) Intangible assets with indefinite lives Total intangible assets $1,089,000 133,000 1,293,000 $2,515,000 In addition to the Folgers merger, the Company completed a series of other acquisitions during 2009 and 2008, including Knott’s Berry Farm food brand, Europe’s Best, Inc., the Canadian Carnation brand canned milk business, and Eagle Family Foods Holdings, Inc., for aggregate cash consideration of approximately $279 million and the assumption of $115 million in debt. The results of the operations of each of the merged or acquired businesses are included in the Company’s consolidated financial state- ments from the date of the transaction. Had the transactions occurred on May 1, 2007, unaudited, pro forma consolidated results for the years ended April 30, 2009 and 2008, would have been as follows: Net sales Net income Net income per common share – assuming dilution Year Ended April 30, 2009 2008 $4,684,746 357,265 3.03 $4,354,690 340,176 2.84 The unaudited, pro forma consolidated results are based on the Company’s historical financial statements and those of the merged or acquired businesses and do not necessarily indicate the results of operations that would have resulted had the trans- actions been completed at the beginning of the applicable period presented, nor is it indicative of the results of operations in future periods. 41 NOTE C: RESTRUCTURING In 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 has completed a number of transactions resulting in the rationalization or divestiture of manufacturing facilities and businesses in the United States, Europe, and Canada, including the 2007 sale of the Canadian nonbranded businesses, which were acquired as part of International Multifoods Corporation. The restructurings resulted in the reduction of approximately 410 full-time positions. The Company has incurred total restructuring costs of approximately $69.0 million related to these initiatives since the announcement in March 2003. Total restructuring charges of $10,229, $4,747, and $12,101 in 2009, 2008, and 2007, respec- tively, were reported in the accompanying Statements of Consolidated Income. Of the total restructuring charges, approximately $1,510 and $9,981 were reported in cost of products sold in 2008 and 2007, respectively, and no restructuring charges were reported in cost of products sold in 2009. The restructuring costs classified as cost of products sold include long-lived asset charges and inventory disposition costs. The Company believes the restructuring plan is substantially complete. NOTE D: REPORTABLE SEGMENTS The Company operates in one industry: the manufacturing and marketing of food products. The Company has four reportable segments: U.S. retail consumer market, U.S. retail oils and baking market, U.S. retail coffee market, and special markets. With the addition of The Folgers Coffee Company (“Folgers”) and the resulting organizational changes made in association with the Folgers transaction, the Company created the U.S. retail consumer market segment, U.S. retail oils and baking market segment, and U.S. retail coffee market segment. The U.S. retail consumer market segment primarily includes domestic sales of Smucker’s, Jif, and Hungry Jack branded products; the U.S. retail oils and baking market segment includes domestic sales of Crisco, Pillsbury, Eagle Brand, White Lily, and Martha White branded products; the U.S. retail coffee market segment represents the domestic sales of Folgers, Millstone, and Dunkin’ Donuts branded coffee to retail customers; and the special markets segment is comprised of the Canada, foodservice, natural foods (formerly beverage), and international strategic business areas. Special markets segment products are distributed domestically and in foreign countries through retail channels, foodservice distributors and operators (i.e., restaurants, schools and universities, health care operations), and health and natural foods stores and distributors. As a result of the change in segment reporting, all historical information has been reclassified to conform to the new presentation. 42 The following table sets forth reportable segment and geographical information. Net sales: U.S. retail consumer market U.S. retail oils and baking market U.S. retail coffee market Special markets Total net sales Segment profit: U.S. retail consumer market U.S. retail oils and baking market U.S. retail coffee market Special markets Total segment profit Interest income Interest expense Amortization Share-based compensation expense Restructuring costs Merger and integration costs Corporate administrative expenses Other unallocated (expense) income Year Ended April 30, 2009 2008 2007 $1,103,264 995,474 855,571 803,624 $ 998,556 875,991 — 650,227 $ 920,505 626,559 — 600,953 $3,757,933 $2,524,774 $2,148,017 $ 249,313 124,150 240,971 111,741 $ 233,201 99,626 — 92,019 $ 217,897 101,898 — 72,974 $ 726,175 $ 424,846 $ 392,769 6,993 (62,478) (40,314) (14,043) (10,229) (72,666) (133,313) (4,060) 13,259 (42,145) (4,073) (11,531) (4,747) (7,967) (115,618) 2,764 9,225 (23,363) (1,528) (11,257) (12,101) (61) (111,082) (1,598) Income before income taxes $ 396,065 $ 254,788 $ 241,004 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 $3,353,362 $2,199,433 $1,819,747 $ 356,300 48,271 $ 278,447 46,894 $ 282,069 46,201 $ 404,571 $ 325,341 $ 328,270 $3,757,933 $2,524,774 $2,148,017 $ 7,670,192 $2,547,609 $2,198,029 $ 514,993 6,976 $ 573,829 8,443 $ 484,641 11,153 $ 521,969 $ 582,272 $ 495,794 $8,192,161 $3,12 9,881 $2,693,823 $6,406,085 $1,895,494 $ 1,690,755 $ 386,948 237 $ 457,345 835 $ 357,486 6,216 $ 387,185 $ 458,180 $ 363,702 $6,793,270 $2,353,674 $2,054,457 Segment profit represents revenue less direct and allocable operating expenses. 