SMUCKER J M CO 10-K 2009
Documents found in this filing:
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For the fiscal year ended April 30, 2009
For the transition period from to
Commission file number 001-5111
THE J. M. SMUCKER COMPANY
(Exact name of registrant as specified in its charter)
Registrants telephone number, including area code (330) 682-3000
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
The aggregate market value of the common shares held by nonaffiliates of the registrant at October 31, 2008, was $2,181,076,760. As of June 23, 2009, 118,929,564 common shares of The J. M. Smucker Company were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the registrants definitive Proxy Statement to be filed in connection with its Annual Meeting of Shareholders to be held on August 19, 2009, are incorporated by reference into Part III of this Report, and certain sections of the registrants 2009 Annual Report to Shareholders are incorporated by reference into Parts I and II of this Report.
The exhibit index for this Report begins on page 22.
TABLE OF CONTENTS
Item 1. Business.
The Company. The J. M. Smucker Company (the Company) was established in 1897 and was incorporated in Ohio in 1921. The Company, often referred to as Smuckers (a registered trademark), operates principally in one industry, the manufacturing and marketing of branded food products on a worldwide basis, although the majority of the Companys sales are in the U.S. The Companys operations outside the U.S. are principally in Canada although products are exported to other countries as well. Sales outside the U.S. represented approximately 11 percent of total consolidated Company sales for fiscal 2009. The Companys branded food products include a strong portfolio of trusted, iconic, market-leading brands that are sold to consumers through retail outlets in North America.
On November 6, 2008, the Company completed a merger transaction with The Folgers Coffee Company (Folgers), a subsidiary of The Procter & Gamble Company (P&G). The value of the transaction was approximately $3.7 billion, including the issuance of Smucker common shares in connection with the merger and $350 million of Folgers debt. Under the terms of the transaction agreements, P&G distributed common shares of Folgers to participating P&G shareholders which were then automatically converted into the right to receive Smucker common shares in the merger. Immediately following the merger, P&G shareholders and pre-merger Company shareholders owned approximately 53.5 percent and 46.5 percent, respectively, of the Companys approximately 118 million common shares outstanding. The merger was accounted for as a purchase business combination, with the Company treated as the acquiring entity.
The Company has four reportable segments: U.S. retail consumer market, U.S. retail oils and baking market, U.S. retail coffee market, and special markets. The Companys three U.S. retail market segments in total comprised nearly 80 percent of the Companys net sales in fiscal 2009 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 markets and includes the Companys Canada, foodservice, natural foods (formerly beverage), and international businesses.
Principal Products. The principal products of the Company, which are sold across the Companys U.S. retail market segments and special markets segment, are coffee, peanut butter, shortening and oils, fruit spreads, canned milk, baking mixes and ready-to-spread frostings, flour and baking ingredients, juices and beverages, frozen sandwiches, dessert toppings, syrups, pickles and condiments, and potato side dishes.
Product sales information for the years 2009, 2008, and 2007 is incorporated herein by reference to information set forth in the Companys 2009 Annual Report to Shareholders, on pages 42 through 44 under Note D: Reportable Segments.
In each of the U.S. retail market segments, the Companys products are primarily sold through a combination of direct sales and through brokers to food retailers, food wholesalers, drug stores, club stores, mass merchandisers, discount and dollar stores, and military commissaries. In the special markets segment, the Companys products are distributed domestically and in foreign countries through retail channels, foodservice distributors and operators (i.e., restaurants, schools and universities, healthcare operators), health and natural foods stores and distributors.
Sources and Availability of Raw Materials. 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 principal 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, oils, sweeteners, milk, wheat and flour, corn, and other ingredients are obtained from various suppliers. The cost and availability of many of these
commodities have fluctuated, and may continue to fluctuate, over time. The Company uses commodity futures and options to manage a significant portion of its commodity costs. Green coffee is the worlds second largest traded commodity and is sourced solely from foreign countries. Green coffees supply and price are subject to high volatility due to factors such as weather, pest damage, and political and economic conditions in the source countries. Raw materials are generally available from numerous sources, and the Company believes that it will continue to be able to obtain adequate supplies. The Company has not historically encountered significant shortages of key raw materials. The Company considers its relationship with key raw material suppliers to be good.
