2011 Annual Report
Contents
Why We Are, Who We Are
Letter To Shareholders and Friends
Why the Family Meal Matters
A Focused Strategy
Business Review
Sustainability
Financial Review
Management’s Discussion and Analysis
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Directors and Officers
Corporate and Shareholder Information
1
2
4
6
8
16
17
20
37
42
68
69
2011 Annual Report
Our Purpose
Bringing families together
to share memorable
meals and moments.
d
Financial Highlights
(Dollars in thousands, except per share data)
Net sales
Net income and net income per common share:
Net income
Net income per common share –
Year Ended April 30,
2011
2010
$ 4,825,743
$ 4,605,289
$ 479,482
$ 494,138
assuming dilution
$
4.05
$
4.15
Income and income per common share
excluding special project costs:(1)
“Apple Orchard” © 2001 – Vincent McIndoe
About Our Cover
This year our Annual Report cover pays tribute to
the heritage of The J. M. Smucker Company and the
first Smucker product – apple butter. Artist Vincent
McIndoe from Toronto, Canada, is best known for his
graphics and oil painting style in his award-winning
Income
$ 555,133
$ 520,782
paintings and posters.
Income per common share –
assuming dilution
Common shares outstanding at year end
Number of employees
$
4.69
114,172,122
4,500
$
4.37
119,119,152
4,850
(1) Refer to “Non-GAAP Measures” located on page 28 in the “Management’s Discussion and
Analysis” section for a reconciliation to the comparable GAAP financial measure.
The J. M. Smucker Company
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.
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.
Knott’s Buff
Black
PMS 871
T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T 1
Dear Shareholders and Friends:
our family – all 4,500 of us at The J. M. Smucker company –
is pleased to share a successful year of accomplishments
with you. Fiscal 2011 delivered impressive results and
performance despite the challenging economic environment.
These results prove that when a dedicated team is focused
on Our Purpose – bringing families together to share
memorable meals and moments – and implementing a
clear strategy, strong financial results and enhanced
shareholder value will follow:
• Sales grew to $4.8 billion, an increase of five percent
over last year, due to strong performance across
many of the brands in our portfolio.
• The strength of our brands and our ability to manage
successfully through a volatile commodity cost
environment resulted in a seven percent increase
in non-Gaap earnings per share to $4.69.
• We repurchased approximately 5.7 million common
shares that represented over four percent of shares
outstanding. We also increased our dividends paid
to shareholders by 17 percent.
continuous investment in our company has resulted
in a portfolio of iconic brands, the majority of which hold
category-leading market positions. This leadership reflects
our long-held philosophy of delivering great products at a
fair value. We believe value is as much about quality,
consistency, and trust as it is about price.
This past fiscal year, our brands have delivered this
type of value in numerous ways with impressive results:
• new product innovation contributed significantly to
the company’s growth, particularly within our coffee,
peanut butter, and baking brands.
• our consumer communications efforts continued to
drive brand equity, and we continued to be the primary
share-of-voice for most of our categories. as a result,
we produced an unprecedented number of television
and broadband video advertisements during the year.
• We dramatically increased our digital marketing and
social media programs, which now comprise over
10 percent of our company’s media spend.
We are particularly proud that our communication
efforts continue to be executed in an effective and family-
friendly manner. The parents Television council has
honored Smucker with the #1 ranking on its “Top Ten
Best advertisers” list recognizing companies that advertise
only on responsibly produced entertainment programs.
lonG-TerM perSpecTive
as an independent company with a history of leadership
continuity, we are able to manage our business with a
long-term perspective. our unique culture, combined
with this long-term perspective, has enabled us to deliver
consistently strong financial results. on a 10-year basis,
our total shareholder return has outpaced the average
of the Standard & poor’s packaged foods industry, as well
as those of broader market indexes.
We remain committed to preserving our Independence
and ensuring leadership continuity because both have been
significant contributors to our culture, financial performance,
and ability to serve our business and constituents –
consumers, customers, employees, suppliers, communities,
and shareholders.
accordingly, throughout our history, we have proactively
planned for leadership succession. as part of this process,
several executive appointments and realignments became
effective on May 1, 2011, the start of our 2012 fiscal year.
• vincent c. Byrd is now president and chief operating
officer with responsibility for the company’s u.S.
retail businesses. a 34-year veteran of the company,
vincent was previously president of u.S. retail coffee.
• Mark T. Smucker, who has served in company
leadership roles for 13 years, most recently as president
of Special Markets, now heads u.S. retail coffee
as president.
• paul Smucker Wagstaff, a 15-year company veteran,
has assumed the role of president, u.S. retail consumer
Foods in a newly consolidated business area combin-
ing the current consumer business with the oils and
Baking business.
• Steven oakland, who was president of Smucker’s®,
Jif ®, and Hungry Jack®, is now president, international,
Foodservice, and natural Foods. Steven has been with
Smucker for 28 years.
• Barry c. Dunaway, formerly Senior vice president,
corporate and organization Development, with
24 years experience with the company, is now Senior
vice president and chief administrative officer,
overseeing human resources, legal, corporate
Development, and information Services.
2 T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T
Fiscal 2011 delivered impressive results and performance
despite the challenging economic environment.
• Mark r. Belgya, our Senior vice president and chief
Financial officer and a 26-year veteran of the
company, adds internal audit to his responsibilities
that include accounting, investor relations, Financial
planning, Tax, and Treasury.
in addition, effective august 16, 2011, richard Smucker
will serve as sole chief executive officer, while Tim Smucker
will continue to serve as chairman of the Board with a focus
on the Board of Directors, corporate strategy, succession
planning, support for china growth opportunities, and will
be an ambassador of our culture with our constituents.
lookinG ForWarD
While Our Vision is to own and market north american
food brands that hold the #1 market position in their
respective categories, we also believe it is important to
embrace a global perspective for long-term growth.
as we look toward fiscal 2012, we remain confident in
our ability to execute our long-term strategy and remain
committed to growing our business with contributions from
all three of our growth drivers – category and market share
growth, new products, and acquisitions. ongoing investments
in product launches and marketing initiatives will further
strengthen the trust consumers have in our brands.
Managing through the challenging commodity cost
environment will also remain a primary area of focus. We
continue to utilize a combination of price increases and cost
saving initiatives to offset higher costs. With our consistent
approach to pricing transparency, the strength of our brands,
and our team’s ability to execute, we expect to continue to
effectively manage through this period of commodity
cost volatility.
We recently acquired the coffee brands and business
operations of rowland coffee roasters, inc., including its
leading hispanic brands Café Bustelo® and Café Pilon®. While
respecting and preserving the rich heritage of these brands,
we believe they will benefit from our increased marketing
support, go-to-market strategy, and strong national presence.
We anticipate these brands will be a great complement to
our existing portfolio. achieving a seamless integration
will be a key priority in fiscal 2012.
china, with its vast consumer population, is a significant
opportunity for us to consider. We have allocated resources
to review these opportunities and to evaluate various means
of entry into the chinese market.
our purpoSe
With an uncertain economic recovery, consumers remain
thoughtful about their choices and are more conscious
than ever of brand value. in such an environment, Smucker
is well positioned to meet their needs with quality products
available through our various distribution channels.
We will continue to work to fulfill Our Purpose of
bringing families together to share memorable meals and
moments. We encourage you to read more about Our
Purpose in this report. ultimately, our ability to fulfill
this Purpose, achieve Our Vision, and consistently
deliver solid financial results is a reflection of the hard
work and dedication of our employees. We were honored
to again have our employees recognized by FORTUNE
magazine, naming Smucker as one of the “100 Best
companies to Work For.” We attribute our inclusion
on this list to the quality of our employees. Together,
we share the same Basic Beliefs – Quality, People, Ethics,
Growth, and Independence – and draw upon these Beliefs
to guide us on a daily basis.
it is our family-sense of sharing in a job well done that
has made The J. M. Smucker company what it is today and
positions us well for continued growth. To our employees,
thank you for your continued commitment; and to our
shareholders, thank you for your continued support.
Sincerely,
Tim Smucker
richard Smucker
June 22, 2011
T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T 3
44 T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T
4 T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T
Why the Family
Meal Matters
While strong financial results are important,
we ultimately define our business success by
how well we fulfill Our Purpose:
Bringing families together to share
memorable meals and moments.
We believe, and research demonstrates, a shared
mealtime experience leads to happier and
healthier families.
“Sitting down to a meal together draws a line
around us,” says Miriam Weinstein, author of The
Surprising Power of Family Meals. “it encloses us
and, for a brief time, strengthens the bonds that
connect us with other members of our self-defined
clan, shutting out the rest of the world.”
Weinstein partners with Smucker on our
website, PowerOfFamilyMeals.com. her insights
are supported by numerous research studies
that reveal the benefits gained from family-
shared meals:
• Better grades
• healthier eating habits
• Fewer behavioral problems
• less family tension
• closer family bonds
The power of the family meal helps family
members connect with each other, teaches children
valuable life lessons, and establishes an important
ritual that allows them to grow together. These
families are happier, healthier, and forge stronger
and more resilient family ties.
This is why we strive to make meal planning
and preparation easier, offering products that
are convenient, delicious, and nutritious to help
families enjoy more meals together – anywhere,
any time, every day.
T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T 5
a Focused
Strategy
Our Vision is to own and market food brands that hold the #1 position in their
respective categories – categories that are typically located in the center of the
store. This Strategy, along with our unique culture, has helped to shape a decade
of transformational growth for Smucker.
in the united States, seven of our brands hold #1 market share positions in
their respective categories, and Smucker brands enjoy top positions in eight
categories in canada.
as one of Our Basic Beliefs, Growth remains central to our long-term strategy.
We target net sales growth of six percent and earnings per share growth of greater
than eight percent annually.
We plan to grow our business through category and market share growth, new
products, and acquisitions of leading brands. acquisitions may be “enabling,”
which provide new or enhanced capabilities; “bolt-on,” which increase our
category presence; or “transformational,” which provide entry into new markets
and/or categories.
This Strategy, combined with the strength of our brand portfolio and our
people, will enable us to further build upon our position as one of the leading
branded dry grocery food manufacturers in north america.
U.S. r e ta i l c of f e e m a r k e t
U.S. r e ta i l c on S U m e r m a r k e t
6 T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T
U.S. r e ta i l o i l S a n d ba k i n g m a r k e t
S pe c i a l m a r k e t S
T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T 7
Brand
Brand
Building
Building
Our Company has a history of ongoing marketing support
to strengthen our brands. Fiscal 2011 saw significant
advancement in our digital and social marketing
investments, complementing an unprecedented year in
the development of new television commercials. The net
result is that our portfolio of leading brands continues to
strengthen, evolve, and connect with consumers.
8 T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T
u.S. retail
coffee Market
our u.S. retail coffee Market enjoyed solid sales and segment profit in fiscal 2011 and
continues to be the market leader in the packaged coffee category. Sales growth of 14 percent
was driven by the Folgers® and Dunkin’ Donuts® brands along with the launch of our single-
serve k-cup® portion packs. profit for the business increased 11 percent.
The introduction of Folgers Gourmet Selections® and Millstone® single-serve k-cup® portion
packs was the most successful new product launch in company history and has provided us
with a strong position in the fastest-growing segment for single-serve coffee.
other Folgers coffee marketplace success stories included volume growth of more than
45 percent for Folgers Black Silk coffee and a relaunch of Folgers Special Roast® coffee with
new packaging and product formulation. The Folgers brand also engaged consumers through
its highly successful Folgers Jingle contest, launch of the Folgers brand on Facebook, and
new television commercials.
Dunkin’ Donuts has become the fifth-largest brand in our portfolio and the second-leading
brand in the premium coffee segment. The Dunkin’ Turbo® variety and Dunkin’ Donuts coffee
seasonal flavors, Toasted almond and Strawberry Shortcake, contributed to this success.
We continue to make capital investments to expand coffee operations at our new orleans,
louisiana, manufacturing facilities. in early fiscal 2012, we acquired the coffee brands and
business operations of rowland coffee roasters, inc., a leading marketer of hispanic coffee
brands, including Café Bustelo and Café Pilon, and one of the largest producers of espresso
coffee in the united States. The rich heritage of these brands will provide us with a unique
opportunity to strengthen our presence in the coffee category among hispanic consumers
in the united States.
T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T 99
T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T 9
u.S. retail
consumer Market
Sales within our u.S. retail consumer Market segment grew by one percent, excluding the impact
of divestitures, and segment profit grew by three percent in fiscal 2011. in addition to new product
introductions and strong consumer communications support, our ongoing investments in this
segment include the construction of a new state-of-the-art manufacturing facility in orrville,
ohio, that will support future growth and enhance operational efficiency.
Smucker’s fruit spreads and Jif peanut butter continued to grow and strengthen their #1 positions
within their categories, offering quality, variety, and value options for everyone to enjoy. Smucker’s®
Uncrustables® sandwiches and Smucker’s® Snack’n Waffles™ brand waffles remain popular, delicious,
and convenient meal and snack options, bringing smiles to consumers of all ages.
Smucker’s fruit spreads, Jif peanut butter, and Hungry Jack pancake mixes and syrups remain
family meal favorites, and they offered consumers more choices through the introduction of new
products during fiscal 2011, including two new flavors of Smucker’s® Orchard’s Finest® preserves;
Jif ® To Go™ peanut butter; and Hungry Jack sugar-free, butter-flavored syrup. Smucker’s ice
cream toppings, perfect for celebrations and special treats, continue to offer variety as well as
consumer favorites, such as Smucker’s® Sundae Syrup™ caramel-flavored syrup and Smucker’s
consumer favorites, such as
hot fudge topping.
hot fudge topping.
The Smucker’s, Jif, and Hungry Jack brands continue to connect with our consumers through
Hungry Jack brands continue to connect with our consumers through
Jif
Jif brand’s search for the most creative peanut butter sandwich;
marketing initiatives, including the Jif brand’s search for the most creative peanut butter sandwich;
marketing initiatives, including the Jif brand’s search for the most creative peanut butter sandwich;
the launch of Smucker’s, Jif, and Hungry Jack Facebook pages; and the debut of Smucker’s fruit
Hungry Jack Facebook pages; and the debut of Smucker’s fruit
Jif
Jif, and
the launch of Smucker’s, Jif, and
spreads’ first holiday commercial depicting Tim and richard Smucker as boys in the 1950s.
spreads’ first holiday commercial depicting Tim and richard Smucker as boys in the 1950s.
Sundae Syrup caramel-flavored syrup and
Jif
Jif, and
The Smucker’s, Jif, and
10 T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T
convenience
“Easy” is one way we think about new products to meet
the needs of our consumers. Jif ® To Go™ peanut butter was
created for consumers who are seeking the great taste
of Jif ® peanut butter in a convenient size that’s perfect
for dipping and snacking while on the go.
T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T 11
u.S. retail oils
and Baking Market
although segment sales in our u.S. retail oils and Baking Market declined two percent and
profits were down nine percent in a challenging operating environment, the segment had a
strong finish to fiscal 2011.
our family of leading oils and baking brands continues to offer consumers a variety of
products that can be a part of everyday meals or special occasions.
product innovation contributed to the strength of our baking brands in fiscal 2011 as the
Pillsbury® brand became the only national baking brand to offer sugar-free frostings, brownie
mixes, and cake mixes. These product alternatives make it possible for consumers monitoring
their sugar intake to also enjoy dessert options. in addition to Pillsbury, the Martha White®
brand maintains strong consumer loyalty for its flour and baking mixes and successfully
launched new coffee cake baking mixes during the year.
The Crisco® brand celebrated its 100th anniversary this year and has enjoyed a long history
of being a key part of family recipes for many generations. awareness of Crisco olive oil
continues to increase, and the product was recommended by Cooking Light magazine as the
“Best all-around” olive oil. We are broadening engagement with consumers through the
Crisco brand website, Facebook, mobile applications, and blogger events.
Eagle Brand® remains the #1 brand of sweetened condensed milk and recently introduced a
new easy-to-open package, providing greater convenience when baking special family recipes.
new easy-to-open package, providing greater convenience when baking special family recipes.
12 T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T
M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T
v
variety
variety
variety
The Pillsbury ® line of sugar-free frostings, brownie
mixes, and cake mixes allows the growing number
of consumers who are monitoring their sugar intake
to enjoy these great-tasting desserts.
T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T 13
Quality
Quality
Quality
The R.W. Knudsen Family ® brand understands the value
of using the highest quality natural and organic
ingredients possible in its extensive line of juices.
This focus on quality has helped drive the brand’s
growth from an organic grape vineyard in Paradise,
California, into the nation’s leading natural and organic
juice brand, which is celebrating its 50th anniversary
in 2011.
14 T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T
Special Markets
our Special Markets segment experienced a strong fiscal 2011 across all four of its
business areas – canada, foodservice, natural foods, and international. led by the
continued growth of Folgers coffee across the segment, net sales and profits grew
five percent and 14 percent, respectively.
in canada, our brands enjoy market-share leadership in eight categories. collectively,
our canadian portfolio experienced solid sales growth led by the strong performance of
the coffee category. We continue to invest in our brands through new product launches and
advertising support, as evidenced by the debut of four new television commercials during
the year.
our foodservice business area maintained strong results in a market where many
families are choosing to eat at home due to economic considerations. in this market, we
remain focused on our very popular handheld products such as Smucker’s Uncrustables
sandwiches and Smucker’s Snack’n Waffles brand waffles. Foodservice also is increasing
its focus on growing the coffee business to complement its strong core product offerings.
Smucker natural Foods also experienced a very successful fiscal 2011. innovation and
new products continued to drive growth in natural foods during the year. new product
launches included Recharge® all-natural sports drink mixes, two new flavors of R.W. Knudsen
Family® Sparkling Essence™ beverages, and new offerings of Santa Cruz Organic® fruit spreads
and lemonades.
Finally, our international business area continues to provide consumers in more than
65 countries the opportunity to enjoy our products. The company is also focused on expansion
of its business in Mexico and future growth opportunities in china.
of its business in Mexico and future growth opportunities in china.
T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T 15
Sustainability Matters
Respecting our natural environment and being an active
participant in the communities in which we live and
work have been defining attributes of The J. M. Smucker
Company since our founding. Our Sustainability
Strategy summarizes our integrated focus on
economic, environmental, and Social sustainability:
Create a better tomorrow by focusing on preserving
our culture, ensuring our long-term economic
viability, limiting our environmental impact,
and being socially responsible.
During fiscal 2011, we continued to execute this
strategy by working toward our five-year sustainability
goals, participating in the Carbon Disclosure Project
for the second year, and publishing our inaugural
Corporate Responsibility Report, which we invite all
of our constituents to read at smuckers.com.
16 T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T
Cherry Almond Dutch Baby
Chopped Italian Salad with
Italian Vinaigrette
Crunchy Pesto Chicken Paillards
with Caprese Salsa
Fresh Tomato Tart with
Black Pepper Cornbread Crust
Peanut Butter Topped
Chocolate Cake
Grilled Shrimp with
Greek Wheat Berry Salad
Chopped Italian Salad with Italian Vinaigrette
Cherry Almond Dutch Baby
PREP TIME: 20 min
MAKES: 8 servings
PREP TIME: 10 min
COOK TIME: 20 min
MAKES: 4 to 6 servings
ITALIAN VINAIgRETTE
1/2 cup balsamic vinegar
1 tablespoon Dijon-style mustard
1/4 teaspoon salt
1/4 teaspoon coarse ground
black pepper
2 tablespoons chopped herbs,
a mixture of basil, oregano
and thyme
1/2 cup Crisco® Pure Olive Oil
dIRECTIoNS
CHoPPEd ITALIAN SALAd
1 head or 1 (10 oz.) package romaine
lettuce, torn into bite-sized pieces
1/3 cup sliced roasted red peppers,
drained
1/4 pound sliced salami, cut into strips
1/3 cup chopped red onion
1 1/2 cups sliced ripe black olives
1 cup diced provolone cheese
1. COMBINE balsamic vinegar, mustard, salt, pepper and herbs in a food
processor or blender. Process on high speed until the mixture is well
blended. With the motor running, slowly add olive oil in a steady stream.
2. TOSS salad ingredients together to combine. Add vinaigrette.
Stir until evenly coated.
TIP: Vinaigrette will last approximately 2 weeks in the refrigerator.
