Good morning and welcome to the J.M. Smucker Company's third quarter 2010 earnings conference. (Operator's Instructions) I will now turn the conference over to the Chief Financial Officer, Mr. Mark Belgya. Please go ahead sir.

Good morning everyone and welcome to our third quarter earnings conference call. Thank you for joining us. On the call from the company are Tim Smucker, Chairman of the Board and co-CEO, and Mark Smucker, President of Special Markets, who are joining us remotely and with me this morning in Orrville are Richard Smucker, Executive Chairman and co-CEO, Vince Byrd President of our Coffee business, Steve Oakland President of Smucker's, Jif and Hungry Jack and Paul Wagstaff, President of Oils and Baking. After this brief introduction, I will turn this call over to Richard for comments. I will then review the financial results for the quarter, and Tim will provide an overview of our outlook and closing remarks. At the conclusion of these comments we will be available to answer your questions. If you have not seen our press release, it is available on our website at smuckers.com. A replay of this call is available on the website. If you have any follow-up questions or comments after today's call, please feel free to contact me or Sonal Robinson, our Director of Investor Relations. I would like to remind that in both the prepared comments and the question and answer period that follows, we may make forward looking statements that reflect the company's current expectations about future plans and performance. These forward looking statements rely on a number of assumptions and estimates and actual results may differ materially due to risks and uncertainties. I invite you to read the full disclosure statements in the press release concerning such forward looking statements. I also want to point out that the company uses non-GAAP results for the purpose of evaluating performance internally. Additional discussion on non-GAAP information is also detailed in our press release and on our website. And finally, as you know the Folgers merger closed on November 6, 2008 and as a result this year's third quarter contains five additional days of operations from November 1 through November 5. I'll now turn the call over to Richard.

Thank you Mark. Good morning everyone and thank you for joining us. I would like to begin by summarizing the key financial highlights for the quarter. First, we concluded a successful fall bake and holiday season in both the US and Canada. Our multi-brand themed events took advantage of all elements of the marketing mix, and generated a good response from our customers and consumers. Second, volume was up 4% with gains in nearly all key brands in both the US and Canada. Third, margins were once again up with improvements across most of our businesses. Lower commodity cost and synergy benefits were the primary contributors. Fourth, non-GAAP earnings per share were up 34%. Fifth, these earnings results resulted in cash from operations exceeding $320 million, a new record for the company. And finally, our performance continues to confirm our strategy of owning leading brands sold in the center of the store. Let me now provide some commentary on each of our four businesses, beginning with Coffee. This quarter marked the first anniversary of the Folgers merger and a very successful first 12 months. We completed the integration and achieved our forecasted synergies all in line with original expectations. The financial results exceeded all pro-ProForma estimates and contributed to our overall strong performance. We are encouraged by our marketing initiatives, our new advertising and new products. For example, we will be shooting additional commercials for Folgers and Dunkin Donuts Coffee in the fourth quarter to add to those recently produced. We are also in the process of launching Dunkin Turbo which will add to our presence in the growing gourmet coffee category. In addition we expanded distribution and support of Folgers Black Silk, which is receiving good consumer response. Our pricing and promotion strategy, implemented in the first quarter has…

Thank you Richard. Sales for the quarter increased $23 million or 2%. Excluding the additional coffee sales and the impact of foreign exchange, sales decreased 2% for the quarter. Overall volume was up 4% but was more than offset by a 6% decline due to price and mix, with price including promotional spending the key driver. In certain instances we chose to increase trade spending in order to pass along decreases in commodity costs which may not be sustained, rather than take in a permanent price list reduction. GAAP earnings per share were $1.14 this quarter and $0.68 in the third quarter of last year. Excluding charges, earnings per share were $1.17 this quarter and $0.87 in last year's third quarter, an increase of 34%. Last year's results include a number of factors which make quarter over quarter comparisons a bit more difficult. Items specifically related to Folgers include an unfavorable inventory revaluation adjustment of $12 million, additional promotional expense and a difference in the recognition in marketing expense between the third and fourth quarter. Also included in the third quarter of last year and partially offsetting these negative amounts related to Folgers, was the favorable impact of the reversal of mark to market charges related to non-qualifying commodity instruments. You may recall the mark to market charges were originally recorded in the second quarter of last year. Operating income increased $46 million for the quarter, excluding charges, an increase as a percent of sales from 14.3% to 17.8%. We realized non-cash impairment charges of $10 million this quarter related to the write down of certain untenable assets primarily the Europe's Best trade name in Canada. This impacted margins by approximately 80 basis points. Gross profit increased $7 million to 38% of net sales from 33.9% last year. Much of…