43 The following table presents product sales information. Coffee Peanut butter Shortening and oils Fruit spreads Baking mixes and frostings Canned milk Flour and baking ingredients Portion control Juices and beverages Uncrustables frozen sandwiches Toppings and syrups Other Total Year Ended April 30, 2009 2008 2007 25% 14 11 9 8 7 7 4 3 3 3 6 —% 19 14 13 10 10 8 5 5 5 4 7 —% 21 15 14 11 — 11 5 5 4 5 9 100% 100% 100% The following table sets forth the computation of earnings per common share and earnings per common share – assuming dilution. NOTE E: EARNINGS PER SHARE Numerator: Net income for earnings per common share and earnings per common share – assuming dilution Denominator: Weighted-average shares Effect of dilutive securities: Stock options Restricted stock Denominator for earnings per common share – assuming dilution Net income per common share Net income per common share – assuming dilution Year Ended April 30, 2009 2008 2007 $265,953 $170,379 $157,219 84,823,849 56,226,206 56,432,839 98,938 362,424 231,682 262,757 389,247 234,335 85,285,211 56,720,645 57,056,421 $ 3.14 $ 3.12 $ 3.03 $ 3.00 $ 2.79 $ 2.76 44 NOTE F: MARKETABLE SECURITIES Under the Company’s investment policy, it may invest in debt securities deemed to be investment grade at the time of purchase. Currently, these investments are defined as mortgage-backed obligations, corporate bonds, municipal bonds, federal agency notes, and commercial paper. However, in light of current market conditions, the Company has limited recent investments pri- marily to high-quality money market funds. The Company determines the appropriate categorization of 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 securities 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 security’s 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. Approximately $3,013, $257,536, and $26,272 of proceeds have been realized upon maturity or sale of available-for-sale marketable securities in 2009, 2008, and 2007, respectively. 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, consisting entirely of mortgage-backed securities, at April 30, 2009 and 2008. Cost Gross unrealized losses Estimated fair value Year Ended April 30, 2009 2008 $13,519 (706) $12,813 $16,532 (489) $16,043 There were two marketable securities in an unrealized loss position for greater than twelve months at April 30, 2009. Based on management’s evaluation at April 30, 2009, considering the nature of the investments, the credit worthiness 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. NOTE G: GOODWILL AND OTHER INTANGIBLE ASSETS A summary of changes in the Company’s goodwill during the years ended April 30, 2009 and 2008, by reportable segment is as follows: Balance at April 30, 2007 Acquisitions Other Balance at April 30, 2008 Acquisitions Other U.S. Retail Consumer Market U.S. Retail Oils and Baking Market $ 340,010 600 866 $ 341,476 — (180) $ 596,523 100,547 3,465 $ 700,535 — (883) U.S. Retail Coffee Market $ — — — $ — 1,638,063 — Special Markets $ 54,238 34,060 2,167 $ 90,465 35,435 (13,520) Total $ 990,771 135,207 6,498 $ 1,132,476 1,673,498 (14,583) Balance at April 30, 2009 $341,296 $699,652 $1,638,063 $112,380 $2,791,391 Included in the other category at April 30, 2009 and 2008, were foreign currency exchange and tax-related adjustments. 45 The Company’s other intangible assets and related accumulated amortization are as follows: April 30, 2009 April 30, 2008 Acquisition Accumulated Amortization Cost Net Acquisition Cost Accumulated Amortization Net Finite-lived intangible assets subject to amortization: Customer and contractual relationships $1,176,006 134,970 Patents and technology 6,460 Trademarks $35,433 $1,140,573 128,639 5,492 6,331 968 $ 79,103 1,970 6,785 $3,334 641 663 $ 75,769 1,329 6,122 Total intangible assets subject to amortization Indefinite-lived intangible assets not subject to amortization: Trademarks $1,317,436 $42,732 $1,274,704 $ 87,858 $4,638 $ 83,220 $1,824,272 $ — $1,824,272 $530,780 $ — $530,780 Total other intangible assets $3,141,708 $42,732 $3,098,976 $618,638 $4,638 $614,000 Amortization expense for finite-lived intangible assets was $38,094, $3,895, and $351 in 2009, 2008, and 2007, respectively. The weighted-average useful life of the finite-lived intangible assets is 19 years. Based on the current amount of intangible assets sub- ject to amortization, the estimated amortization expense for each of the succeeding five years is $71,400. 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 was per- formed as of February 1, 2009. Goodwill impairment is tested at the reporting unit level which is the Company’s operating seg- ments. Approximately $1,491 and $225 of impairment was recorded related to certain indefinite-lived intangible assets in 2009 and 2007, respectively, and no impairment was recorded in 2008. NOTE H: PENSIONS AND OTHER POSTRETIREMENT BENEFITS The Company has pension plans covering certain 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 funding requirements of applicable gov- ernment 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 10 years of credited service. Effective April 30, 2007, the Company adopted Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statement Nos. 87, 88, 106, and 132(R) (“SFAS 158”). SFAS 158 requires the recognition of a plan’s funded status as an asset for fully funded plans and as a liability for unfunded or under-funded plans. Previously unrecognized actuarial gains and losses and prior service costs are now recorded in accumu- lated other comprehensive (loss) income. The amounts recorded in accumulated other comprehensive (loss) income are modi- fied as actuarial assumptions and service costs change and such amounts are amortized to expense over a period of time through the net periodic benefit cost. 46 The following table summarizes the components of net periodic benefit cost (credit) and other comprehensive income related to the defined benefit pension and other postretirement plans. Defined Benefit Pension Plans Other Postretirement Benefits Year Ended April 30, 2009 2008 2007 2009 2008 2007 Service cost Interest cost Expected return on plan assets Amortization of prior service cost (credit) Amortization of initial net asset Amortization of net actuarial loss (gain) Settlement loss Curtailment loss $ 5,871 26,263 (29,905) 1,295 — 1,360 9,908 — $ 6,925 25,900 (35,391) 1,364 (1) 1,014 — 68 $ 7,607 23,740 (32,008) 1,423 (1) 1,393 — 111 $1,892 2,540 — (489) — (730) — — $1,291 2,516 — (454) — (523) — — $ 2,016 3,081 — (204) — 49 — — Net periodic benefit cost (credit) $ 14,792 $ (121) $ 2,265 $3,213 $2,830 $ 4,942 Other changes in plan assets and benefit liabilities recognized in accumulated other comprehensive (loss) income before income taxes: Change prior to adoption of SFAS 158 Change due to adoption of SFAS 158 Change after adoption of SFAS 158: Prior service cost arising during the year Net actuarial (loss) gain arising during the year Amortization of prior service cost (credit) Amortization of initial net asset Amortization of net actuarial loss (gain) Curtailment Foreign currency translation $ — $ — $ 826 (34,272) — — — — (74,195) 1,295 — 1,360 — 2,517 (14,670) 1,364 (1) 1,014 2,821 (1,212) — — — — — — — $ — — $ — — $ — 12,797 — 3,175 4,645 (489) — (730) — (231) 4,826 (454) — (523) — 18 — — — — — — — Net change for the year $(69,023) $(10,684) $(33,446) $3,195 $ 7,042 $12,797 Weighted-average assumptions used in determining net periodic benefit costs: U.S. plans: Discount rate Expected return on plan assets Rate of compensation increase Canadian plans: Discount rate – before remeasurement Discount rate – after remeasurement Expected return on plan assets Rate of compensation increase 6.60% 7.75 3.84 6.00% 8.25 4.10 6.30% 8.25 4.10 6.60% — — 6.00% — — 6.30% — — 6.10 — 7.25 4.00 5.25 — 8.00 4.00 5.50 5.00 8.00 4.00 6.10 — — — 5.25 — — — 5.50 5.00 — — The Company uses a measurement date of April 30 to determine defined benefit pension plans and other postretirement bene- fits’ assets and benefit obligations. As a result of the sale of the Canadian nonbranded businesses in 2007, a remeasurement of three Canadian plans was performed. 