1 tablespoon butter
1/2 teaspoon almond extract
3/4 cup milk
1/4 cup sliced almonds
1/2 cup Pillsbury BEST®
All Purpose Flour
2 large eggs
2 tablespoons sugar
1/2 cup Smucker’s® orchard’s
Finest® Michigan Red Tart
Cherry Preserves
Powdered sugar for garnish (optional)
dIRECTIoNS
1. HEAT oven to 425ºF. Melt butter in 9-inch pie plate in the oven. Remove
from oven. Brush butter over entire inside of plate.
2. COMBINE milk, flour, eggs, sugar and almond extract in blender container.
Process using several pulses to make a smooth batter. Pour batter into hot
pie plate. Sprinkle with almonds. Bake 15 minutes.
3 . REDUCE heat to 350°F. Bake 5 to 8 minutes longer or until golden brown.
Remove from oven. Spread with cherry preserves. Sprinkle with powdered
sugar if desired. Cut into wedges and serve immediately.
©/® The J. M. Smucker Company
©/® The J. M. Smucker Company
Pillsbury BEST is a trademark of The Pillsbury Company, LLC, used under license.
Fresh Tomato Tart with Black Pepper Cornbread Crust
PREP TIME: 15 min
COOK TIME: 20 min
MAKES: 8 to 12 servings
Crunchy Pesto Chicken Paillards with Caprese Salsa
COOK TIME: 5 min
MAKES: 4 servings
PREP TIME: 20 min
CoRNBREAd CRuST
FILLINg
CHICKEN
CAPRESE SALSA
Crisco® Original No-Stick Cooking Spray
3 to 4 medium tomatoes
1 large egg
1/4 cup sour cream
1/2 cup milk
1 (6 oz.) package Martha White® Buttermilk
Cornbread & Muffin Mix
1 teaspoon coarsely ground black pepper
2 tablespoons Crisco Pure Olive Oil
dIRECTIoNS
1 cup shredded sharp cheddar cheese
1 cup shredded mozzarella cheese
1/2 cup mayonnaise
1 to 2 tablespoons chopped fresh basil
1 to 2 tablespoons chopped fresh chives
Salt and pepper
1. HEAT oven to 425ºF. Generously spray 13x9-inch baking pan with no-stick cooking
spray. Whisk together egg, sour cream and milk in large bowl. Whisk in cornbread mix
and pepper until smooth. Stir in olive oil just until blended. Pour into prepared pan.
Bake 12 to 15 minutes or until golden brown. Cornbread will be thin.
2. CUT tomatoes into medium-thick slices. Drain on paper towels. Stir together cheeses,
mayonnaise, basil and chives until combined.
3. SPREAD about half the cheese mixture over cornbread. Arrange tomato slices over
cheese in overlapping rows. Salt and pepper to taste. Place spoonfuls of remaining
cheese mixture on tomato slices. Return to oven for 5 minutes or until cheese begins
to melt. Turn on broiler. Broil until cheese is bubbly and lightly browned, 1 to 2 minutes.
Cut into squares. Serve warm or at room temperature.
©/® The J. M. Smucker Company
2 (8 oz.) boneless, skinless chicken breasts
Kosher salt and freshly ground black
pepper, divided
1/2 cup Pillsbury BEST® All Purpose Flour
1/4 cup Crisco® Pure Olive Oil, plus
1 1/2 to 2 tablespoons, divided
2 tablespoons prepared pesto
1 cup panko (coarse) bread crumbs
2 medium tomatoes, seeded and cut into
1/2-inch cubes
1/3 cup fresh basil, cut to chiffonade (thin strips)
2/3 cup mozzarella cheese, cut into 1/2-inch
cubes
1/4 cup red onion, thinly sliced
2 tablespoons Crisco 100% Extra Virgin
Olive Oil
1 teaspoon balsamic vinegar
dIRECTIoNS
1. CUT chicken breasts in half horizontally to form 4 thin cutlets. Pound each piece to 1/4-inch
thickness. Sprinkle with salt and pepper. Dip chicken in flour and shake off excess.
2. WHISK 1/4 cup of pure olive oil with pesto in a small pie plate. In another pie plate,
place bread crumbs. Dip both sides of each cutlet into oil, then into bread crumb mixture,
pressing crumbs to adhere.
3. COMBINE tomato, basil, mozzarella and red onion; drizzle with extra virgin olive oil
and balsamic vinegar. Season with salt and pepper to taste and set aside.
4. HEAT remaining pure olive oil in a large non-stick skillet. Add chicken and quickly
cook about 2 minutes per side, until no longer pink.
5. TOP chicken with caprese salsa.
©/® The J. M. Smucker Company
Pillsbury BEST is a trademark of The Pillsbury Company, LLC, used under license.
Grilled Shrimp with Greek Wheat Berry Salad
MAKES: 4 servings
COOK TIME: 1hr 15min
PREP TIME: 30 min
1 1/4 cups uncooked hard wheat berries
1 teaspoon salt, divided
4 cups hot water
1/3 cup Crisco® Pure Olive Oil
3 tablespoons fresh lemon juice
1 teaspoon dill weed
2 cloves garlic, minced
1/2 teaspoon black pepper
16 large uncooked shrimp, peeled and deveined
1 large red bell pepper, cut into about 20, 3/4-inch
squares
2 cups diced unpeeled English cucumbers
1 cup pitted kalamata olives, cut in half lengthwise
2 green onions, cut in 1/2-inch pieces
1/2 cup crumbled feta cheese
dIRECTIoNS
1. PLACE wheat berries and 1/2 teaspoon salt in medium saucepan. Cover with about
4 cups hot water. Bring to a boil over high heat. Reduce heat to low. Cover and simmer
1 to 1 1/4 hours or until tender. Drain.
2. WHISK olive oil, lemon juice, dill weed, garlic, black pepper and remaining 1/2 teaspoon
salt in large bowl. Combine 2 tablespoons oil mixture with shrimp and red pepper in
medium bowl; stir to coat. Let stand 15 minutes. Reserve remaining oil mixture.
3. THREAD red pepper and shrimp onto 4 soaked wooden or metal skewers, beginning
and ending with red pepper. Grill, turning once, until shrimp are pink and opaque in
center, about 3 to 4 minutes per side.
4. ADD cooked wheat berries, cucumbers, olives and green onions to reserved oil mixture.
Mix well. Spoon onto serving plates. Place cooked kabobs over salad mixture. Sprinkle
with feta cheese.
TIP: 3 cups cooked orzo pasta or plain couscous may be used in place of wheat berries,
if desired. Cook orzo or couscous according to package directions, then proceed as
directed above in step 2.
©/® The J. M. Smucker Company
Peanut Butter Topped Chocolate Cake
COOK TIME: 20 min
MAKES: 24 servings
PREP TIME: 10 min
Crisco® Original No-Stick Cooking Spray
1 (1 oz.) package sugar-free, fat-free,
1 (16 oz.) package Pillsbury® Sugar Free
Devil’s Food Cake Mix
1 1/4 cups water
1/2 cup Crisco Pure Vegetable Oil
3 large eggs
1 cup cold skim milk
dIRECTIoNS
instant vanilla pudding mix
2/3 cup Simply Jif® Creamy Peanut Butter
1 (8 oz.) container frozen sugar-free
whipped topping, thawed
1/4 cup finely chopped dry roasted or
cocktail peanuts
1. HEAT oven to 325ºF. Coat a 15x10-inch jelly roll pan with no-stick
cooking spray.
2. PREPARE cake mix batter according to package directions using water, oil
and eggs. Spread in prepared pan. Bake 16 to 20 minutes or until toothpick
inserted in center comes out clean. Cool completely in pan on wire rack.
3. BEAT milk and pudding mix in large bowl with electric mixer on medium speed
until thickened, about 15 seconds. Add peanut butter; beat until smooth.
Beat in whipped topping until smooth. Spread over cooled cake. Garnish with
chopped peanuts.
©/® The J. M. Smucker Company
Pillsbury is a trademark of The Pillsbury Company, LLC, used under license.
2011 Financial review
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, 2011. The selected financial data was
derived from the consolidated financial statements and should be read in conjunction with the “results of operations” and “Financial condition”
sections of “Management’s Discussion and analysis” and the consolidated financial statements and notes thereto.
(Dollars in thousands, except per share data)
Statements of Income:
net sales
Gross profit
% of net sales
operating income
% of net sales
net income
Financial position:
cash and cash equivalents
Total assets
Total debt
Shareholders’ equity
Statements of cash Flows:
net cash provided by operating activities
capital expenditures
Quarterly dividends paid
purchase of treasury shares
Share Data:
Weighted-average shares outstanding
Weighted-average shares outstanding – assuming dilution
Dividends declared per common share
earnings per common Share:
net income
net income – assuming dilution
non-Gaap Measures: (1)
Gross profit excluding special project costs
% of net sales
operating income excluding special project costs
% of net sales
Income and income per common share
excluding special project costs:
Income
Income per common share – assuming dilution
year ended april 30,
2011
2010
2009
2008
2007
$ 4,825,743
$ 1,798,517
$ 4,605,289
$ 1,786,690
$ 3,757,933
$ 1,251,429
$ 2,524,774
$ 782,164
$ 2,148,017
$ 702,055
37.3%
38.8%
33.3%
31.0%
32.7%
$ 784,272
$ 790,909
$ 452,275
$ 284,559
$ 254,648
16.3%
17.2%
12.0%
11.3%
11.9%
$ 479,482
$ 494,138
$ 265,953
$ 170,379
$ 157,219
$ 319,845
8,324,585
1,304,039
5,292,363
$ 283,570
7,974,853
910,000
5,326,320
$ 456,693
8,192,161
1,536,726
4,939,931
$ 171,541
3,129,881
789,684
1,799,853
$ 391,562
180,080
194,024
389,135
$ 713,478
136,983
166,224
5,569
$ 446,993
108,907
110,668
4,025
$ 182,918
76,430
68,074
152,521
$ 199,541
2,693,823
425,643
1,795,657
$ 273,607
57,002
63,632
52,125
118,165,751
118,276,086
1.68
$
118,951,434
119,081,445
1.45
$
85,448,592
85,547,530
6.31
$
56,641,810
56,873,492
1.22
$
56,844,151
57,233,399
1.14
$
$
4.06
4.05
$
4.15
4.15
$
3.11
3.11
$
3.01
3.00
$
2.77
2.75
$ 1,852,606
$ 1,790,560
$ 1,251,429
$ 783,674
$ 712,036
38.4%
38.9%
33.3%
31.0%
33.1%
$ 897,423
$ 830,312
$ 535,170
$ 297,273
$ 266,810
18.6%
18.0%
14.2%
11.8%
12.4%
$ 555,133
4.69
$
$ 520,782
4.37
$
$ 321,617
3.76
$
$ 178,881
3.15
$
$ 165,152
2.89
$
(1) Refer to “Non-GAAP Measures” located on page 28 in the “Management’s Discussion and Analysis” section for a reconciliation to the comparable GAAP financial measure.
N E T S A L E S
(Dollars in billions)
N O N - G A A P
N E T I N C O M E
(Dollars in millions)
N O N - G A A P
E A R N I N G S P E R S H A R E –
A S S U M I N G D I L U T I O N
$2.1
$2.5
$3.8
$4.6
$4.8
$165.2
$178.9
$321.6
$520.8
$555.1
$2.89
$3.15
$3.76
$4.37
$4.69
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T 17
Summary of Quarterly Results of Operations
The J. M. Smucker company
The following is a summary of unaudited quarterly results of operations for the years ended april 30, 2011 and 2010.
(Dollars in thousands, except per share data)
Quarter ended
net Sales
Gross profit
net Income
net Income per
common Share
net Income per
common Share –
assuming Dilution
2011
2010
July 31, 2010
october 31, 2010
January 31, 2011
april 30, 2011
July 31, 2009
october 31, 2009
January 31, 2010
april 30, 2010
$1,047,312
1,278,913
1,312,351
1,187,167
$1,051,526
1,278,745
1,205,939
1,069,079
$408,435
494,670
474,414
420,998
$406,029
492,250
458,304
430,107
$102,881
149,726
131,995
94,880
$ 98,063
139,990
135,479
120,606
$0.86
1.25
1.12
0.82
$0.83
1.18
1.14
1.01
$0.86
1.25
1.11
0.82
$0.83
1.18
1.14
1.01
annual net income per common 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 dividends declared. There were approximately 334,846 shareholders as of June 14, 2011, of which
71,104 were registered holders of common shares.
2011
2010
Quarter ended
July 31, 2010
october 31, 2010
January 31, 2011
april 30, 2011
July 31, 2009
october 31, 2009
January 31, 2010
april 30, 2010
high
$63.75
64.55
66.28
75.46
$51.06
55.36
63.00
63.50
low
Dividends
$53.27
57.20
60.46
61.16
$39.19
49.08
51.19
57.72
$0.40
0.40
0.44
0.44
$0.35
0.35
0.35
0.40
18 T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T
Comparison of Five-Year Cumulative Total Shareholder Return
The J. M. Smucker company
Among The J. M. Smucker Company, the S&P 500 Index, and the S&P Packaged Foods & Meats Index
$250
$200
$150
$100
$50
$0
4/06
4/07
4/08
4/09
4/10
4/11
The J. M. Smucker Company
S&P 500
S&P Packaged Foods & Meats
april 30,
The J. M. Smucker company
S&p 500
S&p packaged Foods & Meats
2006
$100.00
100.00
100.00
2007
$145.74
115.24
119.46
2008
$133.19
109.85
117.29
2009
$118.70
71.06
92.84
2010
$189.15
98.66
129.98
2011
$238.88
115.65
151.12
The above graph compares the cumulative total shareholder return for the five years ended april 30, 2011, 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, 2006.
copyright© 2011 Standard & poor’s, a division of The McGraw-hill companies Inc. all rights reserved.
www.researchdatagroup.com/S&p.htm
T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T 19
Management’s Discussion and Analysis
The J. M. Smucker company
e x e c u T I v e S u M M a ry
For more than 110 years, The J. M. Smucker company (“company”),
headquartered in orrville, ohio, has been committed to offering
consumers trusted, quality products that bring families together to
share memorable meals and moments. Today, the company is a
leading marketer and manufacturer of fruit spreads, retail packaged
coffee, peanut butter, shortening and oils, ice cream toppings,
sweetened condensed milk, and health and natural foods beverages
in north america.
Its family of brands includes Smucker’s, Folgers, Dunkin’ Donuts, Jif,
Crisco, Pillsbury, Eagle Brand, R.W. Knudsen Family, Hungry Jack,
Café Bustelo, Café Pilon, White Lily, and Martha White in the united
States, along with Robin Hood, Five Roses, Carnation, Europe’s Best,
and Bick’s in canada. In addition to these brands, the company
markets products under numerous other brands, including Millstone,
Dickinson’s, Laura Scudder’s, Adams, Double Fruit (canada), and
Santa Cruz Organic.
The company has four reportable segments: u.S. retail coffee Market,
u.S. retail consumer Market, u.S. retail oils and Baking Market, and
Special Markets. The company’s three u.S. retail market segments in
total comprised over 80 percent of the company’s net sales in 2011 and
represent a major portion 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
segments and includes the company’s canada, foodservice, natural
foods, 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 prod-
ucts are distributed domestically and in foreign countries through retail
channels, foodservice distributors and operators (e.g., restaurants,
schools and universities, health care operators), and health and natural
foods stores and distributors.
S T r aT e G Ic e l e M e n T S
The company remains rooted in its Basic Beliefs of Quality, People,
Ethics, Growth, and Independence, established by its founder and
namesake, Jerome Smucker, more than a century ago. Today, these
basic beliefs are the core of the company’s unique culture and serve
as a foundation for decision making and actions. The company has
been led by four generations of family leadership, having had only
five chief executive officers in 114 years. This continuity of manage-
ment and thought extends to the broader leadership team that
embodies the values and embraces the business practices that have
contributed to the company’s consistent growth.
The company’s strategic vision is to own and market food brands
which hold the number one market position in their category, with
an emphasis on north america while embracing a global perspective.
The company’s strategic long-term growth objectives are to increase
net sales by six percent and earnings per share by greater than eight
percent annually. While the net sales contribution from acquisitions
will vary from year to year, the company expects organic growth,
including new products, to add three to four percent per year and
acquisitions to contribute the remainder over the long term.
2 0 T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T
Management’s Discussion and Analysis
The J. M. Smucker company
r e S u lT S o F o pe r aT Io n S
on november 6, 2008, the company completed a merger transaction
with The Folgers coffee company (“Folgers”), previously a subsidiary
of The procter & Gamble company. The transaction was accounted
for as a purchase business combination and Folgers is included in the
company’s consolidated financial statements from the date of the
merger. Because the transaction closed during the first week of the
company’s 2009 third quarter, incremental Folgers business, approxi-
mating six months of operations, is included in 2010, compared to
2009 (“incremental Folgers business”).
(Dollars in millions, except per share data)
net sales
Gross profit
% of net sales
operating income
% of net sales
net income:
Income
Income per common share – assuming dilution
Gross profit excluding special project costs (1)
% of net sales
operating income excluding special project costs (1)
% of net sales
Income excluding special project costs: (1)
Income
Income per common share – assuming dilution
year ended april 30,
2011
$4,825.7
$1,798.5
2010
$4,605.3
$1,786.7
37.3%
38.8%
% Increase
(Decrease)
5%
1%
2010
$4,605.3
$1,786.7
38.8%
$ 784.3
$ 790.9
(1)%
$ 790.9
16.3%
17.2%
$ 479.5
$ 4.05
$1,852.6
$ 494.1
$ 4.15
$1,790.6
38.4%
38.9%
$ 897.4
$ 830.3
18.6%
18.0%
(3)%
(2)%
3%
17.2%
$ 494.1
$ 4.15
$1,790.6
38.9%
8%
$ 830.3
18.0%
2009
$3,757.9
$1,251.4
33.3%
$ 452.3
12.0%
$ 266.0
$ 3.11
$1,251.4
33.3%
$ 535.2
14.2%
$ 555.1
$ 4.69
$ 520.8
$ 4.37
7%
7%
$ 520.8
$ 4.37
$ 321.6
$ 3.76
% Increase
(Decrease)
23%
43%
75%
86%
33%
43%
55%
62%
16%
(1) Refer to “Non-GAAP Measures” located on page 28 in the “Management’s Discussion and Analysis” section for a reconciliation to the comparable GAAP financial measure.
Summary of 2011
net sales in 2011 increased five percent, compared to 2010, primarily
due to price increases. Sales mix and foreign exchange rates also
contributed to more than offset the impact of potato products divested
in March 2010 and a one percent decline in volume. While the net
effect of price increases more than offset overall higher raw material
costs, increased restructuring and merger and integration costs
(“special project costs”) and impairment charges resulted in a one
percent decline in operating income. excluding special project costs,
operating income increased eight percent for 2011, compared to 2010.
The company’s net income per diluted share decreased two percent,
yet increased seven percent excluding special project costs, for 2011,
compared to 2010.
Summary of 2010
net sales, margins, and earnings per share growth was realized in
2010 as the incremental Folgers business and improved profitability
across all of the company’s reportable segments contributed to the
improvements. company net sales increased 23 percent in 2010,
compared to 2009, as incremental Folgers business more than offset
the impact of price reductions in certain categories resulting from
generally lower commodity costs in 2010, compared to 2009. operating
income increased 75 percent and, excluding special project costs,
increased 55 percent as the company realized the first full year of
synergies associated with the Folgers merger and the benefit of
favorable green coffee costs. net income per common share –
assuming dilution increased approximately 33 percent. excluding
special project costs, income per common share – assuming dilution
increased approximately 16 percent in 2010, compared to 2009.
Net Sales
2011 Compared to 2010
(Dollars in millions)
net sales
adjust for certain
noncomparable items:
Divestiture
Foreign exchange
net sales, excluding
divestiture and
foreign exchange
Amounts may not add due to rounding.
year ended april 30,
2011
$4,825.7 $4,605.3
Increase
2010 (Decrease) %
$220.5
5%
—
(22.1)
(40.4)
—
1
40.4
(22.1) —
$4,803.7 $4,564.9
$238.8
5%
T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T 21
Management’s Discussion and Analysis
The J. M. Smucker company
net sales for 2011 increased $220.5 million, or five percent, compared
to 2010, as the net impact of pricing contributed approximately four
percent to net sales and the overall impact of sales mix was favorable.