Thank you, Mark, and good morning, everyone. We're very pleased with our financial results for the first nine months of the fiscal year, and as a result we are comfortable again raising our outlook for the year. We anticipate income per diluted share, excluding merger and integration costs, in the range of $4.02 to $4.07, an increase from our previous range of $3.95 to $4.05. Amortization of $0.40 is included in our forecast. Excluding amortization, our new forecast is $4.42 to $4.47 per share. These earnings are based on a sales range of $4.5-$4.6 billion. Our forecast for the year includes the impairment charge of $10 million or $0.05 per share that we recorded this quarter. Based on the expanded guidance range, we anticipate our adjusted EBITDA, excluding merger and integration costs, will approximate $1 billion. Importantly we remain committed to our long-term strategic objectives of 6% annual sales growth and greater than 8% earnings per share growth. Although we normally do not comment on quarters, our outlook for the year obviously forces a range of earnings for the fourth quarter. As we stressed in both our first and second quarter calls, this year's fourth quarter results will be less than last year, which was exceptionally strong. Mark has commented on a few of these items, but to summarize, last year's fourth quarter was higher than the third quarter, contributing 55% of the second half's earnings per share. We do not expect this weight in to recur. The shift in marketing expenses between last year's third and fourth quarter will result in incremental marketing in this year's fourth quarter of approximately $20 million. Coffee margins in last year's fourth quarter and the first half of this year far exceeded our long-term target, primarily due to favorable green coffee costs. Although still favorable, the additional contribution from lower green coffee cost will be less. Finally, costs in the basics category are up significantly from the fourth quarter last year, particularly sugar, cocoa, and milk. In response, we have announced the prince increase for private-label milk which will become effective later in the fourth quarter and are considering other pricing actions. However, any future pricing actions are not expected to impact the fourth quarter. So in summary, first, the addition of Folgers contributed to a strong fall bake and holiday season. Second, we are pleased with our financial performance including the significant generation of cash. Third, we have again raised our outlook for the year. And fourth, our performance continues to confirm our strategy of owning leading brands in North America in the center of the store. And finally, we want to thank our talented team of all of our employees throughout the company for their tremendous efforts. We thank you for your time today and now we're happy to answer any of your questions.

Thank you. (Operator's Instructions) And your first question today will come from Eric Katzman with Deutsche Bank.

Good morning, everybody. I guess the cash build here is pretty remarkable and I've heard reports from some other companies that they, I think like somebody told me that Ralcorp, for example, they had felt okay to buy back stock even within the two-year kind of restriction. So I'm wondering if you could just comment on that if that same approach could apply to you? And then if not, just kind of where do you think the board kind of goes with the dividend or the use of cash over the next couple of quarters?

Eric, it's Mark. I'll start and I'll have Richard answer the second part of the question. The rules under the Reverse Morris trust do allow for repurchase. It's obviously sort of situational. The way that our agreement with Proctor is such that we are holding to the two-year window. Of course that's only eight months out basically. So I think we've commented before, we have a little under 4 million shares already authorized by the board. So if the situation is appropriate at that time, we could enter the market, I think I've commented in the past we were fairly active in the time leading up to the purchase of Folgers, so we certainly will reevaluate that, but not to expect to do anything from a repurchase until November.

And Eric, this is Richard. On your second question regarding dividends, as you know, our board reviews our dividends each quarter, but it's historically our fourth quarter of the year that we look at increasing those and that meeting's coming up in April.

Okay. And then I guess just as my followup, maybe to Vince, you announced the single-serve agreement with Green Mountain, can you just kind of get a sense as to what you think that means and is that a margin kind of accretive deal to the extent that you're already producing pretty high margins in coffee as it is?