Trademarks and Patents. The Companys products are produced under certain patents and marketed under numerous trademarks owned or licensed by the Company or one of its subsidiaries. Major trademarks, utilized primarily in the U.S. retail market segments, include: Smuckers®, Jif®, Hungry Jack®, Mary Ellen®, Dutch Girl®, Uncrustables®, Snackn Waffles, Simply Jif®, Dickinsons®, Crosse & Blackwell®, Adams®, Laura Scudders®, Goober®, Golden Temple® and Magic Shell®, in the consumer segment; Crisco®, Pillsbury®, Eagle Brand®, Borden® and Elsie design, Martha White®, LaPina®, White Lily®, Softasilk®, Funfetti®, Pet®, and Simple Measures® in the oils and baking segment; and Folgers®, Dunkin Donuts®, and Millstone® in the coffee segment.
Major trademarks utilized in the special markets segment include: Folgers®, Smuckers®, Jif®, Crisco®, Plate Scapers®, Bicks®, Five Roses®, Robin Hood®, Carnation®, Europes Best®, R. W. Knudsen Family®, Santa Cruz Organic®, Double Fruit®, Simply Nutritious®, Recharge®, and Red River®.
Pillsbury®, the Barrelhead logo, and Doughboy character are trademarks of The Pillsbury Company LLC and are used by the Company under a 20-year, perpetually renewable, royalty-free license. Borden® and the Elsie design are trademarks used by the Company on certain products under a perpetual, exclusive, and royalty-free license. Carnation® is a trademark of Société des Produits Nestlé S.A., used by the Companys Canadian subsidiary for certain canned milk products in certain territories under an exclusive and royalty-free license with an initial term of 10 years, renewable by the Company for two successive five-year terms and which becomes perpetual at the end of the renewal terms under certain circumstances. Dunkin Donuts® is a registered trademark of DD IP Holder LLC used by the Company under license (the Dunkin License). The terms of the Dunkin License include the payment of royalties to DD IP Holder LLC and other financial commitments by the Company. The Dunkin License is in effect until January 1, 2034. In addition, the Company or one of its subsidiaries licenses the use of several other trademarks, none of which individually is material to the Companys business.
Slogans or designs considered to be important trademarks include, without limitation, the slogan, With A Name Like Smuckers, It Has To Be Good, The Best Part of Wakin Up Is Folgers In Your Cup, Wake Up Special Every Day, Mountain Grown, Choosy Moms Choose Jif, Purely The Finest, Crisco is Cooking, Everybodys Happy When Its Hungry Jack, Goodness Gracious, Its Good, the Smuckers banner, the Crock Jar shape, the Gingham design, and the Strawberry logo.
The Company owns several hundred patents worldwide in addition to proprietary trade secrets, technology, know-how processes and other intellectual property rights that are not registered.
The Company considers all of its intellectual property and the Pillsbury®, Dunkin Donuts®, BORDEN®, Elsie design, and Carnation® licenses, taken as a whole, to be essential to its business.
Seasonality. The Companys U.S. retail oils and baking market and U.S. retail coffee market businesses are particularly seasonal around the fall bake and holiday period, which generally results in higher sales and profits in the Companys second and third quarters. The Companys success in promoting and merchandising its baking and coffee brands during the fall bake and holiday period has a significant impact on its results for a fiscal year. The back-to-school period and the spring holiday season are two other important promotional periods for the Company, although their impact to the Company is not as significant as the fall bake and holiday period.
Working Capital. Working capital requirements are greatest during the first half of the Companys fiscal year mainly due to the timing of fruit and vegetable procurement, the buildup of oil, baking, and coffee inventories necessary to support the fall bake and holiday period, and the additional buildup of coffee inventory in advance of the Atlantic hurricane season.
Customers. Sales to Wal-Mart Stores, Inc., and its subsidiaries amounted to approximately 24 percent, 20 percent, and 20 percent of net sales in 2009, 2008, and 2007, respectively. These sales are primarily included in the U.S. retail market segments. No other customer exceeded 10 percent of net sales during 2009, 2008, and 2007.