The impact of the potato products divestiture and foreign exchange
was not significant. overall volume decreased one percent. volume
gains were realized in Jif peanut butter, Crisco oils, natural foods
beverages, Smucker’s fruit spreads, Dunkin’ Donuts packaged coffee,
and Pillsbury frostings. volume declines were primarily in Pillsbury
flour and baking mixes.
2010 Compared to 2009
(Dollars in millions)
net sales
adjust for certain
noncomparable items:
acquisitions
Divestiture
Foreign exchange
net sales, excluding
acquisitions, divestiture,
and foreign exchange
Amounts may not add due to rounding.
year ended april 30,
2010
$4,605.3 $3,757.9
Increase
2009 (Decrease) %
$ 847.4
23%
(920.9)
—
(23.4)
—
(6.3)
—
(920.9) (25)
6.3 —
(1)
(23.4)
$3,661.0 $3,751.6 $ (90.6)
(2)%
net sales increased $847.4 million, or 23 percent, to $4,605.3 million in
2010, compared to $3,757.9 million in 2009. acquisitions, primarily
incremental Folgers business, contributed $920.9 million to 2010 net
sales. excluding acquisitions, the potato business divested in March
2010, and the impact of foreign exchange, net sales were down two
percent in 2010, compared to 2009, primarily due to pricing.
excluding the incremental Folgers business and divestiture, volume
increased one percent in 2010, compared to 2009, with gains across
most of the company’s leading brands including Pillsbury flour, baking
mixes, and frostings, Jif peanut butter, Crisco shortening and oils,
Robin Hood baking products in canada, Hungry Jack pancakes and
syrups, and Smucker’s fruit spreads. volume declines were primarily
in private label canned milk, regional baking brands, and europe’s
Best frozen fruit in canada. The overall favorable impact of volume
growth on net sales was more than offset by a three percent price
and mix decline, attributable primarily to price reductions in the
u.S. retail oils and Baking Market segment, and an increase in
promotional spending across several categories.
2 2 T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T
Operating Income
The following table presents components of operating income as a
percentage of net sales.
Gross profit
Selling, distribution, and
administrative expenses:
Marketing
advertising
Selling
Distribution
General and administrative
Total selling, distribution, and
administrative expenses
amortization
Impairment charges
restructuring and merger and
integration costs
other operating expense
(income) – net
operating income
Amounts may not add due to rounding.
year ended april 30,
2011
37.3%
2010
38.8%
2009
33.3%
3.4%
2.4
3.3
3.2
5.6
3.8%
2.8
3.3
3.3
5.9
3.7%
2.1
3.5
3.5
5.1
17.9%
1.5
0.4
19.1%
1.6
0.3
17.9%
1.0
0.1
1.2
0.8
2.2
—
16.3%
(0.2)
17.2%
0.1
12.0%
2011 Compared to 2010
Gross profit increased $11.8 million in 2011, compared to 2010, as the
increase in net sales offset the impact of overall higher raw material
and freight costs and $50.2 million of incremental special project costs
included in cost of products sold, consisting primarily of accelerated
depreciation. excluding special project costs, gross profit increased
$62.0 million, or three percent, yet decreased as a percent of net sales
from 38.9 percent in 2010 to 38.4 percent in 2011. raw material cost
increases were most significant for green coffee, soybean oil, milk, and
sugar and more than offset lower costs for peanuts. price increases taken
during the year, mostly on the company’s coffee brands to offset higher
green coffee costs, drove the gross profit increase in 2011, but did not
generate gross margin expansion compared to 2010. Gross margin was
also reduced by price declines in effect on Crisco oils during part of
2011 in response to competitive dynamics, despite higher soybean oil
costs. unrealized mark-to-market adjustments on commodity derivatives
in 2011 were not material.
Selling, distribution, and administrative expenses (“SD&a”) decreased
two percent in 2011, compared to 2010, and decreased as a percentage
of net sales from 19.1 percent to 17.9 percent. Marketing expenses,
including advertising, decreased eight percent in 2011, compared to
2010, which included record investment in print, online, and television
advertisement in support of the company’s largest brands. Distribution
expenses decreased one percent in 2011, compared to 2010, related
generally to declines in sales volume. Selling expenses increased three
percent but remained flat as a percentage of net sales. General and
Management’s Discussion and Analysis
The J. M. Smucker company
administrative expenses increased two percent, primarily related to higher
depreciation charges and digital marketing initiatives, but were lower
as a percentage of net sales.
noncash impairment charges of $17.6 million and $11.7 million were
recognized in 2011 and 2010, respectively, resulting from the write-down
to estimated fair value of certain of the company’s intangible assets,
primarily the Europe’s Best trademark and customer relationship. other
operating expense – net of $0.6 million was recognized in 2011
consisting of losses on the disposition of assets. other operating income –
net of $3.3 million was recognized in 2010 resulting from a $12.9 million
gain recognized on the divestiture of the potato business which more
than offset losses on the disposition of assets.
operating income decreased $6.6 million, or one percent, in 2011,
compared to 2010, including an overall $73.7 million increase in
special project costs. excluding the impact of special project costs
in both periods, operating income increased $67.1 million, or eight
percent, and improved from 18.0 percent of net sales in 2010 to
18.6 percent in 2011. Special project costs were higher in 2011,
compared to 2010, driven by the company’s ongoing progress on
its restructuring project which were only slightly offset by lower
integration costs as activities related to Folgers were minimal.
2010 Compared to 2009
Gross profit increased $535.3 million, or 43 percent, in 2010, compared
to 2009, and improved to 38.8 percent of net sales from 33.3 percent
over the same period. Much of the gross profit improvement was attrib-
utable to incremental Folgers business and other coffee-related impacts
in 2010, compared to 2009, primarily favorable green coffee costs and
volume-related plant efficiencies. lower other raw material costs,
notably oils, flour, and milk, and freight costs across the businesses
also favorably impacted gross margin in 2010, compared to 2009.
unrealized mark-to-market adjustments on commodity derivatives
in 2010 were not material.
SD&a expenses increased 30 percent in 2010, compared to 2009,
primarily due to incremental Folgers business and the larger company.
Marketing expense, including advertising expense, increased approx-
imately 39 percent in 2010, compared to 2009, as the company made
a record investment in advertisement. advertising expense was
$130.6 million in 2010, compared to $77.4 million in 2009. Selling and
distribution expenses both increased 17 percent in 2010, compared to
2009, as the impact of synergies related to the Folgers merger partially
offset the expense impact of the incremental Folgers business. General
and administrative expenses increased 38 percent in 2010, compared
to 2009, as 2009 did not include expenses to fully support the Folgers
business. Increased pension and other employee benefit costs and costs
related to the closure of the company’s West Fargo, north Dakota,
manufacturing facility, are also included in 2010.
amortization expense was $73.7 million in 2010, an increase of
$34.8 million from 2009, reflecting the full year impact of intangible
assets associated with the Folgers transaction. noncash impairment
charges of $11.7 million were recognized in 2010, primarily related
to the Europe’s Best trademark in canada.
other operating income – net of $3.3 million was recognized in 2010
resulting from a $12.9 million gain recognized on the divestiture of
the potato business which offset other asset losses. other operating
expense – net of $2.4 million was recognized in 2009 consisting of
losses on the disposition of assets.
Driven by gross profit improvements, operating income increased
75 percent in 2010, compared to 2009, and improved from 12.0 percent
to 17.2 percent of net sales. Special project costs were $43.5 million lower
in 2010, compared to 2009, as integration activities related to Folgers
were near completion and restructuring costs had minimal impact.
Interest Income and Expense
Interest income was flat in 2011, compared to 2010. Interest expense
increased $4.4 million during 2011, compared to 2010, due to higher
average debt outstanding. The interest expense impact of $625.0 million
of debt repayments in 2010, most of which were made in the second
half of the year, was more than offset by the interest expense associated
with the issuance of $400.0 million in 4.50 percent Senior notes on
June 15, 2010.
Interest income decreased $4.2 million during 2010, compared to 2009,
primarily due to a decrease in the average investment balance through-
out the year. Interest expense increased $2.7 million in 2010, compared
to 2009, reflecting an increase in the company’s debt obligations
during the first half of 2010, compared to the first half of 2009, resulting
from the october 2008 issuance of $400.0 million in Senior notes
with a weighted-average interest rate of 6.60 percent and the addition
of Folgers’ $350.0 million variable-rate bank note payable at the
merger date. The interest incurred on these additional borrowings
was mostly offset by a reduction in interest expense resulting from
the scheduled repayments of Senior notes of $75.0 million and
$200.0 million in June and november 2009, respectively, and the
Folgers’ $350.0 million bank note in november 2009.
Income Taxes
Income taxes increased slightly in 2011, compared to 2010, despite a
two percent decrease in income before income taxes during the same
period. The effective tax rate increased to 33.1 percent in 2011, from
32.4 percent in 2010, primarily due to higher current and deferred state
income taxes and reduced tax benefits associated with the canadian
operations, partially offset by increased tax benefits related to the
domestic manufacturing deduction in 2011, compared to 2010.
T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T 2 3
Management’s Discussion and Analysis
The J. M. Smucker company
Income taxes increased $106.5 million, or 82 percent, during 2010,
compared to 2009, slightly less than the percentage increase in income
before income taxes as the effective tax rate was 32.4 percent in 2010,
compared to 32.9 percent in 2009. The effective tax rate decrease was
primarily a result of lower deferred tax rates and increased benefits
realized from the domestic manufacturing deduction, offset somewhat
by increases in state and local income taxes.
Restructuring
In calendar 2010, the company announced its plan to restructure its
coffee, fruit spreads, and canadian pickle and condiments operations
as part of its ongoing efforts to enhance the long-term strength and
profitability of its leading brands. The initiative is a long-term invest-
ment to optimize production capacity and lower the overall cost
structure. It includes estimated capital investments of approximately
$220.0 million, to be incurred through 2014, for a new state-of-the-art
food manufacturing facility in orrville, ohio, and consolidation of
coffee production in new orleans, louisiana. The company’s pickle and
condiments production will be transitioned to third-party manufacturers.
upon completion in 2014, the restructuring plan will result in the closing
of six of the company’s facilities – Memphis, Tennessee; Ste. Marie,
Quebec; Sherman, Texas; kansas city, Missouri; Dunnville, ontario;
and Delhi Township, ontario; and the reduction of approximately
850 full-time positions. The Sherman facility closed in april 2011.
The company expects total restructuring costs of approximately
$235.0 million, of which $107.7 million has been incurred through
april 30, 2011, including $102.0 million in 2011 consisting primarily
of $53.6 million of long-lived asset charges and $36.0 million of
employee separation costs. The restructuring is proceeding as planned
and the balance of the costs is anticipated to be recognized over the
next three fiscal years as the facilities are closed.
Subsequent Event
on May 16, 2011, the company announced that it had completed an
acquisition of the coffee brands and business operations of rowland
coffee roasters, Inc. (“rowland coffee”), a privately-held company
headquartered in Miami, Florida, for $360.0 million in cash.
rowland coffee’s products are primarily sold under the leading
hispanic Café Bustelo and Café Pilon brands with distribution in
retail and foodservice channels concentrated in southern Florida
and the northeastern u.S. It is a leading producer of espresso coffee
in the u.S., generating total net sales in excess of $110.0 million in
calendar 2010. The acquisition includes a manufacturing, distribu-
tion, and office facility in Miami. The company completed the
transaction with cash on hand and borrowings of $180.0 million
under its existing credit facility.
Segment Results
The company has four reportable segments: u.S. retail coffee Market,
u.S. retail consumer Market, u.S. retail oils and Baking Market, and
Special Markets. The u.S. retail coffee Market segment represents
the domestic sales of Folgers, Millstone, and Dunkin’ Donuts branded
coffee; 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, Martha White, and White Lily
branded products; and the Special Markets segment is comprised of the
canada, foodservice, natural foods, and international strategic business
areas. Special Markets segment products are distributed domestically
and in foreign countries through retail channels, foodservice distrib-
utors and operators (e.g., restaurants, schools and universities, health
care operators), and health and natural foods stores and distributors.
(Dollars in millions)
net sales:
u.S. retail coffee Market
u.S. retail consumer Market
u.S. retail oils and Baking Market
Special Markets
Segment profit:
u.S. retail coffee Market
u.S. retail consumer Market
u.S. retail oils and Baking Market
Special Markets
Segment profit margin:
u.S. retail coffee Market
u.S. retail consumer Market
u.S. retail oils and Baking Market
Special Markets
year ended april 30,
2011
2010
% Increase
(Decrease)
14%
(3)
(2)
5
11%
3
(9)
14
$1,930.9
1,091.6
888.0
915.3
$ 536.1
295.0
116.6
154.4
$1,700.5
1,125.3
905.7
873.8
$ 484.0
285.2
128.0
134.9
27.8%
27.0
13.1
16.9
28.5%
25.3
14.1
15.4
2010
$1,700.5
1,125.3
905.7
873.8
$ 484.0
285.2
128.0
134.9
% Increase
(Decrease)
2009
$ 855.6
1,103.3
995.5
803.6
$ 211.1
249.4
116.9
105.0
99%
2
(9)
9
129%
14
9
28
28.5%
25.3
14.1
15.4
24.7%
22.6
11.7
13.1
2 4 T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T
Management’s Discussion and Analysis
The J. M. Smucker company
While the company’s four reportable segments remain the same for
2011, the calculation of segment profit was modified in 2011 to include
intangible asset amortization and impairment charges related to seg-
ment assets, along with certain other items in each of the segments.
These items were previously considered corporate expenses and were
not allocated to the segments. This change more accurately aligns
the segment financial results with the responsibilities of segment
management, most notably in the area of intangible assets. Segment
profit for 2010 and 2009 has been presented to be consistent with the
current methodology.
as a result of the company’s organizational changes and realignment
of management responsibilities effective May 1, 2011, the company’s
reportable segments will change in 2012. all historical information
will be retroactively conformed to the new presentation.
U.S. Retail Coffee Market
net sales for the u.S. retail coffee Market increased 14 percent in
2011, compared to 2010. price increases taken during the year con-
tributed approximately 11 percent to net sales and more than offset
a one percent volume decline. The introduction of Folgers Gourmet
Selections and Millstone K-Cups offerings in the second quarter of the
fiscal year added approximately three percent to u.S. retail coffee
Market segment net sales in 2011. volume decreased two percent for
the Folgers brand while Dunkin’ Donuts packaged coffee increased
six percent in 2011, compared to 2010. Segment profit increased
11 percent in 2011, compared to 2010, as price increases realized
during the year more than offset higher green coffee costs. Segment
marketing expenses decreased 17 percent in 2011, compared to
2010, as advertising was at more typical levels in the current year
and incremental investments were made in the prior year. Segment
profit margin declined to 27.8 percent in 2011 from 28.5 percent
in 2010.
u.S. retail coffee Market segment net sales nearly doubled in 2010,
compared to 2009, including incremental Folgers business totaling
approximately $840.6 million. volume increased approximately four
percent in 2010, compared to the same full 12-month period in 2009,
which included the period prior to the merger, approximating six
months of operations. The Folgers brand contributed the majority of
the volume increase in 2010, compared to 2009. continued growth
of Dunkin’ Donuts coffee also contributed double-digit volume growth
and nearly $250.0 million in net sales for 2010. The u.S. retail coffee
Market segment profit more than doubled to $484.0 million in 2010,
compared to $211.1 million in 2009, and improved to 28.5 percent of
net sales from 24.7 percent in 2009. The 2010 segment profit margin
was favorably impacted by green coffee costs, product mix, and
volume-related plant efficiencies which offset significantly increased
marketing investments.
U.S. Retail Consumer Market
net sales and volume for the u.S. retail consumer Market decreased
three percent and one percent, respectively, in 2011, compared to
2010. net sales and volume increased one percent and three percent,
respectively, for the same period excluding potato products. net sales
include the impact of a peanut butter price reduction of five percent
taken at the beginning of the fiscal year. volume gains were realized
in Jif peanut butter, Smucker’s fruit spreads, and Hungry Jack pancake
mixes and syrups. Segment profit increased three percent in 2011,
compared to 2010, and segment profit margin improved from
25.3 percent to 27.0 percent, as a decrease in supply chain costs in
2011 more than offset the gain of approximately $12.9 million on
divested potato products included in 2010.
u.S. retail consumer Market segment net sales increased two percent
in 2010, compared to 2009. Total volume in the u.S. retail consumer
Market segment increased four percent, compared to 2009, with gains
in Hungry Jack pancake mixes and syrups, Jif peanut butter, and
Smucker’s fruit spreads. volume gains were somewhat offset by
increases in promotional spending and price declines on selected
items. During March 2010, the company divested its potato products
in a $19.0 million cash transaction realizing a gain of approximately
$12.9 million on the divestiture. u.S. retail consumer Market segment
profit increased 14 percent for 2010, compared to 2009, mainly due to
the divestiture gain and lower raw material and freight costs, offset
by an eight percent increase in marketing expense. Segment profit
margin improved from 22.6 percent in 2009 to 25.3 percent in 2010.
U.S. Retail Oils and Baking Market
u.S. retail oils and Baking Market segment net sales and volume
decreased two percent and four percent, respectively, in 2011, com-
pared to 2010. Strong volume gains in Crisco oils were more than
offset by declines in Pillsbury flour and baking mixes, resulting from
a combination of planned reductions in lower-margin products, and
a competitive and promotional environment during most of the year.
regional baking brands and canned milk were also down. The impact
of net price increases and sales mix partially offset the volume declines
in the segment. Segment profit decreased nine percent in 2011, com-
pared to 2010, and segment profit margin declined from 14.1 percent
to 13.1 percent for the same period. Crisco oil price declines in effect
during much of the year in response to competitive dynamics combined
with higher soybean oil costs drove the profit margin decline in 2011,
which was slightly offset by lower marketing expense.
T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T 2 5
Management’s Discussion and Analysis
The J. M. Smucker company
Total volume in the u.S. retail oils and Baking Market segment was
up one percent in 2010, compared to 2009, with strong gains in the
Pillsbury and Crisco brands mostly offset by declines in canned milk and
regional baking brands. net sales in the u.S. retail oils and Baking
Market segment were down nine percent in 2010, compared to 2009,
reflecting the full year impact of price declines taken during 2009 and
increased promotional spending across the segment. The u.S. retail
oils and Baking Market segment profit increased nine percent in 2010,
compared to 2009, resulting in segment profit margin increasing to
14.1 percent, compared to 11.7 percent in 2009. Segment profit in 2010
benefited from lower raw material costs, compared to 2009, which
more than offset intangible asset impairments and losses on the
disposition of assets no longer used in manufacturing operations.
Special Markets
net sales and volume in the Special Markets segment increased five
percent and two percent, respectively, in 2011, compared to 2010.
excluding foreign exchange, net sales increased two percent compared
to the same period last year. Special Markets segment profit increased
14 percent and improved to 16.9 percent of net sales in 2011, from
15.4 percent of net sales in 2010. Impairment charges of $17.2 million
related to Europe’s Best intangible assets in canada were recorded in
2011, compared to $7.3 million in 2010. The incremental impairment
charge of $9.9 million reduced segment profit margin by 1.1 percentage
points. however, segment profit in 2011 benefited from lower supply
chain costs and favorable sales mix, primarily driven by Folgers coffee,
which more than offset the impact of the higher impairment charge.
net sales in the Special Markets segment increased nine percent in
2010, compared to 2009, due to a favorable exchange rate impact of
$23.4 million and incremental Folgers business totaling approximately
$78.3 million. net sales, excluding acquisitions and foreign exchange,
decreased four percent over the same period. volume decreased two
percent, excluding incremental Folgers business, in 2010, compared
to 2009. Gains in canada’s baking and spreads categories and coffee
in the foodservice and export businesses were offset by declines in
Europe’s Best frozen fruit in canada, natural foods beverages, and
foodservice portion control. The impact of the overall volume decline,
combined with lower prices and increases in promotional spending,
resulted in the net sales decline, excluding acquisitions and foreign
exchange. Special Markets segment profit increased 28 percent in
2010, compared to 2009, primarily due to the impact of increased
coffee sales and lower raw material costs which more than offset the
impairment charge related to Europe’s Best and losses on the disposition
of assets no longer used in manufacturing operations. Segment profit
margin improved from 13.1 percent in 2009 to 15.4 percent in 2010.