Yeah. Sure, Eric. Let me back up. I think it's fair to say that we continue to get the question asked about how we think about the single cup space and I think our standard answer to date has been as a market leader in any product category, we'll (inaudible) in all segments. We also are a company that likes to dot the I's and dot the T's and we took time over the past 12 months or so to really evaluate the landscape, both domestic and internationally, and several months ago basically concluded that we believe that Green Mountain and Keurig was the right partnership for Smucker, and I think you all know through their public filings that they are the leader in home brewers. Their growth rates have been significant. I believe their public in the recent quarter that they sold about 650 million K-Cups and they have a very, very high consumer appeal. In terms of what we can bring to the party, we believe that leveraging our marketing, selling, distribution, and all of our brands will not only be good for Smucker, but more importantly will help grow the overall category and really provide a channel for consumer to purchase K-Cups because a significant amount of them are not purchasing what we would consider our traditional retail channels. And so long term we hope that it'll contribute to our strategic growth objectives. Given the fact that we will be launching later this fiscal year and clearly, Eric, we'll be investment spending in the brand, there will be a margin hit as with launching any new product, but long term I think it's fair to say that once the margins or the marketing normalizes that it will not be dilutive to the company.

Okay. I'll pass it on, thank you.

And next we'll hear from Ken Goldman with JP Morgan.

Good morning. Just a little more color if I could on Green Mountain, and forgive me if it's in the press release, but the exclusivity, it seems like you can't use another single-serve brewer if you wanted to, but I'm curious about the exclusivity in terms of whether Keurig is allowed to also use Maxwell House, for example, in its single-serve systems?

Hey, Ken. I don't know that we want to go into those details, but I think you'll probably know that they have their own system that's been in the marketplace for a number of years and maybe I'll just leave it at that.

Okay. And then my second question, it's always dangerous looking at AC Nielsen data, but I'll take that risk. According to AC Nielsen, in measured channels your skews are down in Folgers some 10%-15%, which is normal given the economy and what's happening. If this is accurate, when does this lap? Because if you look at your velocities and you look at your distribution, they've both been pretty impressive. So it's possible, and I'm curious what your comment is, that maybe sales are artificially low because you've taken some skews out and that when you lap that things will look even better. Is that a fair assessment or not?

Well, your first comment is the most important one. It's risky looking at the data that you have available to us. I would not say that our skews are down significantly. We have clearly shifted some emphasis to within the category, but if you look at the O&D period over the last quarter, clearly the category's up, we grew share during that category in both our core Red Can and lead by Dunkin'. As you know, the challenged area that we have is Millstone so maybe that's being driven by Millstone, I'm not exactly sure. So overall we feel very good in where we're positioned right now, Ken.

Okay, thanks very much.

And next we'll move onto Farha Ashlam with Stephens.

Good morning. Could you comment on sort of the mix changes that you spoke about? Do you see that continuing? Comment on the consumer and how the consumer's feeling regarding trading down to more basic products and what will cause them to trade up again?

Hi, Farha. Steve Oakland. I can comment about mix change in consumer. I guess there's two things. Earlier in the year we did see in the food spread business particularly that consumers sort of trade from our more premium items, the Simply Fruit or low sugar or sugar free, into traditional food spreads. We were, frankly, pleased that we saw some of those segments come back in the quarter. So I don't know that we can say that that's an economic indicator, but we saw people (inaudible) those better for you segments and higher cost per U or cost per ounce segments. Frankly, in consumer we had a great period in pancakes and syrup. And given the seasonal time and the promotional strategy behind with the tie-ins with coffee, we had a great Hungry Jack period, and that did drive some of our mix change. And what happens there is, as you can imagine, a box of pancake mix on promotion is $1.99, but it's a lot of tonnage. So although the margins are good and you can see that in our segment reporting, we did move a lot of tonnage in those categories which sort of dilutes or causes the impact of high tonnage and lower net sales.

Hi, Farha. This is Paul. On the oils and baking side I'd point out one mix change that we saw and that's really on the flour side of the business. We saw significant growth in flower over the O&D time period and that's a little less margin item than some of our other items.