During 2009, the Companys top 10 customers, collectively, accounted for approximately 61 percent of consolidated net sales reflecting consolidation in the grocery industry in recent years. The Company expects industry consolidation to continue. Although the loss of any large customer for an extended length of time could negatively impact the Companys sales and profits, the Company does not anticipate that this will occur to a significant extent due to strong consumer demand for the Companys products.
Orders. Generally, orders are filled within a few days of receipt, and the backlog of unfilled orders at any particular time has not been material on a historical basis.
Government Business. No material portion of the Companys business is subject to negotiation of profits or termination of contracts at the election of the government.
Competition. The Company is the branded market leader in the coffee, peanut butter, shortening and oils, sweetened condensed milk, fruit spreads, dessert toppings, and health and natural foods beverages categories. The Companys business is highly competitive as all of its U.S. retail market segments brands compete for retail shelf space with other advertised and branded products as well as unadvertised and private label products.
The continued growth of alternative store formats, product and packaging innovations, technological advances, and new industry techniques are all issues for companies in the food industry to consider in order to remain competitive. The primary ways in which products are distinguished are product quality, price, packaging, new product introductions, nutritional value, convenience, customer service, advertising, and promotion. Positive factors pertaining to the Companys competitive position include well-recognized brands, superior product quality, experienced brand management, a single national grocery broker in the United States, varied product offerings, product innovation, and a strong distribution network.
The Company historically has seen accelerated private label growth during challenging economic times. During 2009, private label gained share of market in most categories within the grocery store in which the Company competes. The Company estimates that during the current economic recession, private label has grown more than during past recessions partly due to the unprecedented run up in commodity costs combined with improvements in private label quality. The Company believes that both private label and leading brands play an important role in all of the food categories in which it competes, appealing to different consumer segments. The Company closely monitors the price gap or price premium between its brands and private label, with the view that value is about more than price and the expectation that number one brands will continue to be an integral part of consumers shopping baskets.
In the consumer segment, the Jif® brand has been a leader in the peanut butter category for over 20 years, while the Companys natural peanut butter business, sold under the Smuckers®, Adams®, and Laura Scudders® brands, maintains a strong leadership position in the natural peanut butter category. The Companys fruit spread brands, including Smuckers®, Dickinsons®, and Knotts Berry Farm® hold the leading position in the fruit spreads category and compete with Welchs branded line of fruit spreads and many private label brands. The competing brands exist on both a national and a regional level. The Companys Hungry Jack® brand competes in three primary market categories: pancake mix, potato side
dishes, and table syrup. The Company competes with several major national as well as private label brands in these categories.
In the oils and baking segment, Crisco® has been a leader in the shortening and cooking oils categories for over 50 years. Crisco® holds a leading position among branded competitors in both the oils and shortening categories. The oils category in which Crisco® competes is a more competitive category due to a significant private label presence and volatile commodity pricing. The Companys Pillsbury® brand competes in the dessert and baking mixes (DBM) market that includes mixes for cakes, cookies, brownies, muffins, and quick breads, as well as ready-to-spread frostings and ingredients used in scratch baking such as flour. Within the DBM category, the Company competes primarily with the Betty Crocker and Duncan Hines brands and many private label brands. The Company competes in the canned milk category with both branded and nonbranded products. The Company is the branded market leader in the sweetened condensed category with over 50 percent market share with its Eagle Brand® and Magnolia® brands; and, has significant sales with production of private label brands. In the evaporated milk category, the Company has a significant presence with its production of private label brands and the PET® brand where it competes primarily with one major national brand.
In the coffee segment, the Folgers® brand competes in the highly competitive U.S. packaged roast and ground coffee market with other retail coffee roasters such as Maxwell House, Yuban, General Foods International Coffee, Starbucks and Seattles Best, and others. The Company also competes in the premium gourmet coffee market through its Millstone®, Folgers Gourmet Selections® brands, as well as through sales of Dunkin Donuts® licensed retail packaged coffee products. The Companys coffee business also faces competition from the specialty or gourmet away-from-home coffee market, a significant market in the coffee industry and a market in which the Company does not compete.