FInancIal conDITIon
Liquidity
(Dollars in millions)
net cash provided by
operating activities
net cash used for investing activities
net cash (used for) provided by
financing activities
net cash provided by
operating activities
additions to property, plant,
and equipment
Free cash flow
Amounts may not add due to rounding.
year ended april 30,
2011
2010
2009
$ 391.6
(192.9)
$ 713.5
(104.4)
$ 447.0
(177.0)
(170.4)
(788.5)
12.6
$ 391.6
$ 713.5
$ 447.0
(180.1)
(137.0)
(108.9)
$ 211.5
$ 576.5
$ 338.1
The company’s principal source of funds is cash generated from
operations, supplemented by borrowings against the company’s revolv-
ing credit facility. Total cash and cash equivalents increased to $319.8
million at april 30, 2011, compared to $283.6 million at april 30, 2010.
The company expects a significant use of cash during the first half of
each fiscal year, primarily due to seasonal fruit and vegetable procure-
ment, the buildup of inventories to support the Fall Bake and holiday
period, and the additional increase of coffee inventory in advance of
the atlantic hurricane season. The company typically expects cash
provided by operations in the second half of the year to significantly
exceed the amount in the first half of the year, upon completion of
the company’s key promotional periods.
cash provided by operating activities in 2011 was $391.6 million,
compared to $713.5 million in 2010. The decrease in cash provided
by operating activities in 2011, compared to 2010, was primarily related
to increases in commodity costs on higher inventory levels, an increase
in income tax payments, and the timing of the easter holiday. The
significant increase in commodity costs, primarily green coffee in the
second half of 2011, is reflected in higher trade receivables and inventory
balances, offset somewhat by the related impact of an increase in accounts
payable in 2011, compared to 2010. also contributing to the higher
trade receivables is the easter holiday occurring later in 2011 than in
2010 resulting in more of the collection cycle being deferred into the
next fiscal year. approximately $80.0 million of the increase in income
tax payments represents a change in the timing of the payments.
2 6 T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T
Management’s Discussion and Analysis
The J. M. Smucker company
cash used for investing activities was $192.9 million in 2011, compared
to $104.4 million in 2010. The increased cash used for investing activities
in 2011, compared to 2010, was primarily due to the purchase of
$75.6 million of marketable securities in 2011 and increased capital
expenditures. cash used for capital expenditures increased to
$180.1 million in 2011, compared to $137.0 million in 2010, primarily
related to expenditures associated with the company’s restructuring
project and corporate headquarters expansion.
on January 31, 2011, the company entered into an amended and
restated credit agreement with a group of six banks. The credit facility
provides for an unsecured revolving credit line of $600.0 million and
matures January 31, 2016. at april 30, 2011, the company did not have
a balance outstanding under the revolving credit facility. Subsequent
to year end, the company borrowed $240.0 million under its revolving
credit facility for general corporate purposes, including the rowland
coffee acquisition.
cash used for financing activities during 2011 was $170.4 million. The
company’s issuance of $400.0 million in Senior notes was more than
offset by quarterly dividend payments of $194.0 million and the pur-
chase of treasury shares for $389.1 million, including the repurchase
of approximately 5.7 million common shares available under Board of
Directors’ authorizations. During 2010, total cash of $788.5 million was
used for financing purposes consisting primarily of $625.0 million in
debt repayments and $166.2 million in quarterly dividend payments.
The increased dividend payments in 2011, compared to 2010, resulted
from increases in the quarterly dividend rate during the period.
During 2011, the company completed the repurchase of approximately
5.7 million common shares under rule 10b5-1 trading plans utilizing
$381.5 million of cash on hand. at april 30, 2011, approximately
3.0 million common shares remain available for repurchase under
the Board of Directors’ most recent authorization, including approxi-
mately 0.5 million common shares remaining under the company’s
rule 10b5-1 repurchase plan (“plan”) established in March 2011.
purchases will be transacted by a broker based upon the guidelines
and parameters of the plan. There is no guarantee as to the exact
number of shares that will be repurchased.
Capital Resources
The following table presents the company’s capital structure.
(Dollars in millions)
current portion of long-term debt
long-term debt
Total debt
Shareholders’ equity
Total capital
Amounts may not add due to rounding.
april 30,
2011
$ —
1,304.0
2010
$ 10.0
900.0
$1,304.0
5,292.4
$ 910.0
5,326.3
$6,596.4
$6,236.3
on June 15, 2010, the company issued $400.0 million of 4.50 percent
Senior notes with a final maturity on June 1, 2025. The Senior notes
have a 12-year average maturity with scheduled payments starting
on June 1, 2020. proceeds from the Senior notes issuance were used
for general corporate purposes, including the purchase of treasury
shares. on September 1, 2010, the company repaid the $10.0 million
of 7.94 percent Series c Senior notes utilizing cash on hand.
cash requirements for 2012 will include capital expenditures of
approximately $250.0 to $275.0 million, including amounts related to
the announced restructuring program, quarterly dividend payments
of approximately $200.0 million based on current rates and common
shares outstanding, and interest payments on long-term debt obliga-
tions of approximately $65.0 million for the year. absent any further
acquisitions or other significant investments, the company believes
that cash on hand, combined with cash provided by operations
and borrowings available under its credit facility, will be sufficient
to meet cash requirements for the next 12 months, including capital
expenditures, the payment of quarterly dividends, and interest on
debt outstanding.
T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T 27
Management’s Discussion and Analysis
The J. M. Smucker company
n o n- G a a p M e a S u r e S
The company uses non-Gaap measures including net sales excluding
acquisitions, divestiture, and foreign exchange rate impact; gross profit,
operating income, income, and income per diluted share, excluding
special project costs; and free cash flow as key measures for purposes
of evaluating performance internally. These non-Gaap measures are
not intended to replace the presentation of financial results in accor-
dance with u.S. generally accepted accounting principles (“Gaap”).
rather, the presentation of these non-Gaap measures supplements
other metrics used by management to internally evaluate its businesses
and facilitate the comparison of past and present operations. These
non-Gaap measures may not be comparable to similar measures
used by other companies and may exclude certain nondiscretionary
expenses and cash payments. The following table reconciles
certain non-Gaap financial measures to the comparable Gaap
financial measure.
year ended april 30,
(Dollars in thousands, except per share data)
2011
2010
2009
2008
2007
reconciliation to gross profit:
Gross profit
cost of products sold – restructuring
$ 1,798,517
54,089
$ 1,786,690
3,870
$ 1,251,429
—
$ 782,164
1,510
$ 702,055
9,981
Gross profit excluding special project costs
$ 1,852,606
$ 1,790,560
$ 1,251,429
$ 783,674
$ 712,036
reconciliation to operating income:
operating income
Merger and integration costs
cost of products sold – restructuring
other restructuring costs
$ 784,272
11,194
54,089
47,868
$ 790,909
33,692
3,870
1,841
$ 452,275
72,666
—
10,229
$ 284,559
7,967
1,510
3,237
$ 254,648
61
9,981
2,120
operating income excluding special project costs
$ 897,423
$ 830,312
$ 535,170
$ 297,273
$ 266,810
reconciliation to net income:
Income before income taxes
Merger and integration costs
cost of products sold – restructuring
other restructuring costs
Income before income taxes, excluding
special project costs
Income taxes, as adjusted
Income excluding special project costs
Weighted-average shares – assuming dilution
Income per common share excluding special
project costs – assuming dilution
$ 717,164
11,194
54,089
47,868
$ 830,315
275,182
$ 555,133
118,276,086
$ 730,753
33,692
3,870
1,841
$ 396,065
72,666
—
10,229
$ 254,788
7,967
1,510
3,237
$ 241,004
61
9,981
2,120
$ 770,156
249,374
$ 520,782
119,081,445
$ 478,960
157,343
$ 321,617
85,547,530
$ 267,502
88,621
$ 253,166
88,014
$ 178,881
56,873,492
$ 165,152
57,233,399
$
4.69
$
4.37
$
3.76
$
3.15
$
2.89
2 8 T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T
Management’s Discussion and Analysis
The J. M. Smucker company
o F F -Ba l a n c e S h e e T a r r a n G e M e n T S a n D
c o n T r ac T ua l oB l IG aT Io n S
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, conducted at an arm’s length basis,
and not material to the company’s results of operations, financial
condition, or cash flows.
The following table summarizes the company’s contractual obligations
at april 30, 2011.
less
Than to Three
years
More
one Three
Than
to Five
Five
years
years
$100.0 $199.0 $1,005.0
Total one year
$1,304.0 $ —
26.1
1,563.8
40.8
82.7
22.7
—
14.0
—
—
2.4
—
178.2
(Dollars in millions)
Debt obligations
operating lease
103.6
obligations
purchase obligations 1,646.5
other noncurrent
liabilities
180.6
Total
$3,234.7 $1,589.9
$225.9 $221.7 $1,197.2
purchase obligations in the above table include agreements to purchase
goods or services that are enforceable and legally binding on the company.
Included in this category are certain obligations related to normal,
ongoing purchase obligations in which the company has guaranteed
payment to ensure availability of raw materials and packaging supplies.
The company expects to receive consideration for these purchase
obligations in the form of materials. The purchase obligations in the
above table do not represent the entire anticipated purchases in the
future, but represent only those items for which the company is con-
tractually obligated. The table excludes the liability for unrecognized
tax benefits and tax-related net interest and penalties of approximately
$22.1 million under Financial accounting Standards Board (“FaSB”)
accounting Standards codification (“aSc”) 740, Income Taxes, since
the company is unable to reasonably estimate the timing of cash
settlements with the respective taxing authorities.
crITIcal accounTInG eSTIMaTeS anD polIcIeS
The preparation of financial statements in conformity with u.S. Gaap
requires management to make estimates and assumptions that in
certain circumstances affect amounts reported in the accompanying
consolidated financial statements. In preparing these financial state-
ments, management has made its best estimates and judgments of
certain amounts included in the financial statements, giving due
consideration to materiality. The company does not believe there is a
great likelihood that materially different amounts would be reported
under different conditions or using different assumptions related to
the accounting policies described below. however, application of
these accounting policies involves the exercise of judgment and use
of assumptions as to future uncertainties and, as a result, actual results
could differ from these estimates.
Revenue Recognition. The company recognizes revenue when all of
the following criteria have been met: a valid customer order with a
determinable price has been received; the product has been shipped
and title has transferred to the customer; there is no further significant
obligation to assist in the resale of the product; and collectibility is
reasonably assured. a provision for estimated returns and allowances
is recognized as a reduction of sales at the time revenue is recognized.
Trade Marketing and Merchandising Programs. In order to support
the company’s products, various promotional activities are conducted
through retail trade, distributors, or directly with consumers, including
in-store display and product placement programs, feature price
discounts, coupons, and other similar activities. The company regularly
reviews and revises, when it deems necessary, estimates of costs to the
company for these promotional programs based on estimates of
what will be redeemed by 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 recognized
as a change in management’s estimate in a subsequent period. as the
company’s total promotional expenditures, including amounts classi-
fied as a reduction of net sales, represented approximately 26 percent
of net sales in 2011, the possibility exists of materially different reported
results if factors such as the level and success of the promotional
programs or other conditions differ from expectations.
Income Taxes. The future tax benefit arising from the net deductible
temporary differences and tax carryforwards is approximately $116.9
million and $96.7 million at april 30, 2011 and 2010, respectively.
Management believes that the company’s earnings during the periods
when the temporary differences become deductible will be sufficient
to realize the related future income tax benefits. For those jurisdic-
tions where the expiration date of tax carryforwards or the projected
operating results of the company indicate that realization is not likely,
a valuation allowance has been provided.
In assessing the need for a valuation allowance, the company estimates
future taxable income, considering the viability of ongoing tax planning
strategies and the probable recognition of future tax deductions and
loss carryforwards. valuation allowances related to deferred tax assets
can be affected by changes in tax laws, statutory tax rates, and projected
future taxable income levels. changes in estimated realization of
deferred tax assets would result in an adjustment to income in the
period in which that determination is made.
T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T 2 9
Management’s Discussion and Analysis
The J. M. Smucker company
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 recognized a liability for unrecognized tax benefits,
including any applicable interest and penalty charges, in accordance
with FaSB aSc 740.
Long-Lived Assets. long-lived assets, except goodwill and indefinite-
lived intangible assets, are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. recoverability of assets to be held and
used is measured by a comparison of the carrying amount of the
assets to future net cash flows estimated to be generated by such
assets. If such assets are considered to be impaired, the impairment
to be recognized is the amount by which the carrying amount of
the assets exceeds the estimated fair value of the assets. however,
determining fair value is subject to estimates of both cash flows and
discount rates and different estimates could yield different results.
There are no events or changes in circumstances of which manage-
ment is aware that indicate the carrying value of the company’s long-
lived assets may not be recoverable.
Goodwill and Other Indefinite-Lived Intangible Assets. The company
is required to test goodwill for impairment annually and more often
if indicators of impairment exist. To test for goodwill impairment, the
company estimates the fair value of each of its reporting units using
both a discounted cash flow valuation technique and a market-based
approach. The impairment test incorporates the company’s estimates
of future cash flows, allocations of certain assets, liabilities, and cash
flows among reporting units, future growth rates, terminal value
amounts, and the applicable weighted-average cost of capital used to
discount those estimated cash flows. The estimates and projections
used in the calculation of fair value are consistent with the company’s
current and long-range plans, including anticipated changes in market
conditions, industry trends, growth rates, and planned capital expen-
ditures. changes in forecasted operations and other estimates and
assumptions could impact the assessment of impairment in the future.
at april 30, 2011, goodwill totaled $2.8 billion. Goodwill is substantially
concentrated within the u.S. retail coffee Market, u.S. retail consumer
Market, and u.S. retail oils and Baking Market segments. no good-
will impairment was recognized as a result of the annual evaluation
performed as of February 1, 2011. The estimated fair value of each
reporting unit was substantially in excess of its carrying value as of
the annual test date, with the exception of the u.S. retail oils and
Baking Market segment. a sensitivity analysis was performed for this
reporting unit, which decreased the expected long-term growth rate
by 50 basis points, and still yielded an estimated fair value which
supported its carrying value.
3 0 T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T
The company’s other indefinite-lived intangible assets, consisting
entirely of trademarks, are also tested for impairment annually and
whenever events or changes in circumstances indicate their carrying
value may not be recoverable. To test these assets for impairment, the
company estimates the fair value of each asset based on a discounted
cash flow model using various inputs, including projected revenues, an
assumed royalty rate, and a discount rate. changes in these estimates and
assumptions could impact the assessment of impairment in the future.
at april 30, 2011, other indefinite-lived intangible assets totaled
$1.8 billion. The company has eight trademarks which represent
several of its leading, iconic brands and comprise more than 95 percent
of the total carrying value of its other indefinite-lived intangible assets.
each of these trademarks had an estimated fair value substantially in
excess of its carrying value as of the annual test date.
Pension and Other Postretirement Benefit Plans. To determine the
company’s ultimate obligation under its defined benefit pension plans
and other postretirement benefit plans, management must estimate the
future cost of benefits and attribute that cost to the time period during
which each covered employee works. various actuarial 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 2012 expense recognition, the
company will use a discount rate of 5.5 percent and 5.0 percent, and
a rate of compensation increase of 4.1 percent and 4.0 percent for the
u.S. and canadian plans, respectively. The company anticipates using
an expected rate of return on plan assets of 7.0 percent for u.S. plans.
For the canadian plans, the company will use an expected rate of return
on plan assets of 6.5 percent for the hourly plan and 6.75 percent for
all other plans.
Recovery of Trade Receivables. In the normal course of business, the
company extends credit to customers that satisfy predefined criteria.
The company evaluates the collectibility of trade receivables based on
a combination of factors. When aware that a specific customer may
be unable to meet its financial obligations, such as in the case of
bankruptcy filings or deterioration in the customer’s operating results
or financial position, the company records a specific reserve for bad
debt to reduce the related receivable to the amount the company
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 current and projected
economic conditions at the balance sheet date. actual collections
of trade receivables could differ from management’s estimates due
Management’s Discussion and Analysis
The J. M. Smucker company
to changes in future economic or industry conditions or specific
customers’ financial conditions.
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 statements. The company is
exposed to market risk related to changes in interest rates, foreign
currency exchange rates, and commodity prices.
Interest Rate Risk. The fair value of the company’s cash and short-term
investment portfolio at april 30, 2011, approximates carrying value.
exposure to interest rate risk on the company’s long-term debt is miti-
gated due to fixed-rate maturities. In an effort to achieve a mix of variable
versus fixed-rate debt under currently favorable market conditions, the
company entered into an interest rate swap in the fourth quarter of
2011 on a portion of fixed-rate Senior notes. The company receives
a fixed rate and pays variable rates based on the london Interbank
offered rate. The interest rate swap is designated as a fair value hedge
and is used to hedge against the changes in the fair value of the debt.
The instrument is recognized at fair value in the consolidated Balance
Sheet at april 30, 2011, and changes in the fair value are recognized
in interest expense. The change in the fair value of the interest rate
swap is offset by the change in the fair value of the long-term debt.
Based on the company’s overall interest rate exposure as of and
during the year ended april 30, 2011, including derivatives and other
instruments sensitive to interest rates, a hypothetical 10 percent
movement in interest rates would not materially affect the company’s
results of operations. In measuring interest rate risk by the amount
of net change in the fair value of the company’s financial liabilities, a
hypothetical one percent decrease in interest rates at april 30, 2011,
would increase the fair value of the company’s long-term debt by
approximately $54.0 million.
Foreign Currency Exchange Risk. The company has operations outside
the u.S. with foreign currency denominated assets and liabilities,
primarily denominated in canadian currency. Because the company
has foreign currency denominated assets and liabilities, financial
exposure may result, primarily from the timing of transactions and
the movement of exchange rates. The foreign currency balance sheet
exposures as of april 30, 2011, are not expected to result in a signifi-
cant impact on future earnings or cash flows.
The company utilizes foreign currency exchange forwards and
options contracts to manage the price volatility of foreign currency
exchange fluctuations on future cash transactions. The contracts
generally have maturities of less than one year. Instruments currently
used to manage foreign 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. If the contract qualifies for hedge accounting treatment,
to the extent the hedge is deemed effective, the associated mark-to-
market gains and losses are deferred and included as a component of
accumulated other comprehensive income (loss). These gains or losses
are reclassified to earnings in the period the contract is executed. The
ineffective portion of these contracts is immediately recognized in
earnings. Based on the company’s hedged foreign currency positions
as of april 30, 2011, a hypothetical 10 percent change in exchange
rates would result in a loss of fair value of approximately $4.7 million.
revenues from customers outside the u.S. represented 10 percent of
net sales during 2011. Thus, certain revenues and expenses have been,
and are expected to be, subject to the effect of foreign currency fluctua-
tions, and these fluctuations may have an impact on operating results.
Commodity Price Risk. raw materials and other commodities used
by the company are subject to price volatility caused by supply and
demand conditions, political and economic variables, weather, investor
speculation, and other unpredictable factors. To manage the volatility
related to anticipated commodity purchases, the company uses futures
and options with maturities generally less than one year. certain of these
instruments are designated as cash flow hedges. The mark-to-market
gains or losses on qualifying hedges are included in accumulated other
comprehensive income (loss) to the extent effective, and reclassified to
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.
The following sensitivity analysis presents the company’s potential
loss of fair value resulting from a hypothetical 10 percent change in
market prices.
(Dollars in millions)
raw material commodities:
high
low
average
year ended april 30,
2011
2010
$24.5
6.6
14.7
$21.2
2.3
11.6
The estimated fair value was determined using quoted market prices
and was based on the company’s net derivative position by commodity
at each quarter end during the fiscal year. The calculations are not
intended to represent actual losses in fair value that the company
expects to incur. In practice, as markets move, the company actively
manages its risk and adjusts hedging strategies as appropriate. The
commodities hedged have a high inverse correlation to price changes
of the derivative commodity instrument; thus, the company would
expect that any gain or loss in the estimated fair value of its deriva-
tives would generally be offset by an increase or decrease in the
estimated fair value of the underlying exposures.