And maybe as a follow up, could you just share with us promotional trends as they went through the quarters versus what you're seeing today? Have you seen any mitigation of promotional pressure as the quarter continued?

Let me start, Farha, and then I'll turn it over to Paul and Steve. From a pure coffee perspective, the strategy that we implemented in our first quarter of reducing our trade spend and putting that into everyday price, I think we would deem as a success at this point and we clearly got some very good merchandising during the holiday bake period, but net-net we're very comfortable with where our pricing is. The second comment that I would make though is that many of us just came off of a recent retail industry event, and clearly our customers are driving price points on leading brands that are not necessarily funded by manufacturers, and using them to increase the foot traffic and so they may be taking little or no margin on our brands. So I would just make that comment from a macro perspective and then I'll turn it to Paul and Steve.

Hi, Farha. Paul here again. On the oils and baking side. On the Crisco oil part of the business we did not take our price down, a list price down, starting in the first quarter of this year. Instead what we did is we chose to spend those additional dollars and basically give that funding back to the retailer in the form of promotional spending instead of price decline. So that's what we have been experiencing this whole year so far.

And then, Farha, hi, Steve. In the consumer business the trends that Vine talked about, the retailer wanting some hot price points on their front page, and if you think about a year ago, it was when peanut butter experienced the tough times with the PCA recalls. Peanut butter was a very competitive quarter and I think everybody saw opportunities to lap pretty soft numbers in the previous quarter and so there was a lot of peanut butter promotion activity during the quarter driven by the manufacturing community, and I would argue, driven by the retailer.

That's very helpful, thank you.

And next we'll move onto Jane Galfund (ph) with Barclays Capital.

Good morning. As we look at your margins in the quarter, they were approaching 19% on a clean basis once you take out the impairment and looking across the group that's certainly at the top end from a benchmarking standpoint, well above that 15% target you laid out a couple of years ago. And so I know you've mentioned in the past that you're working through sort of the core to find out where more opportunity may lie from here and perhaps you'll talk about that more as the fiscal year comes to an end, but for now I guess we'd be curious to hear your thinking in how you strike that balance between keeping the margins high at the attractive levels they are currently versus making sure there's enough flexibility there to kind of fund the core and keep it growing.

Hi, Jane. It's Mark. It's a good question, and I think that what I would say and I think it would be reinforced by everybody in the room is that being in the game for the long term, we are going to take opportunities to reinvest to the brands. We've obviously this year had the luxury of profitability of coffee and the overall lower commodity costs to do that pretty significantly across all the business. But at some point our view is that commodity costs will tick back up and as a result we'll have to continuously look across the organization to find productivity gains and the like. I know we say this sort of every time, but it is the way we operate is that our businesses, our presence, are all charged with identifying those opportunities and again, now that the Folgers' integration is basically complete and as we head into fiscal '11, that's what we're going to focus on. It doesn't mean that we're not going to look for acquisitions or do anything differently, but we can focus a little bit more attention on those areas and that can cross production, it can cross the administrative functions, and all the way across supply chain.

Thanks. And then maybe as a quick followup and a little bit closer in, even though you may be working on sort of the longer-term opportunities side and productivity, we know that margin expansion's never a straight line, the environments clearly are challenging economically, everyone across the industry is starting to spend back more in promotions and obviously the commodities have kind of bounced off recent troughs. So maybe as we look at over the next four quarters, I know you don't have a crystal ball, but how do you think about how margins are likely to trend more year end versus the longer-term vision that you might have?

Well, I guess what I would say is just to your opening comment — I mean, clearly our margins are high in the industry, but we believe a lot of that comes from the acquisition strategy we've followed and the strength of the brands the interactions the brands play. Costs, we think, if you just kind of look across, are ticking up a bit so we will evaluate that and if necessary, take pricing actions to try to maintain that. But in the short term, and we'll have much more to say on this in June when we talk about FY11, but in the short term we're going to continue to try to guard the margins, but at the same time, for example in the K-Cups space we will invest as necessary.

Thanks very much.