47 The following table sets forth the combined status of the plans as recognized in the Consolidated Balance Sheets. Change in benefit obligation: Benefit obligation at beginning of the year Service cost Interest cost Amendments Divestiture Actuarial gain Participant contributions Benefits paid Curtailment gain Foreign currency translation adjustments Defined Benefit Pension Plans April 30, Other Postretirement Benefits April 30, 2009 2008 2009 2008 $430,989 5,871 26,263 — (25,934) (27,359) 328 (26,089) — (21,349) $435,268 6,925 25,900 — — (22,986) 371 (25,736) (2,752) 13,999 $ 41,583 1,892 2,540 — — (4,645) 1,089 (2,393) — (1,884) $ 46,349 1,291 2,516 (3,175) — (4,799) 1,250 (3,116) — 1,267 Benefit obligation at end of the year $362,720 $430,989 $ 38,182 $ 41,583 Change in plan assets: Fair value of plan assets at beginning of the year Actual return on plan assets Company contributions Participant contributions Benefits paid Divestiture Foreign currency translation adjustments $422,019 (82,034) 34,665 328 (26,089) (25,934) (22,473) $ 431,000 (2,094) 3,538 371 (25,736) — 14,940 $ — — 1,304 1,089 (2,393) — — $ — — 1,866 1,250 (3,116) — — Fair value of plan assets at end of the year $300,482 $422,019 $ — $ — Funded status of the plans $ (62,238) $ (8,970) $(38,182) $(41,583) Other noncurrent assets Salaries, wages, and additional compensation Defined benefit pensions Postretirement benefits other than pensions $ 5,032 (869) (66,401) — $ 39,008 — (47,978) — $ — — — (38,182) $ — — — (41,583) Net benefit liability $ (62,238) $ (8,970) $(38,182) $(41,583) The following table summarizes amounts recognized in accumulated other comprehensive (loss) income at April 30, 2009 and 2008, before income taxes. Net actuarial (loss) gain Prior service (cost) credit Total Defined Benefit Pension Plans Other Postretirement Benefits 2009 2008 2009 2008 $(118,094) (7,235) $ (47,743) (8,563) $ 19,003 4,031 $ 15,319 4,520 $(125,329) $ (56,306) $ 23,034 $ 19,839 During 2010, the Company expects to recognize amortization of net actuarial losses and prior service cost of $6,082 and $1,232, respectively, in net periodic benefit costs. 48 The following table sets forth the assumptions used in determining the benefit obligations. Weighted-average assumptions used in determining benefit obligation: U.S. plans: Discount rate Rate of compensation increase Canadian plans: Discount rate Rate of compensation increase Defined Benefit Pension Plans April 30, Other Postretirement Benefits April 30, 2009 2008 2009 2008 7.40% 3.39 5.40 4.00 6.60% 3.84 6.10 4.00 7.40% — 5.40 — 6.60% — 6.10 — The rate of compensation increase is based on multiple graded scales and is weighted based on the active liability balance. For 2010, the assumed health care trend rates are eight and one-half percent and seven and one-half percent for U.S. and Canadian plans, respectively. The rate for participants under age 65 is assumed to decrease to five percent and four and one-half percent in 2014 for U.S. and Canadian plans, respectively. The health care cost trend rate assumption has a significant effect on the amount of the other postretirement benefits obligation and periodic other postretirement benefits cost reported. A one-percentage point annual change in the assumed health care cost trend rate would have the following effect as of April 30, 2009: Effect on total service and interest cost components Effect on benefit obligation One-Percentage Point Increase $ 199 2,095 Decrease $ (162) (1,885) The following table sets forth selective information pertaining to the Company’s Canadian pension and other postretirement benefit plans. Defined Benefit Pension Plans Other Postretirement Benefits Year Ended April 30, 2009 2008 2009 2008 Benefit obligation at end of the year Fair value of plan assets at end of the year Funded status of the plans Service cost Interest cost Settlement loss Company contributions Participant contributions Benefits paid Net periodic benefit cost (credit) $ 94,633 75,899 $145,348 154,530 $ 10,866 — $ 12,079 — $(18,734) $ 9,182 $(10,866) $(12,079) $ 816 7,963 9,908 2,497 328 (9,407) 9,596 $ 1,103 8,553 — 1,654 371 (9,406) (2,849) $ 46 631 — 607 — (607) 665 $ 58 669 — 1,090 — (1,090) 727 49 The following table sets forth additional information related to the Company’s defined benefit pension plans. Accumulated benefit obligation for all pension plans 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, 2009 2008 $344,901 $411,478 244,070 183,585 252,573 185,516 80,762 37,686 85,596 37,686 The Company employs a total return on investment approach for the defined benefit pension plans’ assets. A mix of equities, fixed income, and alternative investments are used to maximize the long-term rate of return on assets for the level of risk. In deter- mining 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, 2009 39% 40 21 100% 2008 54% 40 6 100% Target Allocation 45% 44 11 100% Included in equity securities were 317,552 of the Company’s common shares at April 30, 2009 and 2008. The market value of these shares was $12,512 at April 30, 2009. The Company paid dividends of $1,994 on these shares during 2009. The Company expects to contribute approximately $4 million to the pension plans in 2010. The Company expects to make the following benefit payments for all benefit plans: $26 million in 2010, $27 million in 2011, $35 million in 2012, $28 million in 2013, $29 million in 2014, and $158 million in 2015 through 2019. 