T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T 31
Management’s Discussion and Analysis
The J. M. Smucker company
• the impact of food safety concerns involving either the Company
or its competitors’ products;
• the impact of accidents and natural disasters, including crop
failures and storm damage;
• the concentration of certain of the Company’s businesses with
key customers and suppliers and the ability to manage and
maintain key relationships;
• the loss of significant customers, a substantial reduction in orders
from such 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 financing;
• the timing and amount of the Company’s capital expenditures,
share repurchases, and restructuring costs;
• impairments in the carrying value of goodwill, other intangible
assets, or other long-lived assets or changes in useful lives of
other intangible assets;
• the impact of new or changes to existing governmental laws and
regulations or their application;
• the impact of future legal, regulatory, or market measures regarding
climate change;
• 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;
• other factors affecting share prices and capital markets
generally; and
• the other factors described under “Risk Factors” in registration
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
undertake any obligation to update or revise these forward-looking
statements to reflect new events or circumstances.
ForWarD-lookInG STaTeMenTS
certain statements included in this annual report contain forward-
looking statements within the meaning of federal securities laws. The
forward-looking statements may include statements concerning the
company’s current expectations, estimates, assumptions, and beliefs
concerning future events, conditions, plans, and strategies that are
not historical fact. any statement that is not historical in nature is a
forward-looking statement and may be identified by the use of words
and phrases such as “expects,” “anticipates,” “believes,” “will,” “plans,”
and similar phrases.
Federal securities laws provide a safe harbor for forward-looking
statements to encourage companies to provide prospective information.
The company is providing this cautionary statement in connection
with the safe harbor provisions. readers are cautioned not to place
undue reliance on any forward-looking statements as such statements
are by nature subject to risks, uncertainties, and other factors, many
of which are outside of the company’s control and could cause actual
results to differ materially from such statements and from the company’s
historical results and experience. These risks and uncertainties
include, but are not limited to, those set forth under the caption
“risk Factors” in the company’s annual report on Form 10-k, as
well as the following:
• 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 derivative and purchasing strategies employed
by the company to manage commodity pricing risks, including
the risk that such strategies could result in significant losses and
adversely impact the company’s liquidity;
• crude oil price trends and their impact on transportation,
energy, and packaging costs;
• the ability to successfully implement and realize the full benefit
of price changes and the competitive response;
• the success and cost of introducing new products and the
competitive response;
• the success and cost of marketing and sales programs and strategies
intended to promote growth in the company’s businesses;
• general competitive activity in the market, including competitors’
pricing practices and promotional spending levels;
• the ability of the Company to successfully integrate acquired
and merged businesses in a timely and cost effective manner;
• the successful completion of the Company’s restructuring
programs and the ability to realize anticipated savings
and other potential benefits within the time frames
currently contemplated;
32 T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T
Report of Management on Internal Control Over Financial Reporting
The J. M. Smucker company
Shareholders
The J. M. Smucker Company
Management of The J. M. Smucker company is responsible for establishing and maintaining adequate accounting and internal control systems
over financial reporting, as such term is defined in rules 13a-15(f) and 15d-15(f) under the Securities and exchange act of 1934, as amended.
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, with the participation of the principal financial and executive officers, assessed the effectiveness of the company’s
internal control over financial reporting as of april 30, 2011. In making this assessment, management used the criteria established in Internal
Control – Integrated Framework issued by the committee of Sponsoring organizations of the Treadway commission (“the coSo criteria”).
Based on the company’s assessment of internal control over financial reporting under the coSo criteria, management concluded the company’s
internal control over financial reporting was effective as of april 30, 2011.
ernst & young llp, independent registered public accounting firm, audited the effectiveness of the company’s internal control over financial
reporting as of april 30, 2011, and their report thereon is included on page 34 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
Senior Vice President and
Chief Financial Officer
T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T 33
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, 2011, 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 control 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 operating effectiveness of internal control based on the assessed
risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
a company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
a company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions 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 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 company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, The J. M. Smucker company maintained, in all material respects, effective internal control over financial reporting as of
april 30, 2011, 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, 2011 and 2010, and the related statements of consolidated income, shareholders’
equity, and cash flows for each of the three years in the period ended april 30, 2011, and our report dated June 22, 2011, expressed an
unqualified opinion thereon.
akron, ohio
June 22, 2011
3 4 T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T
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, 2011 and 2010, and the related
statements of consolidated income, shareholders’ equity, and cash flows for each of the three years in the period ended april 30, 2011. 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 statements are free of material misstatement.
an audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. an audit also
includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, 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, 2011 and 2010, and the consolidated results of its operations and its cash flows for each of the three
years in the period ended april 30, 2011, in conformity with u.S. generally accepted accounting principles.
We also have audited in accordance with the standards of the public company accounting oversight Board (united States), The J. M. Smucker
company’s internal control over financial reporting as of april 30, 2011, 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, 2011, expressed an unqualified
opinion thereon.
akron, ohio
June 22, 2011
T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T 35
Report of Management on Responsibility for Financial Reporting
The J. M. Smucker company
Shareholders
The J. M. Smucker Company
Management of The J. M. Smucker company is responsible for the preparation, integrity, accuracy, and consistency of the consolidated financial
statements and the related financial information in this report. Such information has been prepared in accordance with u.S. generally accepted
accounting principles and is based on our best estimates and judgments.
The company maintains systems of internal accounting controls supported by formal policies and procedures that are communicated throughout
the company. There is a program of audits performed by the company’s internal audit staff designed to evaluate 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 accordance with the
standards of the public company accounting oversight Board (united States). Management has made all financial records and related data
available to ernst & young llp during its audit.
The company’s audit committee, comprised of three non-employee 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 regularly satisfies itself as to the adequacy of controls,
systems, and financial records. The manager of the internal audit department is required to report directly to the chair of the audit committee
as to 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
Senior Vice President and
Chief Financial Officer
3 6 T h e J . M . S M u c k e r c o M pa n y 2 011 a n n ua l r e p o r T
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
Impairment charges
Merger and integration costs
Other restructuring costs
Other operating expense (income) – net
Operating Income
Interest income
Interest expense
Other (expense) income – net
Income Before Income Taxes
Income taxes
Net Income
Earnings per common share:
Net Income
Net Income – Assuming Dilution
See notes to consolidated financial statements.
Year Ended April 30,
2011
2010
2009
$4,825,743
2,973,137
54,089
1,798,517
863,114
73,844
17,599
11,194
47,868
626
784,272
2,512
(69,594)
(26)
717,164
237,682
$4,605,289
2,814,729
3,870
1,786,690
878,221
73,657
11,658
33,692
1,841
(3,288)
790,909
2,793
(65,187)
2,238
730,753
236,615
$3,757,933
2,506,504
—
1,251,429
673,565
38,823
1,491
72,666
10,229
2,380
452,275
6,993
(62,478)
(725)
396,065
130,112
$ 479,482
$ 494,138
$ 265,953
$ 4.06
$ 4.15
$ 3.11
$ 4.05
$ 4.15
$ 3.11
T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T 37
April 30,
2011
2010
$ 319,845
344,410
$ 283,570
238,867
518,243
345,336
863,579
109,165
413,269
241,670
654,939
46,254
1,636,999
1,223,630
77,074
347,950
1,022,670
76,778
1,524,472
(656,590)
867,882
2,812,746
2,940,010
66,948
5,819,704
62,982
308,358
997,374
31,426
1,400,140
(541,827)
858,313
2,807,730
3,026,515
58,665
5,892,910
$8,324,585
$7,974,853
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
Other noncurrent assets
Total Other Noncurrent Assets
See notes to consolidated financial statements.
3 8 T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T
Consolidated Balance Sheets
The J. M. Smucker Company
LIABILITIes AND shArehOLDers’ equITy
(Dollars in thousands)
Current Liabilities
Accounts payable
Accrued compensation
Accrued trade marketing and merchandising
Income taxes payable
Dividends payable
Current portion of long-term debt
Other current liabilities
Total Current Liabilities
Noncurrent Liabilities
long-term debt
Defined benefit pensions
postretirement benefits other than pensions
Deferred income taxes
Other noncurrent liabilities
Total Noncurrent Liabilities
shareholders’ equity
Serial preferred shares – no par value:
Authorized – 3,000,000 shares; outstanding – none
Common shares – no par value:
Authorized – 150,000,000 shares; outstanding – 114,172,122 in 2011 and
119,119,152 in 2010 (net of 14,432,043 and 9,485,013 treasury shares,
respectively), at stated value
Additional capital
retained income
Amount due from ESOp Trust
Accumulated other comprehensive income (loss)
Total shareholders’ equity
See notes to consolidated financial statements.
April 30,
2011
2010
$ 234,916
62,313
62,588
7,706
50,236
—
64,917
$ 179,509
60,080
52,536
75,977
47,648
10,000
53,147
482,676
478,897
1,304,039
98,722
59,789
1,042,823
44,173
2,549,546
900,000
86,968
45,592
1,101,506
35,570
2,169,636
—
—
28,543
4,396,592
866,933
(3,334)
3,629
5,292,363
29,780
4,575,127
746,063
(4,069)
(20,581)
5,326,320
$8,324,585
$7,974,853
T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T 39
Statements of Consolidated Cash Flows
The J. M. Smucker Company
(Dollars in thousands)
2011
2010
2009
Year Ended April 30,
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operations:
Depreciation
Depreciation – restructuring
Amortization
Impairment charges
Share-based compensation expense
Other noncash restructuring charges
loss (gain) on sale of assets – net
Deferred income tax (benefit) 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
Net Cash Provided by Operating Activities
Investing Activities
Businesses acquired, net of cash acquired
Additions to property, plant, and equipment
proceeds from sale of businesses
purchases of marketable securities
Sales and maturities of marketable securities
proceeds from disposal of property, plant, and equipment
Other – net
Net Cash used for Investing Activities
Financing Activities
repayment of bank note payable
repayments of long-term debt
proceeds from long-term debt
Quarterly dividends paid
Special dividends paid
purchase of treasury shares
proceeds from stock option exercises
Other – net
Net Cash (used for) Provided by 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
$ 479,482
$ 494,138
$ 265,953
112,226
53,569
73,844
17,599
24,044
8,540
2,867
(59,801)
(102,625)
(204,159)
(45,649)
84,633
(16,779)
(66,187)
29,958
391,562
—
(180,080)
—
(75,637)
57,100
5,830
(126)
(192,913)
—
(10,000)
400,000
(194,024)
—
(389,135)
14,525
8,215
(170,419)
8,045
36,275
283,570
108,225
3,870
73,657
11,658
25,949
—
(7,831)
(39,320)
31,521
(46,160)
3,461
(34,620)
(4,436)
55,449
37,917
713,478
—
(136,983)
19,554
—
13,519
205
(738)
(104,443)
(350,000)
(275,000)
—
(166,224)
—
(5,569)
6,413
1,832
(788,548)
6,390
(173,123)
456,693
79,450
—
38,823
1,491
22,105
9,093
2,165
25,525
(78,631)
34,669
38,792
67,883
(34,665)
22,941
(48,601)
446,993
(77,335)
(108,907)
—
—
3,013
800
5,448
(176,981)
—
—
400,000
(110,668)
(274,208)
(4,025)
1,976
(474)
12,601
2,539
285,152
171,541
Cash and Cash equivalents at end of year
$ 319,845
$ 283,570
$ 456,693
( ) Denotes use of cash
See notes to consolidated financial statements.
4 0 T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T
Statements of Consolidated Shareholders’ Equity
The J. M. Smucker Company
(Dollars in thousands,
except per share data)
Balance at May 1, 2008
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
Balance at April 30, 2009
Net income
Foreign currency translation adjustment
pensions and other
postretirement liabilities
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 – $1.45 per share
Tax benefit of stock plans
Other
Balance at April 30, 2010
Net income
Foreign currency translation adjustment
pensions and other
postretirement liabilities
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 – $1.68 per share
Tax benefit of stock plans
Other
Common
Shares
Outstanding
Common
Shares
Additional
Capital
retained
Income
Amount
Accumulated
Other
Due from Comprehensive
Income (loss)
ESOp Trust
54,622,612
$13,656
$1,181,645
$ 567,419
265,953
$(5,479)
$ 42,612
(47,024)
Total
Shareholders’
Equity
$1,799,853
265,953
(47,024)
(43,479)
(43,479)
(2,798)
(2,798)
(6,581)
(6,581)
(81,685)
63,166,532
714,664
(20)
15,792
178
(3,982)
3,350,561
17,344
(23)
(408,845)
2,353
118,422,123
29,606
4,547,921
424,504
494,138
649
(4,830)
(57,270)
45,926
166,071
(4,025)
3,366,353
17,522
(408,845)
2,353
649
4,939,931
494,138
45,926
(12,313)
(12,313)
2,652
2,652
424
424
(122,483)
819,512
(31)
205
(5,383)
29,584
3,005
(155)
(172,424)
119,119,152
29,780
4,575,127
746,063
479,482
761
(4,069)
(20,581)
24,773
530,827
(5,569)
29,789
(172,424)
3,005
761
5,326,320
479,482
24,773
(5,832,423)
885,393
(1,458)
221
(225,677)
39,832
(162,000)
(196,612)
7,310
735
(5,928)
(5,928)
1,359
1,359
4,006
4,006
503,692
(389,135)
40,053
(196,612)
7,310
735
Balance at April 30, 2011
114,172,122
$28,543
$4,396,592
$ 866,933
$(3,334)
$ 3,629
$5,292,363
See notes to consolidated financial statements.
T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T 41
Notes to Consolidated Financial Statements
The J. M. Smucker Company
(Dollars in thousands, unless otherwise noted, except per share data)
NOTe A: ACCOuNTING POLICIes
Principles of Consolidation: The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries,
and its majority-owned investments, if any. 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 (“GAAp”)
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 merchandising 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 collectibility is reasonably assured.
Major Customer: Sales to Wal-Mart Stores, Inc. and subsidiaries amounted to approximately 26 percent, 27 percent, and 24 percent of net
sales in 2011, 2010, and 2009, 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, 2011 and 2010, included amounts due from Wal-Mart Stores, Inc.
and subsidiaries of $87,623 and $61,176, 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 retail trade, distributors, or directly with consumers, including in-store display and product placement programs, feature price discounts,
coupons, and other similar activities. The Company regularly reviews and revises, when it deems necessary, estimates of costs to the Company
for these promotional programs based on estimates of what will be redeemed by 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 recognized 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, represented approximately 26 percent of net sales in 2011, a possibility exists of materially
different reported results if factors such as the level and success of the promotional programs or other conditions differ from expectations.
Advertising expense: Advertising costs are expensed as incurred. Advertising expense was $115,066, $130,583, and $77,363 in 2011, 2010,
and 2009, respectively.
research and Development Costs: Total research and development costs, including product formulation costs, were $20,981, $20,963, and
$14,498 in 2011, 2010, and 2009, respectively.
share-Based Payments: Share-based compensation expense is recognized over the requisite service period, which includes a one-year
performance period plus the defined forfeiture period, which is typically four years of service or the attainment of a defined age and years
of service.
4 2 T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T
Notes to Consolidated Financial Statements
The J. M. Smucker Company
The following table summarizes amounts related to share-based payments.
Share-based compensation expense included in selling,
distribution, and administrative expenses
Share-based compensation expense included in merger and integration costs
Share-based compensation expense included in other restructuring costs
Total share-based compensation expense
related income tax benefit
2011
$19,896
4,148
290
$24,334
$ 8,064
April 30,
2010
$20,687
5,262
—
$25,949
$ 8,402
2009
$14,043
8,062
—
$22,105
$ 7,261
As of April 30, 2011, total unrecognized share-based compensation cost related to nonvested share-based awards was approximately $33,703.
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
excess tax benefits, are 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 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
2011, 2010, and 2009, the actual tax deductible benefit realized from share-based compensation was $7,310, $3,005, and $2,353, including
$6,990, $2,908, and $2,372, respectively, of excess tax benefits realized upon exercise or vesting of share-based compensation, and classified as
other-net under financing activities in the Statements of Consolidated Cash Flows.
Income Taxes: The Company accounts for income taxes using the liability method. Accordingly, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between financial statement 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 applicable
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. The Company evaluates its trade receivables and establishes
an allowance for doubtful accounts based on a combination of factors. When aware that a specific customer has been impacted by circumstances
such as bankruptcy filings or deterioration in the customer’s operating results or financial position, potentially making it unable to meet its
financial obligations, the Company records a specific reserve for bad debt 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 current and projected economic conditions at the
balance sheet date. Trade receivables are charged off against the allowance after management determines the potential for recovery is remote.
At April 30, 2011 and 2010, the allowance for doubtful accounts was $1,882 and $1,521, respectively. The net provision for the allowance for
doubtful accounts increased $361 and $1,091 in 2011 and 2009, respectively, and decreased $480 in 2010. 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.
Inventories: Inventories are stated at the lower of cost or market. Cost for all inventories is determined using the first-in, first-out method.
The cost of finished products and work-in-process inventory includes materials, direct labor, and overhead. Work-in-process is included in
finished products in the Consolidated Balance Sheets and was $77,594 and $49,214 at April 30, 2011 and 2010, respectively.
T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T 4 3
Notes to Consolidated Financial Statements
The J. M. Smucker Company
Derivative Financial Instruments: The Company utilizes derivative instruments such as basis contracts, commodity futures and options contracts,
foreign currency forwards and options, and an interest rate swap to manage exposures in commodity prices, foreign currency exchange rates,
and interest rates. The Company accounts for these derivative instruments in accordance with Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging. FASB ASC 815 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 fair value are deferred and recognized in shareholders’ equity as a component of
accumulated other comprehensive income (loss) to the extent the hedge is effective and then recognized in the Statements of Consolidated Income
in the period during which the hedged transaction affects earnings. hedge effectiveness is measured at inception and on a monthly basis. 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. The Company’s interest rate swap is designated as a fair value hedge and is used to hedge against changes in the fair value
of the underlying long-term debt. The interest rate swap is recognized at fair value in the Consolidated Balance Sheet at April 30, 2011, and changes
in the fair value are recognized in the Statement of Consolidated Income for the year ended April 30, 2011. The change in the fair value of the
interest rate swap is offset by the change in the fair value of the underlying long-term debt. 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 is recognized at cost and is depreciated on a straight-line basis over the
estimated useful life of the asset (3 to 20 years for machinery and equipment, 3 to 7 years for capitalized software costs, and 5 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 2011, 2010,
and 2009 totaled $57,572, $55,010, and $36,547, respectively. As of April 30, 2011, the Company’s minimum operating lease obligations are as
follows: $26,110 in 2012, $21,887 in 2013, $18,956 in 2014, $14,121 in 2015, and $22,565 in 2016 and beyond.
Impairment of Long-Lived Assets: In accordance with FASB ASC 360, Property, Plant, and Equipment, 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 recognized as held for sale
at the lower of carrying value or estimated net realizable value.
Goodwill and Other Intangible Assets: Goodwill is the excess of the purchase price paid over the fair value of the net assets of the business
acquired. In accordance with FASB ASC 350, Intangibles – Goodwill and Other, goodwill and other 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 other
indefinite-lived intangible assets as of February 1 of each year. A discounted cash flow valuation technique and a market-based approach are
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 developed using a weighted-average cost of capital methodology. In
addition to the annual test, the Company will test for impairment if events or circumstances occur that would more likely than not reduce the
fair value of a reporting unit below its carrying amount. Finite-lived intangible assets are amortized on a straight-line basis over their estimated
useful lives. For additional information, see Note G: Goodwill and Other Intangible Assets.
Marketable securities and Other Investments: under the Company’s investment policy, it may invest in debt securities deemed to be investment
grade at the time of purchase for general corporate purposes. 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 operations in the
upcoming year, 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 accumulated other
comprehensive income (loss). The fair value of available-for-sale marketable securities was $18,600 and was included in other current assets at
April 30, 2011. Approximately $57,100, $13,519, and $3,013 of proceeds have been realized upon maturity or sale of available-for-sale marketable
securities in 2011, 2010, and 2009, respectively. The Company uses specific identification to determine the basis on which securities are sold.
The Company also maintains funds for the payment of benefits associated with nonqualified retirement plans. These funds include investments
considered to be available-for-sale marketable securities. At April 30, 2011 and 2010, the fair value of these investments was $41,560 and $34,895,
respectively, and was included in other noncurrent assets. Included in accumulated other comprehensive income (loss) at April 30, 2011 and
2010, were unrealized gains of $2,817 and $693, respectively.