Research and Development. The Company predominantly utilizes in-house resources to both develop new products and improve existing products in each of its business areas. Amounts expensed for product development were $14,498,000, $9,547,000, and $9,680,000 in 2009, 2008, and 2007, respectively.
Environmental Matters. Compliance with the provisions of federal, state, and local environmental regulations regarding either the discharge of materials into the environment or the protection of the environment is not expected to have a material effect upon the Companys capital expenditures, earnings, or competitive position.
Employees. At April 30, 2009, the Company had approximately 4,700 full-time employees, worldwide. Approximately 34 percent of these employees, located at 11 facilities, are covered by union contracts. These contracts vary in term depending on the location. The Company believes its relations with its current employees are good.
Financial Information about Industry Segments and Geographical Areas. The financial information required to be included in this item concerning reportable industry segments and international operations for the years 2009, 2008, and 2007 is incorporated herein by reference to information set forth in the Companys 2009 Annual Report to Shareholders, on pages 42 through 44, under Note D: Reportable Segments. The Companys international operations are primarily in Canada with risks similar to those associated with the U.S. retail markets. The Companys Canada sales primarily represent the sale of Canadian produced products to Canadian customers.
Forward-Looking Statements. This report includes forward-looking statements that are based on current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from expected or projected results. The descriptions of risks and uncertainties relating to forward-looking statements is incorporated herein by reference to information set forth in the Companys 2009 Annual Report to Shareholders under the caption Forward-Looking Statements on page 27.
Available Information. Access to all Securities and Exchange Commission (SEC) filings made by the Company, including its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, is provided, free of charge, on the Companys Web site (www.smuckers.com) as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC.
Item 1A. Risk Factors.
The Companys business, operations, and financial condition are subject to various risks and uncertainties. The risk factors described below should be carefully considered, together with the other information contained or incorporated by reference in the Annual Report on Form 10-K and in the Companys other filings with the SEC, in connection with evaluating the Company, its business and the forward-looking statements contained in this Report. Additional risks and uncertainties not presently known to the Company or that the Company currently deems immaterial also may affect the Company. The occurrence of any of these known or unknown risks could have a material adverse impact on the Companys business, financial condition, and results of operations.
Item 1B. Unresolved Staff Comments.
Item 2. Properties.
The table below lists all of the Companys manufacturing and processing facilities at April 30, 2009. All of the Companys properties are maintained and updated on a regular basis, and the Company continues to make investments for expansion and technological improvements. The Company believes that existing capacity at these facilities is sufficient to sustain current operations and anticipated near-term growth.
The properties listed below are owned, except for the West Fargo, North Dakota, facility that is leased. Other than customary lease terms and rental payment obligations, there are no material performance obligations associated with the properties listed below. The Companys corporate headquarters are located in Orrville, Ohio, and the Companys Canadian headquarters are located in Markham, Ontario.
Item 3. Legal Proceedings.
The Company is a defendant in a variety of legal proceedings. Plaintiffs in a few of those cases seek substantial damages. The Company cannot predict with certainty the results of these proceedings. However, the Company believes that the final outcome of these proceedings will not materially affect the Companys financial results.
Item 4. Submissions of Matters to a Vote of Security Holders.
Executive Officers of the Registrant.
The names, ages as of July 1, 2009, and current positions of the executive officers of the Company are listed below. All executive officers serve at the pleasure of the Board of Directors, with no fixed term of office. Unless otherwise indicated, each individual has served as an executive officer of the Company for more than five years.
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
(a) The information pertaining to the market for the Companys common shares and other related shareholder information is incorporated herein by reference to the information set forth in the Companys 2009 Annual Report to Shareholders under the caption Stock Price Data on page 16 and the caption Comparison of Five-Year Cumulative Total Shareholder Return on page 17.
(b) Not applicable.
(c) Issuer Purchases of Equity Securities
Information set forth in the table above represents activity in the Companys fourth fiscal quarter.
Item 6. Selected Financial Data.