50 NOTE I: SAVINGS PLANS ESOP: The Company sponsors an Employee Stock Ownership Plan and Trust (“ESOP”) for certain domestic, nonrepresented 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 expense incurred on ESOP debt was $261, $376, and $530 in 2009, 2008, and 2007, respectively. Contributions to the plan, representing compensation expense, are made annually in amounts sufficient to fund ESOP debt repayment and were $614, $690, and $684 in 2009, 2008, and 2007, respectively. Dividends on unallocated shares are used to reduce expense and were $1,461, $334, and $356 in 2009, 2008, and 2007, respec- tively. The principal payments received from the ESOP in 2009, 2008, and 2007 were $649, $538, and $508, respectively. Dividends on allocated shares are credited to participant accounts and are used to purchase additional common shares for par- ticipant accounts. Dividends on allocated and unallocated shares are charged to retained income by the Company. As permitted by Statement of Position 93-6, Employers’ Accounting for Employee Stock Ownership Plans, the Company will con- tinue to recognize future compensation using the cost basis as all shares currently held by the ESOP were acquired prior to 1993. At April 30, 2009, the ESOP held 231,594 unallocated and 818,552 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 per- centage of employee contributions. Charges to operations for these plans in 2009, 2008, and 2007 were $7,282, $4,943, and $4,138, respectively. NOTE J: SHARE-BASED PAYMENTS The Company provides for equity-based incentives to be awarded to key employees and nonemployee directors. Currently, these incentives consist of restricted shares, restricted stock units, deferred shares, deferred stock units, performance units, and stock options. These awards are administered primarily through the 2006 Equity Compensation Plan approved by the Company’s shareholders in August 2006. Awards under this plan may be in the form of stock options, stock appreciation rights, restricted shares, deferred stock units, performance shares, performance units, incentive awards, and other share-based awards. Awards under this plan may be granted to the Company’s nonemployee directors, consultants, officers, and other employees. Deferred stock units granted to nonemployee directors vest immediately. At April 30, 2009, there were 1,719,101 shares available for future issuance under this plan. As a result of this plan becoming effective in August 2006, no further awards will be made under pre- viously existing equity compensation plans, except for certain defined circumstances included in the new plan. Under the 2006 Equity Compensation Plan, the Company has the option to settle share-based awards by issuing common shares from treasury or issuing new Company common shares. For awards granted from the Company’s other equity compensation plans, the Company issues common shares from treasury, except for plans that were acquired as part of the Multifoods acquisi- tion, which are settled by issuing new Company common shares. 51 Stock Options: The following table is a summary of the Company’s stock option activity and related information. Outstanding at May 1, 2008 Exercised Forfeited Outstanding and exercisable at April 30, 2009 Options 1,118,859 (114,369) (12,330) 992,160 Weighted- Average Exercise Price $38.23 2 7.17 52.92 $39.32 At April 30, 2009, the weighted-average remaining contractual term for stock options outstanding and exercisable was 4.2 years and the aggregate intrinsic value of these stock options was approximately $78. The total intrinsic value of options exercised during 2009, 2008, and 2007 was approximately $2,871, $28,973, and $9,409, respectively. Other Equity Awards: The following table is a summary of the Company’s restricted shares, deferred shares, deferred stock units, and performance units. Outstanding at May 1, 2008 Granted Converted Vested Forfeited Outstanding at April 30, 2009 Restricted/ Deferred Shares and Deferred Stock Units 438,490 570,359 65,830 (226,857) (9,156) 838,666 Weighted- Average Grant Date Fair Value $49.12 42.29 51.37 49.00 47.39 $44.70 Performance Units 65,830 114,440 (65,830) — — 114,440 Weighted- Average Fair Value $51.37 43.44 51.37 — — $43.44 The total fair value of equity awards other than stock options vesting in 2009, 2008, and 2007 was approximately $11,117, $8,547, and $4,276, respectively. The weighted-average grant date fair value of restricted shares, deferred shares, deferred stock units, performance shares, and performance units is the average of the high and the low share price on the date of grant. The following table summarizes the weighted-average grant date fair values of the equity awards granted in 2009, 2008, and 2007. Year Ended April 30, 2009 2008 2007 Restricted/ Deferred Shares and Deferred Stock Units 570,359 140,290 172,669 Weighted- Average Grant Date Fair Value $42.29 57.50 40.80 Performance Shares and Units 114,440 65,830 67,440 Weighted- Average Grant Date Fair Value $43.44 51.37 57.73 The performance shares and units column represents the number of restricted shares received by certain executive officers, sub- sequent to year end, upon conversion of the performance shares and units earned during the year. Restricted stock generally vests four years from the date of grant or upon the attainment of a defined age and years of service. 52 Long-term debt consists of the following: NOTE K: DEBT AND FINANCING ARRANGEMENTS 6.77% Senior Notes due June 1, 2009 6.60% Senior Notes due November 13, 2009 7.94% Series C Senior Notes due September 1, 2010 4.78% Senior Notes due June 1, 2014 6.12% Senior Notes due November 1, 2015 6.63% Senior Notes due November 1, 2018 5.55% Senior Notes due April 1, 2022 Total long-term debt Current portion of long-term debt Total long-term debt less current portion April 30, 2009 2008 $ 75,000 201,726 10,000 100,000 24,000 376,000 400,000 $1,186,726 276,726 $ 75,000 204,684 10,000 100,000 — — 400,000 $789,684 — $ 910,000 $789,684 In addition, as part of the merger with The Folgers Coffee Company (“Folgers”) on November 6, 2008, the Company’s debt obligations increased by $350.0 million as a result of the guarantee of Folgers’ term loan facility with two banks. Interest on the facility is based on prevailing federal funds rate, U.S. prime, or LIBOR, as determined by the Company, and is payable either on a quarterly basis, or at the end of a borrowing term. At April 30, 2009, the weighted-average interest rate on the facility was 1.8 per- cent. This facility matures on November 9, 2009. On October 23, 2008, the Company issued $400.0 million in Senior Notes in two series with maturity dates of November 1, 2015 and November 1, 2018. A portion of the proceeds from the Senior Notes was used to fund costs related to the Folgers merger and the payment of a $5.00 per share one-time special dividend, totaling approximately $274.0 million, on October 31, 2008. All of the Company’s Senior