4 4 T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T
Notes to Consolidated Financial Statements
The J. M. Smucker Company
Foreign Currency Translation: Assets and liabilities of the Company’s foreign subsidiaries are translated using the exchange rates in effect at
the balance sheet date, while income and expenses are translated using average rates. Translation adjustments are reported as a component of
shareholders’ equity in accumulated other comprehensive income (loss).
recently Issued Accounting standards: In January 2010, the FASB issued Accounting Standards update (“ASu”) 2010-06, Improving Disclosures
about Fair Value Measurements, which requires additional disclosures about fair value measurements including transfers in and out of different
levels of the fair value hierarchy and a higher level of disaggregation for different types of financial instruments. These disclosure requirements
were effective in the current fiscal year for the Company. In addition to these disclosure requirements, ASu 2010-06 requires information
about purchases, sales, issuances, and settlements of level 3 assets to be presented separately. These additional disclosure requirements will be
effective May 1, 2011, for the Company.
In May 2011, the FASB issued ASu 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in
U.S. GAAP and IFRSs. ASu 2011-04 provides clarification about the application of existing fair value measurement and disclosure requirements
and expands certain other disclosure requirements. This ASu will be effective February 1, 2012, for the Company.
risks and uncertainties: 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 growers and suppliers.
Green coffee, peanuts, edible oils, sweeteners, milk, flour, corn, and other ingredients are obtained from various suppliers. The availability, quality,
and cost of many of these commodities have fluctuated, and may continue to fluctuate, over time. Green coffee is sourced solely from foreign
countries and its supply and price are subject to high volatility due to factors such as weather, global supply and demand, pest damage, and
political and economic conditions in the source countries. raw materials are generally available from numerous sources although the Company
has elected to source certain plastic packaging materials from single sources of supply pursuant to long-term contracts. While availability
may vary year to year, the Company believes that it will continue to be able to obtain adequate supplies and that alternatives to single-sourced
materials are available. The Company has not historically encountered significant shortages of key raw materials. The Company considers its
relationships with key material suppliers to be good.
Approximately 32 percent of the Company’s employees, located at 10 facilities, are covered by union contracts. The contracts vary in term
depending on the location with three contracts expiring in 2012.
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.
reclassifications: Certain prior year amounts have been reclassified to conform to current year classifications.
NOTe B: suBsequeNT eveNT – rOwLAND COFFee ACquIsITION
On May 16, 2011, the Company completed an acquisition of the coffee brands and business operations of rowland Coffee roasters, Inc.
(“rowland Coffee”), a privately-held company headquartered in Miami, Florida, for $360.0 million. The Company utilized cash on hand
and borrowed $180.0 million under its revolving credit facility.
rowland Coffee is a leading producer of espresso coffee in the u.S., generating total net sales in excess of $110.0 million in calendar 2010.
The acquisition strengthens and broadens the Company’s leadership in the u.S. retail coffee category by adding the leading hispanic brands,
Café Bustelo and Café Pilon, to the Smucker family of brands.
The purchase price allocation is in the preliminary stages of the valuation process. The purchase price will be allocated to the underlying assets
acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. The Company will determine 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 exceeds the estimated fair value of the net identifiable tangible and intangible assets acquired, such excess will be allocated
to goodwill.
T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T 4 5
Notes to Consolidated Financial Statements
The J. M. Smucker Company
NOTe C: FOLGers MerGer
On November 6, 2008, the Company merged The Folgers Coffee Company (“Folgers”), previously 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 conversion of Folgers common stock into Company common
shares. As a result of the merger, Folgers became a wholly-owned subsidiary of the Company. In the merger, p&G shareholders received approxi-
mately 63.2 million common shares of the Company valued at approximately $3,366.4 million. The aggregate purchase price was approximately
$3,735.8 million. The transaction with Folgers, a leading producer 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.
The Folgers purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the
date of the merger. The Company determined the estimated fair values based on independent appraisals, discounted cash flow analyses, quoted
market prices, and estimates made by management. The purchase price exceeded the estimated fair value of the net identifiable tangible and
intangible assets acquired and the 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
$ 300,781
316,851
2,515,000
1,643,636
4,278
$4,780,546
$ 85,795
955,235
3,750
$1,044,780
$3,735,766
Folgers goodwill of $1,643.6 million was assigned to the u.S. retail Coffee Market and Special Markets segments. Of the total goodwill,
$1,634.3 million is not deductible for tax purposes.
The purchase price allocated to the identifiable intangible assets acquired is as follows:
Intangible assets with finite lives:
Customer and contractual relationships (20-year weighted-average useful life)
Technology (14-year weighted-average useful life)
Intangible assets with indefinite lives
Total intangible assets
$1,089,000
133,000
1,293,000
$2,515,000
4 6 T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T
Notes to Consolidated Financial Statements
The J. M. Smucker Company
The results of operations of the Folgers business are included in the Company’s consolidated financial statements from the date of the transaction.
had the transaction occurred on May 1, 2008, unaudited, pro forma consolidated results for the year ended April 30, 2009, would have been
as follows:
Net sales
Net income
Net income per common share – assuming dilution
Year Ended April 30, 2009
$4,684,746
359,979
3.04
The unaudited, pro forma consolidated results are based on the Company’s historical financial statements and those of the Folgers business
and do not necessarily indicate the results of operations that would have resulted had the merger been completed at the beginning of the applicable
period presented. The unaudited, pro forma consolidated results do not give effect to the synergies of the merger and are not indicative of the
results of operations in future periods.
NOTe D: resTruCTurING
During 2010, the Company announced its plan to restructure certain operations as part of its ongoing efforts to enhance the long-term
strength and profitability of its leading brands. The initiative is a long-term investment to optimize production capacity and lower the overall
cost structure and includes capital investments for a new state-of-the-art food manufacturing facility in Orrville, Ohio, and consolidation of
coffee production in New Orleans, louisiana. The Company expects to incur restructuring costs of approximately $190.0 million related to
this plan.
In 2011, the Company expanded its restructuring plan and committed to an initiative to improve the overall cost structure of its Canadian pickle
and condiments operations by transitioning production to third-party manufacturers in the u.S. The Company expects to incur additional
restructuring costs of approximately $45.0 million related to this initiative.
The Company expects total restructuring costs of approximately $235.0 million, of which $107.7 million has been incurred through April 30,
2011. The balance of the costs is anticipated to be recognized over the next three fiscal years.
upon completion, the restructuring will result in a reduction of approximately 850 full-time positions and the closing of six of the Company’s
facilities – Memphis, Tennessee; Ste. Marie, Quebec; Sherman, Texas; kansas City, Missouri; Dunnville, Ontario; and Delhi Township, Ontario.
The Sherman facility closed in April 2011.
The following table summarizes the restructuring activity, including the reserves established and the total amount expected to be incurred.
Total expected restructuring charge
Balance at May 1, 2009
Charge to expense
Cash payments
Noncash utilization
Balance at April 30, 2010
Charge to expense
Cash payments
Noncash utilization
Balance at April 30, 2011
long-lived
Asset Charges
$118,000
Employee
Separation
$60,000
Site preparation
and Equipment
relocation
$23,500
production
Start-up
$23,000
Other Costs
$10,500
$ —
3,870
—
(3,870)
$ —
53,569
—
(53,569)
$ —
1,139
(50)
—
$ 1,089
36,010
(18,361)
(8,540)
$ —
$10,198
$ —
407
(407)
—
$ —
6,192
(6,192)
—
$ —
$16,901
$ —
16
(16)
—
$ —
5,194
(5,194)
—
$ —
$17,790
Total
$235,000
$ —
5,711
(752)
(3,870)
$ 1,089
101,957
(30,739)
(62,109)
$ —
279
(279)
—
$ —
992
(992)
—
$ —
$ 10,198
$ 9,229
$127,332
remaining expected restructuring charge
$ 60,561
$22,851
T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T 47
Notes to Consolidated Financial Statements
The J. M. Smucker Company
Total restructuring charges of $102.0 million and $5.7 million in 2011 and 2010, respectively, were reported in the Statements of Consolidated
Income. Of the total restructuring charges, $54.1 million and $3.9 million were reported in cost of products sold in 2011 and 2010, respectively,
while the remaining charges were reported in other restructuring costs. The restructuring costs classified as cost of products sold primarily
include long-lived asset charges for accelerated depreciation related to property, plant, and equipment that will be used at the affected production
facilities until they are closed or sold.
Expected employee separation costs include severance, retention bonuses, and pension costs. Severance costs and retention bonuses are being
recognized over the estimated future service period of the affected employees. The obligation related to employee separation costs is included
in other current liabilities in the Consolidated Balance Sheets. For additional information on the impact of the restructuring plan on defined
benefit pension and other postretirement benefit plans, see Note h: pensions and Other postretirement Benefits.
Other costs include professional fees, costs related to closing the facilities, and miscellaneous expenditures associated with the Company’s
restructuring initiative and are expensed as incurred.
The Company incurred total restructuring costs of approximately $10.2 million in 2009, related to a separate restructuring program completed in
2009, consisting primarily of a $9.1 million noncash defined benefit pension settlement charge.
NOTe e: rePOrTABLe seGMeNTs
The Company operates in one industry: the manufacturing and marketing of food products. The Company has four reportable segments:
u.S. retail Coffee Market, u.S. retail Consumer Market, u.S. retail Oils and Baking Market, and Special Markets. The u.S. retail Coffee Market
segment represents the domestic sales of Folgers, Dunkin’ Donuts, and Millstone branded coffee to retail customers; 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, and Martha White branded products; and the Special Markets segment is
comprised of the Canada, foodservice, natural foods, and international strategic business areas. Special Markets segment products are distributed
domestically and in foreign countries through retail channels, foodservice distributors and operators (e.g., restaurants, schools and universities,
health care operators), and health and natural foods stores and distributors.
While the Company’s four reportable segments remain the same for 2011, the calculation of segment profit was modified at the beginning
of 2011 to include intangible asset amortization and impairment charges related to segment assets, along with certain other items in each of
the segments. These items were previously considered corporate expenses and were not allocated to the segments. This change more accurately
aligns the segment financial results with the responsibilities of segment management, most notably in the area of intangible assets. Segment
profit for 2010 and 2009 has been presented to be consistent with the current methodology.
4 8 T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T
Notes to Consolidated Financial Statements
The J. M. Smucker Company
The following table sets forth reportable segment and geographical information.
Net sales:
u.S. retail Coffee Market
u.S. retail Consumer Market
u.S. retail Oils and Baking Market
Special Markets
Total net sales
Segment profit:
u.S. retail Coffee Market
u.S. retail Consumer Market
u.S. retail Oils and Baking Market
Special Markets
Total segment profit
Interest income
Interest expense
Share-based compensation expense
Merger and integration costs
Cost of products sold – restructuring
Other restructuring costs
Corporate administrative expenses
Other (expense) income – net
Income before income taxes
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
Year Ended April 30,
2011
2010
2009
$1,930,869
1,091,595
888,008
915,271
$4,825,743
$ 536,133
294,970
116,624
154,441
$1,102,168
2,512
(69,594)
(19,896)
(11,194)
(54,089)
(47,868)
(184,849)
(26)
$1,700,458
1,125,280
905,719
873,832
$4,605,289
$ 484,006
285,223
127,954
134,948
$1,032,131
2,793
(65,187)
(20,687)
(33,692)
(3,870)
(1,841)
(181,132)
2,238
$ 855,571
1,103,264
995,474
803,624
$3,757,933
$ 211,113
249,439
116,946
105,028
$ 682,526
6,993
(62,478)
(14,043)
(72,666)
—
(10,229)
(133,313)
(725)
$ 717,164
$ 730,753
$ 396,065
$4,358,091
$4,167,042
$3,353,362
$ 409,710
57,942
$ 467,652
$4,825,743
$ 385,870
52,377
$ 438,247
$4,605,289
$ 356,300
48,271
$ 404,571
$3,757,933
$7,912,311
$7,591,931
$7,670,192
$ 406,576
5,698
$ 412,274
$8,324,585
$ 376,788
6,134
$ 382,922
$7,974,853
$ 514,993
6,976
$ 521,969
$8,192,161
$6,502,749
$6,543,440
$6,406,085
$ 184,624
213
$ 184,837
$6,687,586
$ 207,517
266
$ 207,783
$6,751,223
$ 386,948
237
$ 387,185
$6,793,270
Segment profit represents revenue less direct and allocable operating expenses.
T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T 4 9
Notes to Consolidated Financial Statements
The J. M. Smucker Company
The following table presents product sales information.
Coffee
peanut butter
Fruit spreads
Shortening and oils
Baking mixes and frostings
Canned milk
Flour and baking ingredients
portion control
Juices and beverages
Uncrustables frozen sandwiches
Toppings and syrups
Other
Total product sales
Year Ended April 30,
2011
2010
2009
44%
12
8
7
6
5
5
3
3
2
2
3
40%
12
8
8
6
5
5
3
3
3
2
5
25%
14
9
11
8
7
7
4
3
3
3
6
100%
100%
100%
As a result of the Company’s organizational changes and realignment of management responsibilities effective May 1, 2011, the Company’s
reportable segments will change in 2012. All historical information will be retroactively conformed to the new presentation.
NOTe F: eArNINGs Per shAre
In 2010, the Company adopted the two-class method of computing earnings per share as required by FASB ASC 260, Earnings Per Share. FASB
ASC 260 provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether
paid or unpaid, are participating securities and are to be included in the computation of earnings per share under the two-class method described
in FASB ASC 260. The Company’s unvested restricted shares contain rights to receive nonforfeitable dividends and are participating securities.
All presented prior period earnings per share data has been adjusted to retrospectively reflect the application of the two-class method. The
conversion to the two-class method resulted in a reduction of net income per common share and net income per common share – assuming
dilution for the year ended April 30, 2009, of $0.03 and $0.01 per share, respectively.
The following table sets forth the computation of net income per common share and net income per common share − assuming dilution.
Year Ended April 30,
2011
2010
2009
Computation of net income per share:
Net income
Net income allocated to participating securities
Net income allocated to common stockholders
Weighted-average common shares outstanding
Net income per common share
Computation of net income per share – assuming dilution:
Net income
Net income allocated to participating securities
Net income allocated to common stockholders
Weighted-average common shares outstanding
Dilutive effect of stock options
$479,482
4,692
$474,790
$494,138
4,321
$489,817
117,009,362
117,911,160
$ 4.06
$ 4.15
$479,482
4,690
$474,792
$494,138
4,318
$489,820
117,009,362
110,335
117,911,160
130,011
Weighted-average common shares outstanding – assuming dilution
117,119,697
118,041,171
Net income per common share – assuming dilution
$ 4.05
$ 4.15
$265,953
1,944
$264,009
84,823,849
$ 3.11
$265,953
1,947
$264,006
84,823,849
98,938
84,922,787
$ 3.11
5 0 T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T
Notes to Consolidated Financial Statements
The J. M. Smucker Company
The following table reconciles the weighted-average common shares used in the basic and diluted earnings per share disclosures to the total
weighted-average shares outstanding.
Weighted-average common shares outstanding
Weighted-average participating shares outstanding
Weighted-average shares outstanding
Dilutive effect of stock options
2011
117,009,362
1,156,389
118,165,751
110,335
Year Ended April 30,
2010
117,911,160
1,040,274
118,951,434
130,011
Weighted-average shares outstanding – assuming dilution
118,276,086
119,081,445
2009
84,823,849
624,743
85,448,592
98,938
85,547,530
NOTe G: GOODwILL AND OTher INTANGIBLe AsseTs
A summary of changes in the Company’s goodwill during the years ended April 30, 2011 and 2010, by reportable segment is as follows:
Balance at May 1, 2009
Acquisitions
Foreign currency translation adjustments
Balance at April 30, 2010
Foreign currency translation adjustments
u.S. retail
Coffee Market
$1,629,873
5,540
—
$1,635,413
(47)
u.S. retail
Consumer
Market
$569,683
289
2,301
$572,273
1,138
Balance at April 30, 2011
$1,635,366
$573,411
u.S. retail
Oils and
Baking Market
$460,840
—
1,282
$462,122
634
$462,756
Special
Markets
$130,995
265
6,662
$137,922
3,291
Total
$2,791,391
6,094
10,245
$2,807,730
5,016
$141,213
$2,812,746
The Company’s other intangible assets and related accumulated amortization and impairment charges are as follows:
Finite-lived intangible assets
subject to amortization:
Customer and contractual relationships
patents and technology
Trademarks
Total intangible assets
subject to amortization
Indefinite-lived intangible assets
not subject to amortization:
Trademarks
April 30, 2011
April 30, 2010
Accumulated
Amortization/
Impairment
Charges
Acquisition
Cost
Accumulated
Amortization/
Impairment
Charges
Acquisition
Cost
Net
Net
$1,180,000
134,970
35,153
$168,125
25,980
6,652
$1,011,875
108,990
28,501
$1,180,000
134,970
29,222
$ 95,722
15,874
3,491
$1,084,278
119,096
25,731
$1,350,123
$200,757
$1,149,366
$1,344,192
$115,087
$1,229,105
$1,799,862
$ 9,218
$1,790,644
$1,805,793
$ 8,383
$1,797,410
Total other intangible assets
$3,149,985
$209,975
$2,940,010
$3,149,985
$123,470
$3,026,515
Amortization expense for finite-lived intangible assets was $73,438, $72,417, and $38,094 in 2011, 2010, and 2009, respectively. The weighted-
average useful life of the finite-lived intangible assets is 19 years. Based on the amount of intangible assets subject to amortization at April 30, 2011,
the estimated amortization expense for each of the succeeding five years is approximately $73,000.
T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T 51
Notes to Consolidated Financial Statements
The J. M. Smucker Company
pursuant to FASB ASC 350, the Company is required to review goodwill and other indefinite-lived intangible assets at least annually for
impairment. The annual impairment review was performed as of February 1, 2011. Goodwill impairment is tested at the reporting unit level
which is the Company’s operating segments. Impairment of $17,599, $11,658, and $1,491 was recognized related to certain intangible assets in
2011, 2010, and 2009, respectively.
The majority of the impairment recognized in 2011 was recognized in the third quarter when the Company became aware of a significant
future reduction in its Europe’s Best frozen vegetable business with a customer in Canada. This was subsequent to declines in net sales and
profit margins of the frozen fruit and vegetable business during 2011. The Company determined that these events constituted a potential
indicator of impairment of the Europe’s Best indefinite-lived and finite-lived intangible assets recognized in its Special Markets segment under
FASB ASC 350 and FASB ASC 360, respectively.
The Company determined the estimated fair value of the Europe’s Best indefinite-lived trademark based on an analysis of the projected cash flows
for the brand, discounted at a rate developed using a risk-adjusted, weighted-average cost of capital methodology. As a result, an impairment
charge of $3,621 was recognized in 2011 to reduce this trademark to its estimated fair value. During 2010, an impairment charge of $7,282 was
recognized related to the Europe’s Best trademark after the Company became aware of a significant reduction in the frozen fruit business.
The Company determined that the carrying value of the finite-lived customer relationship intangible asset associated with the Europe’s Best
business was not recoverable based on the undiscounted projected net cash flows expected to be generated from the asset. The estimated fair
value of the customer relationship was then calculated based on a discounted cash flow model which utilized a forecast of future revenues
and expenses related to the intangible asset. As a result, an impairment charge of $13,534 was recognized in 2011 to reduce the carrying
value of the customer relationship to its estimated fair value. No additional impairment was recognized related to Europe’s Best as a result of
the February 1, 2011, impairment test, and no further indicators of potential impairment have been identified subsequent to that date.
NOTe h: PeNsIONs AND OTher POsTreTIreMeNT BeNeFITs
The Company has defined benefit 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 government regulations.