Five-year summaries of selected financial data for the Company and discussions of items which materially affect the comparability of the selected financial data are incorporated herein by reference to the information set forth in the Companys 2009 Annual Report to Shareholders under the following captions and page numbers: Five-Year Summary of Selected Financial Data on page 15, Note A: Accounting Policies on pages 36 through 39, Note B: Mergers and Acquisitions on pages 40 and 41, and Note C: Restructuring on page 42.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Managements discussion and analysis of financial condition and results of operations, including a discussion of liquidity and capital resources, and critical accounting estimates and policies, is incorporated herein by reference to the information set forth in the Companys 2009 Annual Report to Shareholders under the caption Managements Discussion and Analysis, on pages 18 through 27.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Quantitative and qualitative disclosures about market risk are incorporated herein by reference to the information set forth in the Companys 2009 Annual Report to Shareholders under the caption Derivative Financial Instruments and Market Risk on page 26.
Item 8. Financial Statements and Supplementary Data.
Consolidated financial statements of the Company at April 30, 2009 and 2008, and for each of the years in the three-year period ended April 30, 2009, with the report of independent registered public accounting firm and selected unaudited quarterly financial data, are incorporated herein by reference to the information set forth in the Companys 2009 Annual Report to Shareholders under the caption Summary of Quarterly Results of Operations on page 16 and beginning with Report of Management on Internal Control Over Financial Reporting on page 28 through Note Q: Common Shares on page 61. The related financial statement schedule is filed as part of this Form 10-K on Schedule II.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. The Companys management, including the Companys principal executive officers and principal financial officer, evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934 as amended (the Exchange Act)) as of April 30, 2009, (the Evaluation Date). Based on that evaluation, the Companys principal executive officers and principal financial officer have concluded that as of the Evaluation Date, the Companys disclosure controls and procedures were effective in ensuring that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms.
Changes in Internal Controls. There were no changes in the Companys internal controls over financial reporting that occurred during the fourth quarter ended April 30, 2009, that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
Managements report on internal control over financial reporting and the attestation report of the Companys independent registered public accounting firm are set forth in the Companys 2009 Annual Report to Shareholders under the heading Report of Management on Internal Control Over Financial Reporting on page 28, and under the heading Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting on page 29, which reports are incorporated herein by reference.
Item 9B. Other Information.
Item 10. Directors and Executive Officers and Corporate Governance.
The information required by this Item as to the directors of the Company, the Audit Committee, the Audit Committee financial expert, and compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the information set forth under the captions Election of Directors, Board and Committee Meetings, and Ownership of Common Shares in the Companys definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 19, 2009. Information required by Item 10 as to the executive officers of the Company is included in Part I of this Annual Report on Form 10-K as permitted by Instruction 3 to Item 401(b) of Regulation S-K.
The Companys Board of Directors has adopted a Policy on Ethics and Conduct, last revised April 2005, which applies to the Companys directors, principal executive officers, principal financial officer, and principal accounting officer. The Companys Board of Directors has adopted charters for each of the Audit, Executive Compensation, and Nominating and Corporate Governance committees and has also adopted Corporate Governance Guidelines. The Corporate Governance Guidelines reflect Independent Directors standards under the final rules of the New York Stock Exchange (NYSE Rule 303A.02). Copies of these documents are available on the Companys Web site (www.smuckers.com).
Item 11. Executive Compensation.
The information required by this Item is incorporated by reference to the information set forth under the captions Executive Compensation, Board and Committee Meetings, and Executive Compensation Committee Interlocks and Insider Participation in the Companys definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 19, 2009.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item is incorporated by reference to the information set forth under the captions Ownership of Common Shares, and Equity Compensation Plan Information in the Companys definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 19, 2009.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item is incorporated by reference to the information set forth under the caption Related Party Transactions in the Companys definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 19, 2009.
Item 14. Principal Accountant Fees and Services.
The information required by this Item is incorporated by reference to the information set forth under the captions Service Fees Paid to the Independent Registered Public Accounting Firm, and Audit Committee Preapproval Policies and Procedures in the Companys definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 19, 2009.
Item 15. Exhibits and Financial Statement Schedules.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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THE J. M. SMUCKER COMPANY
ANNUAL REPORT ON FORM 10-K
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
All other schedules are omitted because they are not applicable or because the information required is included in the Consolidated Financial Statements or the notes thereto.
THE J. M. SMUCKER COMPANY
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED APRIL 30, 2009, 2008, and 2007
(Dollars in Thousands)