Notes are unsecured and interest is paid annually on the 6.60 percent Senior Notes and semiannually on the other notes. Prepayments are required on the 5.55 percent Senior Notes, the first of which is $50.0 million on April 1, 2013. The 6.60 percent Senior Notes are guaranteed by Diageo plc, an unrelated third party. The guarantee may terminate, in limited circumstances, prior to the maturity of the notes. The Company has available a $180.0 million revolving credit facility with a group of three banks. Interest on the revolving 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, 2009, the Company did not have a bal- ance outstanding under the revolving credit facility. At April 30, 2009, the Company had standby letters of credit of approxi- mately $22.9 million outstanding. The Company’s debt instruments contain certain financial covenant restrictions including consolidated net worth and debt to capitalization requirements. The Folgers’ term loan facility also contains leverage and interest coverage ratios. The Company is in compliance with all covenants. Interest paid totaled $52,918, $44,584, and $27,580 in 2009, 2008, and 2007, 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, debt issuance costs, and interest capitalized. 53 NOTE L: CONTINGENCIES 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 a defendant in a variety of legal proceedings. Plaintiffs in a few of those cases seek substantial damages. The Company cannot predict with certainty the results of these proceedings. However, the Company believes that the final outcome of these proceedings will not materially affect the Company’s financial position, results of operations, or cash flows. NOTE M: DERIVATIVE FINANCIAL INSTRUMENTS The Company is exposed to market risks, such as changes in foreign currency exchange rates and commodity pricing. To manage the volatility relating to these exposures, the Company enters into various derivative transactions. Commodity Price Management: The Company enters into commodity futures and options contracts to manage the price volatility and reduce the variability of future cash flows related to anticipated inventory purchases of green coffee, edible oils, flour, and milk. The Company also enters into commodity futures and options to manage price risk for energy input costs, including natural gas and diesel fuel. The derivative instruments generally have maturities of less than one year. Certain of the derivative instruments associated with the Company’s U.S. retail oils and baking market and U.S. retail coffee market segments meet the hedge criteria according to Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), and are accounted for as cash flow hedges. The mark-to-market gains or losses on qualify- ing hedges are deferred and included as a component of other comprehensive income 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 immediately. In order to qualify as a hedge of commodity price risk, it must be demonstrated that the changes in the fair value of the com- modity’s futures contracts are highly effective in hedging price risks associated with the commodity purchased. Hedge effective- ness is measured at inception and on a quarterly basis. Foreign Currency Exchange Rate Hedging: The Company utilizes foreign currency forwards and options contracts to manage the effect of foreign currency exchange fluctuations on future cash payments related to purchases of certain raw materials, fin- ished goods, and fixed assets. The contracts generally have maturities of less than one year. At the inception of the contract, the derivative is evaluated and documented for SFAS 133 accounting treatment. If the contract qualifies for hedge accounting treat- ment, to the extent the hedge is deemed effective, the associated mark-to-market gains and losses are deferred and included as a component of other comprehensive income. These gains or losses are reclassified to earnings in the period the contract is exe- cuted. The ineffective portion of these contracts is immediately recognized in earnings. Certain instruments used to manage for- eign currency exchange exposures do not meet the requirements for hedge accounting treatment and the change in value of these instruments is immediately recognized in cost of products sold. As of April 30, 2009, the Company had the following outstanding derivative contracts: Commodity contracts Foreign currency exchange contracts Gross Contract Notional Amount $276,644 $ 41,999 54 The following table sets forth the fair value of derivative instruments as recognized in the Consolidated Balance Sheet at April 30, 2009. Derivatives designated as hedging instruments under SFAS 133: Commodity contracts Derivatives not designated as hedging instruments under SFAS 133: Commodity contracts Foreign currency exchange contracts Total Total derivatives Other Current Assets Other Current Liabilities $3,782 $1,562 $ 414 — $ 414 $4,196 $2,278 332 $2,610 $4,172 The following table presents information on the mark-to-market gains and losses recognized on derivatives in SFAS 133 cash flow hedging relationships, all of which hedge commodity price risk. Loss recognized in other comprehensive loss, net of tax (effective portion) Loss reclassified from accumulated other comprehensive loss to cost of products sold, net of tax (effective portion) Gain recognized in cost of products sold, net of tax (ineffective portion) Three Months Ended April 30, 2009 (Unaudited) $ (188) (4,551) 37 The entire amount of the deferred gain included in accumulated other comprehensive loss at April 30, 2009, is expected to be recognized in earnings as the related commodity is utilized during 2010. The following table presents the mark-to-market losses recognized on derivatives not designated as hedging instruments under SFAS 133. These losses were recognized in cost of products sold. Commodity contracts Foreign currency exchange contracts Total Three Months Ended April 30, 2009 (Unaudited) $ 1,563 701 $ 2,264 55 NOTE N: OTHER FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS 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’s marketable securities are in debt securities. Under the Company’s investment policy, it may invest in securities deemed to be investment grade at the time of purchase. Currently, these investments are defined as mortgage-backed obligations, corporate bonds, municipal bonds, fed- eral agency notes, and commercial paper. However, in light of recent market conditions, the Company has limited recent invest- ments primarily to high-quality money market funds. The Company determines the appropriate categorization of its debt securities at the time of purchase and reevaluates such designation at each balance sheet date. 