And next we'll hear from Chuck Cerankosky with Northcoast Research.

Good morning, everyone. Alex Busan (ph) and I are both here and we have some questions.

Yes. A couple of questions for you; in the press release you indicated you're looking forward to additional opportunities. I suspect one of those is K-Cups, but what else is behind it? Does that mean innovation, acquisition, or something else?

This is Richard. Well, I think it probably means all of those. We're always looking for more opportunities, but primarily I think it was the K-Cups in the short term, but we're also looking for new products and we've got a number of new products that are being launched and about to be launched, so that's what that meant, I guess I should say.

Given the inclusion of K-Cups, does that alter your go-to-market strategy for institutional coffee sales?

No, it does not, because we actually only have the rights for the product in what we would consider to be our traditional grocery retail club mass channels, and not in the food service or office-home space.

All right, and then maybe one more for me; can you talk about Europe's best and why the impairment charge (inaudible)?

Yeah, I can take that. Basically, I think Mark alluded to there was a $10 million number, it's somewhat less than that. It's probably in the $8 million range in terms of we had a large customer, one of our key customers in Canada that basically went out and bid their private label business, bundling that with some of the branded products, and a competitor was awarded that. And so although we had lost some of the items in that customer, we were able to retain and expand our frozen-vegetable business because the losses there on the skews were mainly on fruit, but we do believe moving forward that we have an opportunity in the future to recapture at least a decent portion of that frozen-fruit business so that's essentially, and I don't know Mark if you want to elaborate at all on that?

Yeah. Maybe, Alex, just to kind of close the accounting loop on that then is that event where that loss of business, in our opinion it triggered what's called a potential indicator of impairment so we went through the accounting requirements and basically valued the business. And when we looked at the fair value of that trademark versus what it was on the books for, that's what caused the impairment charge. So right now we don't think there's anything based on the current business environment that would require us to take an additional charge, but that is how the accounting was taken care of.

And then finally, if we look at the Uncrustables business, how are trends there shaping up and what's that telling you about the consumer?

This is Mark Smucker again. Just overall, I think the business, we still feel very good about that business and in the food service side anyway we are seeing that our business versus last year in the quarter is up in schools and a part of that is driven by the launch of our waffle product. So with the combination of both the sandwiches and the waffles we're seeing good trends and more importantly as well, the profitability of the business continues to inch up and we're pleased with that.

Profitability is measured in return on sales or in dollar operating profits?

Mostly dollar operating profit.

And if we look at Uncrustables in retail, I spoke earlier about the PCA recall a year ago. If you remember, a lot of the media on that was about it being ingredient peanut butters that were problems, and although our items were not involved in any way, we think it did hurt Uncrustables a year ago. So we're pleased to see Uncrustables' volume actually up in the third quarter so we think we've got that behind us, hopefully the economic conditions behind us a little bit, and feel good about it going forward.

Thank you very much.

Next we'll hear from Alexia Howard with Sanford Bernstein.

Good morning, everyone. Just a couple of quick ones, am I right in thinking promotional activity was up fairly significantly in coffee this quarter? Is the plan to continue that back into the fourth quarter or do you expect to see some moderation there?

Well again, I would not say that coffee promotional activity was up significantly in the third quarter. You have to take into account the pricing and promotional strategy that we implemented in the first of the year. There's a lot of noise going on because of price decreases primarily and then of course we increased Colombia earlier in the year, but net-net, our trade spend was not up during that period. And then as you dial that forward to the fourth quarter, it will not be as deep as it was last year because again we hadn't enacted what we call our pricing promotional strategy that we implemented in the first quarter, but I would say we got better quality merchandising during the third quarter than maybe was done last year.

Great. And then just one quick follow up, you quantified the marketing spending increase in the fourth quarter as $20 million, are you able to quantify the reduction year on year that happened in the third quarter in dollar terms?

It would be about, the total company, about $10 million.

Great, thank you very much. I'll pass it on.

We'll move on to Mitchell Pinheiro with Janney Montgomery Scott.

Yeah hey, good morning. Two questions, first around the Green Mountain news. So when you studied the single-cup market over the last year, how big do you think single cup could be in the at-home channel say in three years or five years?