In addition to providing pension benefits, the Company sponsors several unfunded, defined postretirement plans that provide health care and
life insurance benefits to certain retired domestic and Canadian employees. These plans are contributory, with retiree contributions adjusted
periodically, and contain other cost-sharing features, such as deductibles and coinsurance. Covered employees generally are eligible for these
benefits when they reach age 55 and have attained 10 years of credited service.
upon completion of the restructuring activity discussed in Note D: restructuring, approximately 850 full-time positions will be reduced. The
Company has included the estimated impact of the planned reductions in measuring the u.S. and Canadian benefit obligation of the pension
plans and other postretirement plans at April 30, 2011. As a result, the benefit obligation of the pension plans and other postretirement plans
increased by approximately $10,500 and $4,200, respectively. Included in the following tables are charges recognized for termination benefits
and curtailment as a result of the restructuring plan. In 2012, the Company expects to recognize additional expense of approximately $1,800
related to a reduction in the expected remaining future service lifetime of certain participants in the Canadian plans. These costs are being
recognized over the estimated future service period of the affected participants.
52 T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T
Notes to Consolidated Financial Statements
The J. M. Smucker Company
The following table summarizes the components of net periodic benefit cost and the change in accumulated other comprehensive income (loss)
related to the defined benefit pension and other postretirement plans.
Year Ended April 30,
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost (credit)
Amortization of net actuarial loss (gain)
Settlement loss
Curtailment
Termination benefit cost
Defined Benefit pension plans
Other postretirement Benefits
2011
$ 7,504
25,491
(26,848)
1,146
10,294
—
4,095
8,395
2010
$ 5,755
24,788
(22,894)
1,362
6,291
—
—
—
2009
$ 5,871
26,263
(29,905)
1,295
1,360
9,908
—
—
2011
$ 1,620
2,775
—
(489)
(536)
—
—
2,413
2010
$ 1,525
2,607
—
(489)
(1,043)
—
—
—
2009
$1,892
2,540
—
(489)
(730)
—
—
—
Net periodic benefit cost
$ 30,077
$ 15,302
$ 14,792
$ 5,783
$ 2,600
$3,213
Other changes in plan assets and benefit liabilities
recognized in accumulated other comprehensive
income (loss) before income taxes:
prior service cost arising during the year
Net actuarial (loss) gain arising during the year
Amortization of prior service cost (credit)
Amortization of net actuarial loss (gain)
Curtailment
Foreign currency translation
Other adjustments
$
(359)
(13,533)
1,146
10,294
4,095
(2,032)
—
$ (1,334)
(13,713)
1,362
6,291
—
(5,932)
(71)
$
—
(74,195)
1,295
1,360
—
2,517
—
$ (925)
(7,769)
(489)
(536)
—
104
—
$
—
(3,248)
(489)
(1,043)
—
173
—
$
—
4,645
(489)
(730)
—
(231)
—
Net change for year
$
(389)
$(13,397)
$(69,023)
$(9,615)
$(4,607)
$3,195
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
Expected return on plan assets
rate of compensation increase
5.80%
7.50
4.15
5.30%
7.08
4.00
7.40%
7.75
3.79
5.40%
7.33
4.00
6.60%
7.75
3.84
6.10%
7.25
4.00
5.80%
—
—
5.30%
—
—
7.40%
—
—
5.40%
—
—
6.60%
—
—
6.10%
—
—
The Company uses a measurement date of April 30 to determine defined benefit pension plans and other postretirement benefits’ assets and
benefit obligations.
T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T 53
Notes to Consolidated Financial Statements
The J. M. Smucker Company
The following table sets forth the combined status of the plans as recognized in the Consolidated Balance Sheets.
April 30,
Change in benefit obligation:
Benefit obligation at beginning of the year
Service cost
Interest cost
Amendments
Actuarial loss
participant contributions
Benefits paid
Foreign currency translation adjustments
Curtailment
Termination benefit cost
Other adjustments
Benefit obligation at end of the year
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
Foreign currency translation adjustments
Other adjustments
Fair value of plan assets at end of the year
Funded status of the plans
Other noncurrent assets
Defined benefit pensions
postretirement benefits other than pensions
Net benefit liability
Defined Benefit pension plans
Other postretirement Benefits
2011
2010
2011
2010
$450,728
7,504
25,491
359
30,276
498
(30,502)
8,446
2,151
8,395
—
$503,346
$367,322
45,743
16,779
498
(30,502)
7,760
—
$407,600
$ (95,746)
$ 2,976
(98,722)
—
$ (95,746)
$362,720
5,755
24,788
1,334
64,423
410
(25,296)
16,594
—
—
—
$450,728
$300,482
73,604
4,436
410
(25,296)
13,756
(70)
$367,322
$ (83,406)
$ 3,562
(86,968)
—
$ (83,406)
$ 45,592
1,620
2,775
925
7,769
1,077
(3,674)
1,270
—
2,413
22
$ 59,789
$
—
—
2,576
1,077
(3,674)
—
21
$
—
$(59,789)
$
—
—
(59,789)
$(59,789)
$ 38,182
1,525
2,607
—
3,248
988
(2,577)
1,602
—
—
17
$ 45,592
$
—
—
1,572
988
(2,577)
—
17
$
—
$(45,592)
$
—
—
(45,592)
$(45,592)
The following table summarizes amounts recognized in accumulated other comprehensive income (loss) in the Consolidated Balance Sheets,
before income taxes.
April 30,
Net actuarial (loss) gain
prior service (cost) credit
Total recognized in accumulated
other comprehensive income (loss)
Defined Benefit pension plans
Other postretirement Benefits
2011
$(134,306)
(4,809)
2010
$(131,489)
(7,237)
2011
$6,683
2,129
2010
$14,885
3,542
$(139,115)
$(138,726)
$8,812
$18,427
During 2012, the Company expects to recognize amortization of net actuarial losses and prior service cost of $8,973 and $746, respectively,
in net periodic benefit cost.
5 4 T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T
Notes to Consolidated Financial Statements
The J. M. Smucker Company
The following table sets forth the assumptions used in determining the benefit obligations.
April 30,
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
Other postretirement Benefits
2011
2010
2011
2010
5.50%
4.14
5.00%
4.00
5.80%
4.13
5.30%
4.00
5.50%
—
5.00%
—
5.80%
—
5.30%
—
For 2012, the assumed health care trend rates are 8.5 percent and 7.0 percent for the u.S. and Canadian plans, respectively. The rate for participants
under age 65 is assumed to decrease to 5.0 percent in 2019 and 4.5 percent in 2017 for the 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, 2011:
Effect on total service and interest cost components
Effect on benefit obligation
One-percentage point
Increase
$ 193
2,792
Decrease
$
(138)
(2,455)
The following table sets forth selective information pertaining to the Company’s Canadian pension and other postretirement benefit plans.
Year Ended April 30,
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
Expected return on plan assets
Curtailment
Termination benefit cost
Company contributions
participant contributions
Benefits paid
Actual return on plan assets
Net periodic benefit cost
Amortization of net actuarial loss (gain)
Defined Benefit pension plans
Other postretirement Benefits
2011
$123,600
113,814
2010
$112,672
99,103
2011
$ 12,898
—
2010
$ 11,586
—
$ (9,786)
$ (13,569)
$(12,898)
$(11,586)
$ 1,470
5,713
(6,912)
185
933
4,629
498
(8,595)
10,419
6,231
4,836
$ 1,112
5,491
(5,988)
—
—
1,698
410
(8,238)
15,649
2,746
2,116
$
34
596
—
—
—
771
—
(771)
—
590
(39)
$
62
632
—
—
—
665
—
(665)
—
694
—
T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T 55
Notes to Consolidated Financial Statements
The J. M. Smucker Company
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,
2011
$468,604
2010
$422,166
436,329
371,895
290,762
225,244
473,555
374,741
423,270
336,454
The Company employs a total return on investment approach for the defined benefit pension plans’ assets. A mix of equity, fixed-income, and
alternative investments is used to maximize the long-term rate of return on assets for the level of risk. In determining the expected long-term rate
of return on the 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 following table summarizes the fair value of the major asset classes for the u.S. and Canadian defined benefit pension plans and the levels
within the fair value hierarchy in which the fair value measurements fall.
Cash and cash equivalents(A)
Equity securities:
u.S.(B)
International(C)
Fixed-income securities:
Bonds(D)
Fixed income(E)
Other types of investments:
hedge funds(F)
private equity funds(G)
Quoted prices in
Active Markets for
Identical Assets
(level 1)
$ 6,006
Significant
Observable
Inputs
(level 2)
—
$
Significant
unobservable
Inputs
Fair value at
(level 3) April 30, 2011
$ 6,006
$
—
82,457
40,189
65,126
45,515
—
—
18,930
41,808
17,610
34,544
4,777
—
106,164
81,997
—
—
82,736
80,059
37,451
13,187
—
—
37,451
13,187
Fair Value at
April 30, 2010
$ 5,048
96,405
72,786
86,852
63,843
33,163
9,225
Total financial assets measured at fair value
$239,293
$112,892
$55,415
$407,600
$367,322
(A) This category includes money market holdings classified as level 1 and valued at fair value.
(B) This category is invested primarily in a portfolio of common stocks included in the russell 1000 Index and traded on active exchanges. The level 1 assets are valued using quoted
market prices. The level 2 assets are funds that consist of equity securities traded on active exchanges. The level 3 assets are valued at approximate fair value.
(C) This category is invested primarily in common stocks and other equity securities traded on active exchanges whose issuers are located outside of the u.S. The fund invests primarily
in developed countries, but may also invest in emerging markets. The level 1 assets are valued using quoted market prices. The level 2 assets are funds that consist of equity securities
traded on active exchanges.
(D) This category seeks to duplicate the return characteristics of high-quality corporate bonds with a duration range of 10 to 13 years. The level 1 assets are valued using quoted
market prices. The level 2 assets are funds that consist of bonds traded on active exchanges.
(E) This category is comprised of a core fixed-income fund that invests at least 80 percent of its assets in investment-grade u.S. corporate and government fixed-income securities,
including mortgage-backed securities. The level 1 assets are valued using quoted market prices. The level 2 assets are funds that consist of fixed-income securities traded on
active exchanges.
(F) This category is comprised of two hedge funds. The funds are classified as level 3 assets and valued using significant unobservable inputs including the funds’ own assumptions.
One of the funds has a one-year lock up which has expired and quarterly liquidity with 65 days notice. The second fund has a two-year lock up on initial and subsequent purchases
expiring on December 31, 2011.
(G) This category is comprised of private equity funds consisting of primary limited partnership interests in corporate finance and venture capital funds. The funds are classified as
level 3 and valued using significant unobservable inputs including the funds’ own assumptions. The funds are not liquid and distributions began in calendar 2010.
5 6 T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T
Notes to Consolidated Financial Statements
The J. M. Smucker Company
The following table presents a rollforward of activity for level 3 assets between May 1, 2010 and April 30, 2011.
Balance at May 1, 2010
Actual return on plan assets still held at reporting date
purchases
Balance at April 30, 2011
u.S. Equity
Securities
$ 2,391
698
1,688
$4,777
hedge
Funds
$ 33,163
1,988
2,300
$37,451
private
Equity Funds
$ 9,225
1,750
2,212
$13,187
Total
$ 44,779
4,436
6,200
$55,415
The Company’s current investment policy is to have approximately 42 percent of assets invested in equity securities, 39 percent in fixed-income
securities, and 19 percent in cash and other investments. Included in equity securities were 317,552 of the Company’s common shares at April 30,
2011 and 2010. The market value of these shares was $23,839 at April 30, 2011. The Company paid dividends of $521 on these shares during 2011.
The Company expects to contribute approximately $20 million to the defined benefit pension plans in 2012. The Company expects to make
the following benefit payments for the defined benefit pension and other postretirement benefit plans: $36 million in 2012, $34 million in
each of the years 2013 through 2016, and $185 million in 2017 through 2021.
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 $127, $115, and $261 in 2011, 2010, and 2009, respectively.
A contribution to the plan, representing compensation expense, is made annually in the amount sufficient to fund ESOp debt repayment and was
$614 in 2009. Due to the payment by the Company of a $5.00 per share one-time special dividend in 2009, no contribution was necessary in 2011
or 2010 to fund ESOp debt repayment. Dividends on unallocated shares are used to reduce expense and were $262, $281, and $1,461 in 2011,
2010, and 2009, respectively. The principal payments received from the ESOp in 2011, 2010, and 2009 were $735, $761, and $649, respectively.
Dividends on allocated shares are credited to participant accounts and are used to purchase additional common shares for participant
accounts. Dividends on allocated and unallocated shares are charged to retained income by the Company.
As permitted by FASB ASC 718, Compensation – Retirement Benefits, the Company will continue to recognize future compensation using the
cost basis as all shares currently held by the ESOp were acquired prior to 1993. At April 30, 2011, the ESOp held 155,986 unallocated and
856,318 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 domestic and Canadian employees. The Company’s contributions
under these plans are based on a specified percentage of employee contributions. Charges to operations for these plans in 2011, 2010, and 2009
were $16,440, $15,625, and $10,900, respectively.
NOTe J: shAre-BAseD PAyMeNTs
The Company provides for equity-based incentives to be awarded to key employees and non-employee 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 2010 Equity and Incentive Compensation plan approved by the Company’s shareholders in August 2010. Awards under this
plan may be in the form of stock options, stock appreciation rights, restricted shares, restricted stock units (which may also be referred to as 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 and its subsidiaries’ non-employee directors, consultants, officers, and other employees. Deferred stock units granted to non-employee
directors vest immediately. At April 30, 2011, there were 7,600,347 shares available for future issuance under this plan. As a result of this plan
becoming effective in November 2010, no further awards will be made under the previously existing equity compensation plans.
T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T 57
Notes to Consolidated Financial Statements
The J. M. Smucker Company
under the 2010 Equity and Incentive Compensation plan, the Company has the option to settle share-based awards by issuing common
shares from treasury, issuing new Company common shares, or issuing a combination of common shares from treasury and new Company
common shares.
stock Options: The following table is a summary of the Company’s stock option activity and related information.
Outstanding at May 1, 2010
Exercised
Outstanding and exercisable at April 30, 2011
Options
711,987
(515,062)
196,925
Weighted-Average
Exercise price
$ 41.06
41.01
$41.18
At April 30, 2011, the weighted-average remaining contractual term for stock options outstanding and exercisable was approximately 2.6 years
and the aggregate intrinsic value of these stock options was approximately $6,673.
The total intrinsic value of options exercised during 2011, 2010, and 2009 was approximately $13,355, $5,876, and $2,871, 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, 2010
Granted
Converted
Vested
Forfeited
Outstanding at April 30, 2011
restricted/
Deferred
Shares and
Deferred
Stock units
1,078,722
303,863
190,010
(373,522)
(41,807)
1,157,266
Weighted-
Average
Grant Date
Fair Value
$ 44.74
58.32
57.37
47.33
49.08
$49.39
performance
units
190,010
125,360
(190,010)
—
—
125,360
Weighted-
Average
Fair Value
$ 57.37
77.53
57.37
—
—
$77.53
The total fair value of equity awards other than stock options vesting in 2011, 2010, and 2009 was approximately $17,680, $16,273, and
$11,117, respectively. The weighted-average grant date fair value of restricted shares, deferred shares, deferred stock units, 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 2011, 2010, and 2009.
Year Ended April 30,
2011
2010
2009
restricted/
Deferred
Shares and
Deferred
Stock units
303,863
504,580
570,359
Weighted-
Average
Grant Date
Fair Value
$58.32
44.63
42.29
performance
units
125,360
190,010
114,440
Weighted-
Average
Grant Date
Fair Value
$77.53
57.37
43.44
The performance units column represents the number of restricted shares received by certain executive officers, subsequent to year end,
upon conversion of the performance 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.
5 8 T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T
Notes to Consolidated Financial Statements
The J. M. Smucker Company
NOTe K: DeBT AND FINANCING ArrANGeMeNTs
long-term debt consists of the following:
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
4.50% Senior Notes due June 1, 2025
Total long-term debt
Current portion of long-term debt
Total long-term debt, less current portion
April 30,
2011
$ —
100,000
24,000
380,039
400,000
400,000
$1,304,039
—
$1,304,039
2010
$ 10,000
100,000
24,000
376,000
400,000
—
$910,000
10,000
$900,000
On June 15, 2010, the Company issued $400.0 million of 4.50 percent Senior Notes with a final maturity on June 1, 2025. The Senior Notes
have a 12-year average maturity. proceeds from the Senior Notes issuance were used for general corporate purposes. On September 1, 2010,
the Company repaid the $10.0 million of 7.94 percent Series C Senior Notes utilizing cash on hand.
In the fourth quarter of 2011, the Company entered into an interest rate swap on the 6.63 percent Senior Notes due November 1, 2018. The
notional amount was $376.0 million, converting the Senior Notes from a fixed to a variable-rate basis until maturity. The interest rate swap
was designated as a fair value hedge of the underlying debt obligation. The fair value adjustment of the interest rate swap at April 30, 2011,
was $4.0 million and was recorded as an increase in the long-term debt balance. For additional information, see Note M: Derivative Financial
Instruments.
All of the Company’s Senior Notes are unsecured and interest is paid semiannually. Scheduled payments are required on the 5.55 percent
Senior Notes, the first of which is $50.0 million on April 1, 2013, and on the 4.50 percent Senior Notes, the first of which is $100.0 million
on June 1, 2020.
Interest paid totaled $62,075, $76,461, and $52,918 in 2011, 2010, and 2009, 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 prior to maturity, amortization of debt issuance costs,
and interest capitalized.
On January 31, 2011, the Company’s $180.0 million revolving credit facility matured and the Company entered into an amended and restated
credit agreement with a group of six banks. The credit facility, which amends and restates in its entirety the $400.0 million credit agreement
dated as of October 29, 2009, provides for an unsecured revolving credit line of $600.0 million and matures January 31, 2016. The Company’s
borrowings under the credit facility will bear interest based on prevailing u.S. prime rate, Canadian Base rate, london Interbank Offered rate,
or Canadian Dealer Offered rate, as determined by the Company. Interest is payable either on a quarterly basis or at the end of the borrowing
term. At April 30, 2011, the Company did not have a balance outstanding under the revolving credit facility. Subsequent to year end, the Company
borrowed $240.0 million under its revolving credit facility for general corporate purposes, including the rowland Coffee acquisition. For additional
information, see Note B: Subsequent Event – rowland Coffee Acquisition. At April 30, 2011, the Company had standby letters of credit of
approximately $7.1 million outstanding.
The Company’s debt instruments contain certain financial covenant restrictions including consolidated net worth, leverage ratios, and an
interest coverage ratio. The Company is in compliance with all covenants.
T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T 59
Notes to Consolidated Financial Statements
The J. M. Smucker Company
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. The Company cannot predict with
certainty the results of these proceedings or reasonably determine a range of potential loss. The Company’s policy is to accrue costs for contingent
liabilities when such liabilities are probable and amounts can be reasonably estimated. Based on the information known to date, the Company
does not believe the final outcome of these proceedings will have a material adverse effect on 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 commodity prices, foreign currency exchange rates, and interest rates. To manage
the volatility relating to these exposures, the Company enters into various derivative transactions. By policy, the Company historically has not
entered into derivative financial instruments for trading purposes or for speculation.
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, milk, corn, and corn sweetener.
The Company also enters into commodity futures and options contracts 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 FASB ASC 815 and are accounted for as cash flow hedges. The mark-to-market gains or losses on qualifying
hedges are deferred and included as a component of accumulated other comprehensive income (loss) to the extent effective, and reclassified to
cost of products sold in the period during which the hedged transaction affects earnings. Cash flows related to qualifying hedges are classified
consistently with the cash flows from the hedged item in the Statements of Consolidated Cash Flows. In order to qualify as a hedge of commodity
price risk, it must be demonstrated that the changes in the fair value of the commodity’s futures contracts are highly effective in hedging price risks
associated with the commodity purchased. hedge effectiveness is measured at inception and on a monthly basis.
The mark-to-market gains or losses on nonqualifying and ineffective portions of hedges are recognized in cost of products sold immediately.
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 primarily related to purchases of certain raw materials, finished 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 hedge accounting treatment. Instruments currently used to manage foreign 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. If the contract qualifies
for hedge accounting treatment, to the extent the hedge is deemed effective, the associated mark-to-market gains and losses are deferred and
included as a component of accumulated other comprehensive income (loss). These gains or losses are reclassified to earnings in the period the
contract is executed. The ineffective portion of these contracts is immediately recognized in earnings.