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, approxi- mates their carrying amounts. The following table provides information on the carrying amount and fair value of financial instruments, including derivative financial instruments. Marketable securities Other investments and securities Derivative financial instruments (net assets) Fixed rate long-term debt April 30, 2009 April 30, 2008 Carrying Amount Fair Value $ 12,813 $ 12,813 29,273 24 1,234,728 29,273 24 1,186,726 Carrying Amount $ 16,043 31,130 1,269 789,684 Fair Value $ 16,043 31,130 1,269 807,583 In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 and related interpretations provide guidance for using fair value to measure assets and liabilities and only applies when other standards require or permit the fair value measurement of assets and liabilities. It does not expand the use of fair value measurement. In February 2008, the FASB issued Staff Position No. 157-2, Effective Date of FASB Statement No. 157 (“FSP SFAS 157-2”). FSP SFAS 157-2 amends SFAS 157 to delay the effective date of the standard, as it relates to nonfinancial assets and nonfinancial liabilities, to fiscal years beginning after November 15, 2008, (May 1, 2009, for the Company). SFAS 157 for financial assets and financial liabilities was effective for fiscal years beginning after November 15, 2007. The Company adopted the provisions of SFAS 157 effective May 1, 2008. The adoption of SFAS 157 did not have a material impact on the Company’s condensed consolidated financial statements. SFAS 157 valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect the Company’s market assumptions. SFAS 157 classifies these inputs into the following hierarchy: Level 1 Inputs – Quoted prices for identical instruments in active markets. Level 2 Inputs – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. Level 3 Inputs – Instruments with primarily unobservable value drivers. 56 The following table is a summary of the fair values of the Company’s financial assets. Marketable securities(A) Other investments and securities(B) Derivatives(C) Total Level 1 $ — 8,147 24 $8,171 Level 2 $12,813 21,126 — $33,939 Level 3 $ — — — $ — Fair Value at April 30, 2009 Fair Value at April 30, 2008 $12,813 29,273 24 $42,110 $16,043 31,130 1,269 $48,442 (A) The Company’s marketable securities consist entirely of mortgage-backed securities. The securities are broker-priced, and valued by a third party using an evaluated pricing methodology. An evaluated pricing methodology is a valuation technique which uses inputs that are derived principally from or cor- roborated by observable market data. (B) The Company maintains funds for the payment of benefits associated with nonqualified retirement plans. These funds consist of equity securities listed in active markets and municipal bonds. The municipal bonds are valued by a third party using an evaluated pricing methodology. (C) The Company’s derivatives are valued using quoted market prices. For additional information, see Note M: Derivative Financial Instruments. 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: NOTE O: INCOME TAXES Deferred tax liabilities: Intangible assets Property, plant, and equipment 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, 2009 2008 $1,062,680 117,736 11,362 29,357 $1,221,135 $ 8,918 69,051 2,997 5,896 16,867 $ 103,729 (9,026) $148,182 59,359 11,280 8,000 $226,821 $ 8,858 43,902 990 4,866 10,962 $ 69,578 (9,890) $ 94,703 $ 59,688 $1,126,432 $ 167,133 The following table summarizes domestic and foreign loss carryforwards at April 30, 2009. Loss carryforwards: Federal capital loss State net operating loss Foreign net operating loss Total loss carryforwards Related Tax Deduction $ 11,692 86,169 8,215 $106,076 Deferred Tax Asset $4,238 3,702 978 $8,918 Expiration Date 2010 to 2014 2010 to 2028 2026 to 2028 57 Deferred tax assets at April 30, 2009, also include $990 of foreign tax credit carryforwards that are due to expire in 2010, net state tax credit carryforwards of $1,495 that are due to expire in 2018, and net foreign jurisdictional tax credit carryforwards of $512 that are due to expire in 2028. The valuation allowance decreased by $864, primarily due to the expiration of state net operating losses that had a full valua- tion allowance. The valuation allowance at April 30, 2009, includes approximately $8,878 for the domestic and foreign loss and tax credit carryforwards. Approximately $4,197 of the valuation allowance, if subsequently recognized as a tax benefit under cur- rent accounting rules, would be allocated to reduce goodwill. Effective May 1, 2009, the Company will adopt Statement of Financial Accounting Standards No. 141 (revised), Business Combinations (“SFAS 141R”) and subsequent recognition of these tax benefits would be recorded through earnings or additional paid in capital. Domestic income and foreign withholding taxes have not been recorded on undistributed earnings of foreign subsidiaries since these amounts are considered to be permanently reinvested. Any additional taxes payable on the earnings of foreign subsidiaries, if remitted, would be partially offset by domestic tax credits or deductions for foreign taxes already paid. It is not practical to esti- mate the amount of additional taxes that might be payable on such undistributed earnings. Income (loss) before income taxes is as follows: Domestic Foreign Income before income taxes The components of the provision for income taxes are as follows: Current: Federal Foreign State and local Deferred Total income tax expense Year Ended April 30, 2009 2008 2007 $378,293 17,772 $236,307 18,481 $241,349 (345) $396,065 $254,788 $241,004 Year Ended April 30, 2009 2008 2007 $ 97,182 1,688 5,717 25,525 $ 59,239 3,580 3,375 18,215 $ 59,207 (3,756) 5,804 22,530 $130,112 $ 84,409 $ 83,785 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 State and local income taxes, net of federal income tax benefit Other items – net Effective income tax rate Income taxes paid Year Ended April 30, 2008 35.0% 0.4 (2.3) 33.1% 2009 35.0% 0.6 (2.7) 32.9% 2007 35.0% 2.0 (2.2) 34.8% $ 69,107 $ 73,786 $ 54,581 58 Effective May 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), which is an interpretation of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. FIN 48 clarifies the financial statement recognition and measurement criteria of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The cumulative effect of applying this interpretation has been recorded as a decrease of $2,374 to retained income as of May 1, 2007. In accordance with the requirements of FIN 48, uncertain tax positions have been classified in the Consolidated Balance Sheets as long term, except to the extent payment is expected within one year. The Company recognizes net interest and penalties related to unrecognized tax benefits in income tax expense, consistent with the accounting method used prior to adopting FIN 48. The Company files income tax returns in the U.S. and various state, local, and foreign jurisdictions. The Company is no longer subject to examination of U.S. federal income taxes for years prior to 2006 and, with limited exceptions, the Company is no longer subject to examination of state and local or foreign income taxes for years prior to 2005. In May 2009, the Company reached an agreement with the Internal Revenue Service (“IRS”) on proposed adjustments resulting from an examination of its federal income tax returns for years ended in 2007 and 2006. During 2007, the Company reached an agreement with the IRS on proposed adjustments resulting from an examination of its federal income tax returns for years ended in 2005 and 2004. As a result of the agreement in 2007, the Company reduced its unrecognized tax benefits and net interest accrual by $4,871 and $667, respectively, and paid $7,726 in taxes and interest. The agreements did not have a material effect on the Company’s effective tax rate for the year. Within the next twelve months, it is reasonably possible that the Company could decrease its unrecognized tax benefits by an estimated $3,568, primarily as a result of the expiration of federal, state, and local statute of limitation periods. The Company’s unrecognized tax benefits as of April 30, 2009, were $13,794, of which $5,694 would affect the effective tax rate, if recognized. Upon adoption of SFAS 141R, unrecognized tax benefits recorded in business combinations may impact the effec- tive rate, if recognized. As of April 30, 2009, the Company’s accrual for tax-related net interest and penalties totaled $2,883. The amount of tax-related net interest and penalties credited to earnings during 2009 totaled $1,982. The Company’s unrecognized tax benefits as of April 30, 2008, were $21,902, of which $8,961 would affect the effective tax rate, if recognized. As of April 30, 2008, the Company’s accrual for tax-related net interest and penalties totaled $4,865. The amount of tax-related net interest and penalties charged to earnings during 2008 totaled $36. A reconciliation of the Company’s unrecognized tax benefits is as follows: Balance at May 1, Increases: Current year tax positions Prior year tax positions Acquisitions Decreases: Prior year tax positions Settlement with tax authorities Expiration of statute of limitations periods Foreign currency translation Balance at April 30, 2009 2008 $21,902 $19,591 118 274 3,103 8,338 1,370 1,711 184 117 5,869 6,752 1,642 7,395 1,390 — $13,794 $21,902 59 NOTE P: ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME Comprehensive income is included in the Statements of Consolidated Shareholders’ Equity. The components of accumulated other comprehensive (loss) income as shown on the Consolidated Balance Sheets are as follows: Balance at May 1, 2006 Reclassification adjustments Current period credit Adjustments to initially apply Statement of Financial Accounting Standards No. 158 Income tax benefit (expense) Balance at April 30, 2007 Reclassification adjustments Current period credit (charge) Income tax benefit (expense) Balance at April 30, 2008 Reclassification adjustments Current period (charge) credit Income tax benefit Foreign Currency Translation Adjustment $ 34,788 — 2,437 — — $ 37,225 — 20,861 — $ 58,086 — (47,024) — Pension and Other Postretirement Liabilities Unrealized (Loss) Gain on Available-for-Sale Securities Unrealized Gain on Cash Flow Hedging Derivatives Accumulated Other Comprehensive (Loss) Income $ (7,623) — 826 $ (676) — 2,593 $ 720 (1,146) 1,354 $ 27,209 (1,146) 7,210 (21,475) 6,978 $ (21,294) — (3,642) 722 $ (24,214) — (65,828) 22,349 — (949) $ 968 — (611) 232 $ 589 — (4,384) 1,586 — (70) $ 858 (1,354) 12,885 (4,238) $ 8,151 (12,885) 2,494 3,810 (21,475) 5,959 $ 17,757 (1,354) 29,493 (3,284) $ 42,612 (12,885) (114,742) 27,745 Balance at April 30, 2009 $ 11,062 $(67,693) $(2,209) $ 1,570 $ (57,270) NOTE Q: COMMON SHARES Voting: The Company’s Amended Articles of Incorporation (“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: ✷ any matter that relates to or would result in the dissolution or liquidation of the Company; ✷ the adoption of any amendment of the Articles, or the Regulations of the Company, or the adoption of amended Articles, other than the adoption of any amendment or amended Articles that increases the number of votes to which holders of common shares are entitled or expands the matters to which time phase voting applies; ✷ 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; ✷ any matter relating to any stock option plan, stock purchase plan, executive compensation plan, or other similar plan, arrangement, or agreement; ✷ 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 authoriza- tion of the lease, sale, exchange, transfer, or other disposition of all, or substantially all, of the Company’s assets; 60 ✷ any matter submitted to the Company’s shareholders pursuant to Article Fifth (which relates to procedures applicable to cer- tain business combinations) or Article Seventh (which relates to procedures applicable to certain proposed acquisitions of specified percentages of the Company’s outstanding shares) of the Articles, as they may be further amended, or any issuance of common shares of the Company for which shareholder approval is required by applicable stock exchange rules; and ✷ any matter relating to the issuance of common shares, or the repurchase of common shares that the Board 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 10 votes per share, if they meet the requirements set forth in the Articles. Common shares which would be entitled to 10 votes per share include: ✷ common shares beneficially owned as of November 6, 2008, and for which there has not been a change in beneficial owner- ship after November 6, 2008; or ✷ 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 adopted by the Company’s Board of Directors on May 20, 2009, one share purchase right is associated 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 10 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 $0.001 per right, generally at any time prior to the rights becoming exercisable. The rights will expire June 3, 2019, unless earlier redeemed, exchanged, or amended by the directors. 