Interest rate hedging: The Company utilizes derivative instruments to manage changes in the fair value of its debt. Interest rate swaps mitigate
the risk associated with the underlying hedged item. At the inception of the contract, the instrument is evaluated and documented for hedge
accounting treatment. The Company’s interest rate swap met the criteria to be designated as a fair value hedge. The Company receives a fixed
rate and pays variable rates, hedging the underlying debt and the associated changes in the fair value of the debt. The interest rate swap is
recognized at fair value in the Consolidated Balance Sheet at April 30, 2011, and changes in the fair value are recognized in interest expense.
Gains and losses recognized in interest expense on the instrument have no net impact to earnings as the change in the fair value of the derivative
is equal to the change in fair value of the underlying debt.
6 0 T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T
Notes to Consolidated Financial Statements
The J. M. Smucker Company
The following table sets forth the fair value of derivative instruments as recognized in the Consolidated Balance Sheets at April 30, 2011 and 2010.
Derivatives designated as hedging instruments:
Commodity contracts
Interest rate contract
Total derivatives designated as hedging instruments
Derivatives not designated as hedging instruments:
Commodity contracts
Foreign currency exchange contracts
Total derivatives not designated as hedging instruments
Total derivative instruments
April 30, 2011
April 30, 2010
Other
Current
Assets
$ 3,408
5,423
$ 8,831
$ 9,887
317
$10,204
$19,035
Other
Current
Liabilities
Other
Noncurrent
Liabilities
$ —
—
$ —
$5,432
3,204
$8,636
$8,636
$ —
1,384
$1,384
$ —
—
$ —
$1,384
Other
Current
Assets
$1,874
—
$1,874
$2,414
—
$2,414
$4,288
Other
Current
liabilities
$ 9
—
$ 9
$ 599
830
$1,429
$1,438
The Company has elected to not offset fair value amounts recognized for commodity derivative instruments and its cash margin accounts executed
with the same counterparty. The Company maintained cash margin accounts of $12,292 and $5,714 at April 30, 2011 and 2010, respectively, that
are included in other current assets in the Consolidated Balance Sheets.
The following table presents information on gains recognized on derivatives designated as cash flow hedges, all of which hedge commodity price risk.
Gains recognized in other comprehensive income (effective portion)
Gains reclassified from accumulated other comprehensive income (loss)
to cost of products sold (effective portion)
Change in accumulated other comprehensive income (loss)
Gains recognized in cost of products sold (ineffective portion)
Year Ended April 30,
2011
$21,082
14,780
$ 6,302
$ 611
2010
$6,029
5,395
$ 634
$ 200
Included as a component of accumulated other comprehensive income (loss) at April 30, 2011 and 2010, were deferred pre-tax gains of $9,430
and $3,128, respectively. The related tax impact recognized in accumulated other comprehensive income (loss) was $3,430 and $1,134 at April 30,
2011 and 2010, respectively. The entire amount of the deferred gain included in accumulated other comprehensive income (loss) at April 30, 2011,
is expected to be recognized in earnings within one year as the related inventory is sold.
The following table presents the realized and unrealized losses recognized in cost of products sold on derivatives not designated as qualified
hedging instruments.
losses on commodity contracts
losses on foreign currency exchange contracts
losses recognized in cost of products sold (derivatives not designated as hedging instruments)
Year Ended April 30,
2011
$3,994
3,290
$7,284
2010
$2,384
7,234
$9,618
The following table presents the gross contract notional value of outstanding derivative contracts at April 30, 2011 and 2010.
Commodity contracts
Foreign currency exchange contracts
Interest rate contract
April 30,
2011
$869,107
73,158
376,000
2010
$323,351
45,295
—
T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T 61
Notes to Consolidated Financial Statements
The J. M. Smucker Company
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 and trade receivables. With respect to trade receivables, 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 of
Note A: Accounting policies. The Company does not require collateral from its customers. The fair value of the Company’s financial instruments,
other than its long-term debt, approximates their carrying amounts.
The following table provides information on the carrying amount and fair value of the Company’s financial instruments.
Marketable securities
Other investments
Derivative financial instruments, net
long-term debt
April 30, 2011
April 30, 2010
Carrying
Amount
$ 18,600
41,560
9,015
1,304,039
Fair value
$ 18,600
41,560
9,015
1,648,614
Carrying
Amount
$ —
34,895
2,850
910,000
Fair Value
$ —
34,895
2,850
1,172,467
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. 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.
The following table summarizes the fair values and the levels within the fair value hierarchy in which the fair value measurements fall for the
Company’s financial assets (liabilities).
Marketable securities: (A)
Mortgage-backed securities
Other investments: (B)
Equity mutual funds
Municipal obligations
Other investments
Derivatives: (C)
Commodity contracts, net
Foreign currency exchange contracts, net
Interest rate contract, net
Quoted prices in
Active Markets
for Identical
Assets (level 1)
Significant
Observable
Inputs
(level 2)
Significant
unobservable
Inputs
(level 3)
Fair value at
April 30, 2011
Fair Value at
April 30, 2010
$ —
$18,600
$ —
$18,600
$ —
14,011
—
464
7,863
(2,887)
—
—
20,042
7,043
—
—
4,039
—
—
—
—
—
—
14,011
20,042
7,507
7,863
(2,887)
4,039
11,626
16,753
6,516
3,680
(830)
—
Total financial assets measured at fair value
$19,451
$49,724
$ —
$69,175
$37,745
(A) The Company’s marketable securities, consisting entirely of mortgage-backed 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 corroborated by observable market data. For additional information,
see Marketable Securities and Other Investments of Note A: Accounting policies.
(B) The Company’s other investments consist of funds maintained for the payment of benefits associated with nonqualified retirement plans. The funds include equity securities listed
in active markets and municipal bonds valued by a third party using an evaluated pricing methodology. For additional information, see Marketable Securities and Other Investments
of Note A: Accounting policies.
(C) The Company’s commodity contract and foreign currency exchange contract derivatives are valued using quoted market prices. The Company’s interest rate contract derivative
is valued using the income approach, observable level 2 market expectations at the measurement date, and standard valuation techniques to convert future amounts to a single
discounted present value. level 2 inputs for the interest rate contract are limited to quoted prices for similar assets or liabilities in active markets and inputs other than quoted prices
that are observable for the asset or liability. For additional information, see Note M: Derivative Financial Instruments.
62 T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T
Notes to Consolidated Financial Statements
The J. M. Smucker Company
The following tables present the Company’s nonfinancial assets adjusted to fair value during the years ended April 30, 2011 and 2010, respectively.
Indefinite-lived trademarks (D)
Finite-lived customer relationship (D)
Total nonfinancial assets adjusted to fair value
Indefinite-lived trademarks (D)
Finite-lived trademarks (D)
Total nonfinancial assets adjusted to fair value
Carrying
Amount at
May 1, 2010
$11,896
18,964
$30,860
Carrying
Amount at
May 1, 2009
$21,370
3,012
$24,382
Fair Value
Adjustment
$ (4,065)
(13,534)
$(17,599)
Fair Value
Adjustment
$ (9,133)
(2,525)
$(11,658)
Other
Adjustments
$ 510
(222)
Carrying
Amount at
April 30, 2011
$ 8,341
5,208
$ 288
$13,549
Other
Adjustments
$2,315
(487)
$1,828
Carrying
Amount at
April 30, 2010
$14,552
—
$14,552
(D) The Company utilized level 3 inputs to estimate the fair value of the nonfinancial assets. For additional information, see Note G: Goodwill and Other Intangible Assets.
During 2011 and 2010, the Company recognized fair value adjustments related to the impairment of certain indefinite-lived and finite-lived
intangible assets. Other adjustments related to foreign currency exchange and amortization were recognized during the years ended April 30,
2011 and 2010.
NOTe O: INCOMe TAxes
Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax reporting. Significant components of the Company’s deferred tax assets and
liabilities are as follows:
Deferred tax liabilities:
Intangible assets
property, plant, and equipment
Other
Total deferred tax liability
Deferred tax assets:
post-employment and other employee benefits
Tax credit and loss 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,
2011
2010
$1,025,301
111,537
10,016
$1,146,854
$
84,723
4,583
3,279
27,668
$ 120,253
(3,324)
$ 116,929
$1,029,925
$1,042,375
121,950
22,042
$1,186,367
$ 69,887
5,049
3,984
21,247
$ 100,167
(3,470)
$ 96,697
$1,089,670
T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T 6 3
Notes to Consolidated Financial Statements
The J. M. Smucker Company
The following table summarizes domestic and foreign loss and credit carryforwards at April 30, 2011.
Tax carryforwards:
State loss carryforwards
State tax credit carryforwards
Foreign jurisdictional tax credit carryforwards
Total tax carryforwards
related Tax
Deduction
$68,869
—
—
$68,869
Deferred
Tax Asset
$3,407
1,160
16
$4,583
Valuation
Allowance
Expiration
Date
$3,187
—
—
$3,187
2012 to 2030
2018
2014
The Company evaluates the realizability of deferred tax assets for each of the jurisdictions in which it operates. Included in the overall valuation
allowance is $137 for other deferred tax assets where it is more likely than not those assets will not be realized. The valuation allowance decreased by
$146, $5,556, and $864 in 2011, 2010, and 2009, respectively, primarily due to the expiration of loss carryforwards that had full valuation allowances.
Deferred income taxes have not been provided on approximately $194,058 of 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 deductions for foreign taxes paid. It is not practical to estimate 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:
Federal
Foreign
State and local
2011
$729,654
(12,490)
$717,164
Year Ended April 30,
2010
$712,226
18,527
$730,753
2009
$378,293
17,772
$396,065
Year Ended April 30,
2011
2010
2009
$271,361
4,554
21,568
(51,011)
(7,338)
(1,452)
$256,444
6,584
12,907
(21,362)
(4,386)
(13,572)
$ 97,182
1,688
5,717
27,158
(831)
(802)
Total income tax expense
$237,682
$236,615
$130,112
6 4 T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T
Notes to Consolidated Financial Statements
The J. M. Smucker Company
A reconciliation of the statutory federal income tax rate and the effective income tax rate is as follows:
percent of pretax Income
Statutory federal income tax rate
State and local income taxes, net of federal income tax benefit
Domestic manufacturing deduction
Other items – net
Effective income tax rate
Income taxes paid
Year Ended April 30,
2010
35.0%
1.2
(1.9)
(1.9)
32.4%
2011
35.0%
2.2
(3.8)
(0.3)
33.1%
2009
35.0%
0.6
(1.5)
(1.2)
32.9%
$365,994
$212,981
$69,107
The Company accounts for the financial statement recognition and measurement criteria of a tax position taken or expected to be taken in a
tax return under FASB ASC 740, Income Taxes. FASB ASC 740 also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition.
In accordance with the requirements of FASB ASC 740, unrecognized tax benefits 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.
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 2008 and, with limited exceptions, the Company is no longer subject to examination
of state, local, or foreign income taxes for years prior to 2007. The Company is a voluntary participant in the Compliance Assurance process
(“CAp”) offered by the Internal revenue Service (“IrS”). Through the contemporaneous exchange of information with the IrS, this program
is designed to identify and resolve tax positions with the IrS prior to the filing of a tax return, which allows the Company to remain current
with its IrS examinations. The Company is currently under a CAp examination for the tax year ending April 30, 2011. During 2011, the
Company reached an agreement with the IrS on proposed adjustments resulting from an examination of its federal income tax returns for
the years ended April 30, 2008, June 30, 2009, and April 30, 2010. In May 2009, 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 2007 and 2006. The agreements did not have a
material effect on the Company’s effective tax rate or financial position.
Within the next 12 months, it is reasonably possible that the Company could decrease its unrecognized tax benefits by an estimated $1,874,
primarily as a result of the expiration of statute of limitations periods.
The Company’s unrecognized tax benefits as of April 30, 2011 and 2010, were $20,261 and $15,322, respectively. Of the unrecognized tax benefits,
$13,939 and $11,321 would affect the effective tax rate, if recognized, as of April 30, 2011 and 2010, respectively. The Company’s accrual for
tax-related net interest and penalties totaled $1,792 and $2,289 as of April 30, 2011 and 2010, respectively. The amount of tax-related net interest
and penalties credited to earnings totaled $497, $594, and $1,982 during 2011, 2010, and 2009, respectively.
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
Foreign currency translation
Decreases:
prior year tax positions
Settlement with tax authorities
Expiration of statute of limitations periods
Foreign currency translation
Balance at April 30,
2011
$15,322
5,237
4,106
—
271
31
3,985
117
2010
$13,794
3,977
2,353
686
—
—
5,488
—
$20,261
$15,322
T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T 6 5
Notes to Consolidated Financial Statements
The J. M. Smucker Company
NOTe P: ACCuMuLATeD OTher COMPreheNsIve INCOMe (LOss)
Comprehensive income is included in the Statements of Consolidated Shareholders’ Equity. The components of accumulated other comprehensive
income (loss) as shown in the Consolidated Balance Sheets are as follows:
Balance at May 1, 2008
reclassification adjustments
Current period (charge) credit
Income tax benefit
Balance at April 30, 2009
reclassification adjustments
Current period credit (charge)
Income tax benefit (expense)
Balance at April 30, 2010
reclassification adjustments
Current period credit (charge)
Income tax benefit (expense)
Balance at April 30, 2011
Foreign
Currency
Translation
Adjustment
$ 58,086
—
(47,024)
—
$ 11,062
—
45,926
—
$ 56,988
—
24,773
—
$ 81,761
pension
and Other
postretirement
liabilities
$(24,214)
—
(65,828)
22,349
unrealized
Gain (loss) on
Available-for-
Sale Securities
$ 589
—
(4,384)
1,586
unrealized
Gain on Cash
Flow hedging
Derivatives
$ 8,151
(12,885)
2,494
3,810
Accumulated
Other
Comprehensive
Income (loss)
$ 42,612
(12,885)
(114,742)
27,745
$(67,693)
—
(18,004)
5,691
$(80,006)
—
(10,004)
4,076
$(85,934)
$(2,209)
—
4,162
(1,510)
$ 443
—
2,124
(765)
$ 1,802
$ 1,570
(2,494)
3,128
(210)
$ 1,994
(3,128)
9,430
(2,296)
$ 6,000
$ (57,270)
(2,494)
35,212
3,971
$ (20,581)
(3,128)
26,323
1,015
$ 3,629
Income tax benefit (expense) is determined using the applicable deferred tax rate for each component of accumulated other comprehensive
income (loss).
6 6 T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T
Notes to Consolidated Financial Statements
The J. M. Smucker Company
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, dated as of
May 20, 2009, between the Company and Computershare Trust Company, N.A. or any successor plan;
• any matter relating to any stock option plan, stock purchase plan, executive compensation plan, executive benefit 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 authorization of the lease,
sale, exchange, transfer, or other disposition of all, or substantially all, of the Company’s assets;
• any matter submitted to the Company’s shareholders pursuant to Article Fifth (which relates to procedures applicable to certain business
combinations) or Article Seventh (which relates to procedures applicable to certain proposed acquisitions of specified percentages of the
Company’s outstanding common 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 must meet one of the following criteria:
• common shares beneficially owned as of November 6, 2008, and for which there has not been a change in beneficial ownership after
November 6, 2008; or
• common shares received through the Company’s various equity plans which have not been sold or otherwise transferred since
November 6, 2008.
In the event of a change in beneficial ownership, the new owner of that common 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 threshold will be void. Shares held by members of the Smucker family are not subject to the threshold. 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.
T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T 6 7
Directors and Officers
The J. M. Smucker Company
(As of May 1, 2011)
DIrECTOrS
vincent C. Byrd
President and Chief Operating Officer
The J. M. Smucker Company
r. Douglas Cowan A
Director and Retired Chairman and
Chief Executive Officer
The Davey Tree Expert Company
kent, Ohio
Kathryn w. Dindo A, e
Retired Vice President
FirstEnergy Corp.
Akron, Ohio
Paul J. Dolan e
Chairman and Chief Executive Officer
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
Auburn, Alabama
Gary A. Oatey G
Chairman and Chief Executive Officer
Oatey Co.
Cleveland, Ohio
Alex shumate G
Managing Partner, North America
Squire, Sanders & Dempsey l.l.p.
Columbus, Ohio
Mark T. smucker
President, U.S. Retail Coffee
The J. M. Smucker Company
richard K. smucker
Chief Executive Officer^
The J. M. Smucker Company
Timothy P. smucker
Chairman of the Board^
The J. M. Smucker Company
william h. steinbrink G
Principal
unstuk, llC
Shaker heights, Ohio
Paul smucker wagstaff
President, U.S. Retail Consumer Foods
The J. M. Smucker Company
ExECuTIVE OFFICErS
Timothy P. smucker
Chairman of the Board^
prOpErTIES
Corporate Offices:
Orrville, Ohio
richard K. smucker
Chief Executive Officer^
Dennis J. Armstrong
Senior Vice President, Logistics and
Operations Support
Mark r. Belgya
Senior Vice President and
Chief Financial Officer
James A. Brown
Vice President, U.S. Grocery Sales
vincent C. Byrd
President and Chief Operating Officer
John w. Denman
Vice President and Controller
Barry C. Dunaway
Senior Vice President and Chief
Administrative Officer
Jeannette L. Knudsen
Vice President, General Counsel and
Corporate Secretary
John F. Mayer
Vice President, Sales, Grocery Market
Kenneth A. Miller
Vice President, Alternate Channels
steven Oakland
President, International, Foodservice,
and Natural Foods
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.
Mark T. smucker
President, U.S. Retail Coffee
Paul smucker wagstaff
President, U.S. Retail Consumer Foods
Albert w. yeagley
Vice President, Industry and
Government Affairs
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
Toledo, Ohio
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
Shanghai, China
Tampa, Florida
^ Effective August 16, 2011
* leased properties
A Audit Committee Member
E Executive Compensation
Committee Member
G Nominating and Corporate
Governance Committee Member
6 8 T h E J . M . S M u C k E r C O M pA N Y 2 011 A N N uA l r E p O r T
Corporate offiCes
The J. M. Smucker Company
One 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 Website
To learn more about The J. M. Smucker Company, visit
smuckers.com.
annuaL Meeting
The annual meeting will be held at 11:00 a.m. Eastern Time,
Wednesday, August 17, 2011, in the 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 website.
They are also available without cost to shareholders who submit
a written request to:
The J. M. Smucker Company
Attention: Corporate Secretary
One Strawberry Lane
Orrville, Ohio 44667
CertifiCations
The Company’s Co-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 the 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.
independent registered pubLiC
aCCounting firM
Ernst & Young LLP
Akron, Ohio
dividends
The Company’s Board of Directors typically declares a cash
dividend each quarter. Dividends are generally payable on the
first business day of March, June, September, and December. The
record date is approximately two weeks before the payment date.
The Company’s dividend disbursement agent is Computershare
Investor Services, LLC.
sharehoLder serviCes
The transfer agent and registrar for the Company,
Computershare Investor Services, LLC, is responsible
for assisting registered shareholders with a variety of
matters including:
◆ 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
Website: 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 32 in the “Management’s Discussion and Analysis” section.
The J. M. Smucker Company is the owner of all trademarks, except Pillsbury, the Barrelhead logo and the Doughboy character
are trademarks of The Pillsbury Company, LLC, used under license; Carnation is a trademark of Société des Produits Nestlé S.A.,
used under license; and Dunkin’ Donuts is a registered trademark of DD IP Holder, LLC, used under license. Borden and Elsie
are trademarks used under license. K-Cup is a trademark of Keurig, Incorporated.
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Stay in Touch with Smucker
We appreciate your interest in our 2011 Annual Report.
We encourage you and all of our constituents to stay in touch
with us throughout the year through our growing number of
interactive channels, including those listed below.
Websites
Smuckers.com
Social Media
Facebook.com/smuckers
OnlineStore.Smucker.com
Facebook.com/crisco
PowerOfFamilyMeals.com
Facebook.com/folgers
Crisco.com
EagleBrand.com
Folgers.com
HungryJack.com
Jif.com
Facebook.com/hungryjack
Facebook.com/jif
Facebook.com/pillsburybaking
Facebook.com/rwknudsen
Facebook.com/santacruzorganic
PillsburyBaking.com
Facebook.com/uncrustables
RWKnudsenFamily.com
SantaCruzOrganic.com
Bicks.ca
RobinHood.ca
The J. M. Smucker Company
One Strawberry Lane / Orrville, Ohio 44667 / 330.682.3000
smuckers.com