61 — DIRECTORS — Vincent C. Byrd President, U.S. Retail – Coffee The J. M. Smucker Company R. Douglas Cowan A Director The Davey Tree Expert Company Kent, Ohio Kathryn W. Dindo A, E Retired Vice President FirstEnergy Corp. Akron, Ohio Paul J. Dolan E President Cleveland Indians Cleveland, Ohio Elizabeth Valk Long A, E Former Executive Vice President Time Inc. New York, New York Nancy Lopez Knight G Founder Nancy Lopez Golf Company Albany, Georgia Gary A. Oatey G Chairman and Chief Executive Officer Oatey Co. Cleveland, Ohio Alex Shumate G Managing Partner Squire, Sanders & Dempsey L.L.P. Columbus, Ohio Mark T. Smucker President, Special Markets The J. M. Smucker Company Richard K. Smucker Executive Chairman and Co-Chief Executive Officer The J. M. Smucker Company Timothy P. Smucker Chairman of the Board and Co-Chief Executive Officer The J. M. Smucker Company William H. Steinbrink G Principal Unstuk, LLC Shaker Heights, Ohio Paul Smucker Wagstaff President, U.S. Retail – Oils and Baking The J. M. Smucker Company A Audit Committee Member E Executive Compensation Committee Member G Nominating and Corporate Governance Committee Member DIRECTORS AND OFFICERS The J. M. Smucker Company — OFFICERS — Timothy P. Smucker Chairman of the Board and Co-Chief Executive Officer Richard K. Smucker Executive Chairman and Co-Chief Executive Officer Dennis J. Armstrong Vice President, Logistics and Operations Support Mark R. Belgya Vice President and Chief Financial Officer James A. Brown Vice President, U.S. Grocery Sales Vincent C. Byrd President, U.S. Retail – Coffee John W. Denman Vice President and Controller Barry C. Dunaway Senior Vice President, Corporate and Organization Development M. Ann Harlan Vice President and General Counsel Donald D. Hurrle, Sr.* Vice President, Sales, Grocery Market Jeannette L. Knudsen Corporate Secretary John F. Mayer Vice President, Sales, Grocery Market Kenneth A. Miller Vice President, Alternate Channels Steven Oakland President, U.S. Retail – Smucker’s, Jif, and Hungry Jack Andrew G. Platt Vice President, Information Services and Chief Information Officer Christopher P. Resweber Vice President, Marketing Communications Julia L. Sabin Vice President and General Manager, Smucker Natural Foods, Inc. 62 Mark T. Smucker President, Special Markets Paul Smucker Wagstaff President, U.S. Retail – Oils and Baking Albert W. Yeagley Vice President, Industry and Government Affairs Debra A. Marthey Treasurer — PROPERTIES — Corporate Offices: Orrville, Ohio Domestic Manufacturing Locations: Chico, California Cincinnati, Ohio El Paso, Texas Grandview, Washington Havre de Grace, Maryland Kansas City, Missouri Lexington, Kentucky Memphis, Tennessee New Bethlehem, Pennsylvania New Orleans, Louisiana (2) Orrville, Ohio Oxnard, California Ripon, Wisconsin Scottsville, Kentucky Seneca, Missouri Sherman, Texas Toledo, Ohio West Fargo, North Dakota** International Manufacturing Locations: Delhi Township, Ontario, Canada Dunnville, Ontario, Canada Sherbrooke, Quebec, Canada Ste. Marie, Quebec, Canada Sales and Administrative Offices:** Akron, Ohio Bentonville, Arkansas Edina, Minnesota Markham, Ontario, Canada Mexico City, Mexico * Retired as of June 30, 2009 ** Leased properties CORPORATE AND SHAREHOLDER INFORMATION 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 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 disburse- ment agent is Computershare Investor Services, LLC. To learn more about The J. M. Smucker Company, visit www.smuckers.com. Shareholder Services Annual Meeting The annual meeting will be held at 11:00 a.m. Eastern Daylight Time, Wednesday, August 19, 2009, in Fisher Auditorium at the Ohio Agricultural Research and Development 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 shareholders who submit a written request to: The J. M. Smucker Company Attention: Corporate Secretary Strawberry Lane Orrville, Ohio 44667 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 governance 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. The transfer agent and registrar for the Company, Computershare Investor Services, LLC, is responsible for assisting registered shareholders with a variety of matters including: ✷ Shareholder investment program (CIPSM) – direct purchase of Company common shares – dividend reinvestment – automatic monthly cash investments ✷ Book-entry share ownership ✷ Share transfer matters (including name changes, gifting, and inheritances) ✷ Direct deposit of dividend payments ✷ Nonreceipt of dividend checks ✷ Lost share certificates ✷ Changes of address ✷ Online shareholder account access ✷ Form 1099 income inquiries (including requests for duplicate copies) Shareholders may contact Shareholder Services at the corporate offices regarding other shareholder inquiries. Transfer Agent and Registrar Computershare Investor Services, LLC 250 Royall Street Canton, MA 02021 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 27 in the Management’s Discussion and Analysis section. ©/™/® The J. M. Smucker Company or its subsidiaries. Pillsbury, the Barrelhead logo, and the Doughboy character are trademarks of The Pillsbury Company, LLC, used under license. Borden and Elsie trademarks used under license. Dunkin’ Donuts is a trademark of DD IP Holder LLC used under license. Carnation is a trademark of Société des Produits Nestlé S.A. C The financial section of this report was printed on paper with a 50% post- consumer recycled content. The balance of the report was printed on elemental chlorine-free paper with a 25% post- consumer recycled content. (cid:75)(cid:95)(cid:92)(cid:23)(cid:65)(cid:37)(cid:68)(cid:37)(cid:23)(cid:74)(cid:100)(cid:108)(cid:90)(cid:98)(cid:92)(cid:105)(cid:23)(cid:58)(cid:102)(cid:100)(cid:103)(cid:88)(cid:101)(cid:112) (cid:74)(cid:107)(cid:105)(cid:88)(cid:110)(cid:89)(cid:92)(cid:105)(cid:105)(cid:112)(cid:23)(cid:67)(cid:88)(cid:101)(cid:92)(cid:23)(cid:38)(cid:23)(cid:70)(cid:105)(cid:105)(cid:109)(cid:96)(cid:99)(cid:99)(cid:92)(cid:35)(cid:23)(cid:70)(cid:95)(cid:96)(cid:102)(cid:23)(cid:43)(cid:43)(cid:45)(cid:45)(cid:46)(cid:23)(cid:38)(cid:23)(cid:31)(cid:42)(cid:42)(cid:39)(cid:32)(cid:23)(cid:45)(cid:47)(cid:41)(cid:36)(cid:42)(cid:39)(cid:39)(cid:39) (cid:110)(cid:110)(cid:110)(cid:37)(cid:106)(cid:100)(cid:108)(cid:90)(cid:98)(cid:92)(cid:105)(cid:106)(cid:37)(cid:90)(cid:102)(cid:100) 

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