That's a really good question and I really wouldn't offer a guess at this point. I think if you look at the growth that Green Mountain is public with, it's probably a good indication, but as you know it's just grown very, very significantly over the last several years, but it's currently a relatively small category when you compare it to the overall coffee category, particularly at traditional grocery or mass, but again, we believe that we can help fuel that growth and provide another avenue for the consumer.

Okay. And then if curiously, Dunkin' Donuts was not included in this agreement at the moment, if you could comment as to why? Is it perhaps because you don't own the brand or I'd love to understand that, and also understand — I guess it's not your Red Can business, is that a demographic issue?

Yeah. I think we just have to start somewhere and we chose to focus on our two gourmet brands of Folgers Gourmet Select and Millstone. Obviously we have a very, very solid relationship with our friends at Dunkin' Donuts and our business continues to flourish there, but our initial offerings are going to focus on our two brands.

So it's not out of the question that you could have Dunkin' Donuts in K-Cups at some point?

Our initial focus will be on our two brands (laughter).

Okay. And then finally just relating to guidance, so if you look at your sales guidance, that would imply a fourth quarter range of flat to maybe down 10%. I'm just not sure why the down? If you could talk about the down 10% part of the range?

Yeah. Well, I think first of all, last year in the fourth quarter, and I know it's something you guys are new to so that you might not be as familiar with this, but last year's fourth quarter was an extremely strong coffee quarter. The business overall did well, but coffee did extremely well. It was our first promotion around the Easter holiday and we just had a blowout quarter. So we expect it to be down. I think probably if you just do the math which it sounds like you're doing on a 10%, it would be a volume decline, but probably incremental spending to get to that point would push it down to that, although that would not be our expectation. It would be negative 10.

Okay. And then on the earnings per share, the implied just backing out the three quarters, has that roughly — I hope my math is correct, but $0.88-$0.95 would be the range for the fourth quarter? Am I doing the math correctly there?

That seems too high. We're at $3.30 for the year to date so it would be more in the mid-to-upper 70s.

Excluding the $0.17-$0.19?

Yes.

Okay. So if I add that back in —

Yeah. If we just talk what we would call non-GAAP earnings, we're at $3.30 through the first nine months and then the high end would be $0.77 to get to the $4.07.

Okay, beautiful. Thank you very much.

We'll hear from Scott Mushkin with Jefferies.

Hey, guys. Thanks, I actually have a few questions here. So just quickly on the fourth quarter, and I know there was a lot of noise and it was a blowout fourth quarter last year, but one of the things that struck me is volume growth in the third quarter accelerated a little bit. Are trends the same in the fourth quarter so far? Could you maybe speak to that just so we kind of know how the base business is doing?

No, they would not be the same. Clearly we're projecting to have a volume decline in the quarter. Again, part of it driven by the coffee, but no, we are seeing, as expected, a planned decline.

Okay. So that's expected, and you attribute that, Mark, to just some great numbers that came out of the first promotional activity in Easter, did I get that correctly?

That's exactly right. And yeah, just to be clear, when I say down, down to last year's fourth quarter.

And that's specifically in coffee, the other businesses you're not expecting that or you're expecting that through all the businesses?

Generally we expect oils and baking will probably be down some, but I think otherwise we're expecting to be reasonably flat.

Yeah. This is Richard. Our business is still solid. There's not a change in how our consumers are buying or spending. Our business is still very solid, it's just the fact that last year's fourth quarter was abnormally strong so we don't see any change in the general economic conditions.

Yeah. Just to kind of frame things in and for what it's worth, it's that one of the comments we made, I believe it was in our lead in into the fiscal '10 of last June is we categorized our sales and we said that about 55%-60% of our sales for the total year would fall in the second and third quarters and then the remainder obviously in the first and fourth quarter. Based upon our projections that we have provided as part of our outlook, we're basically seeing that 55% of our sales are falling in those two quarters. So we're pretty much in line with what we expected from a dollar-sales perspective.

So you're not seeing a big change in competitive activity or anything that's driving lower volume expectations? It's purely because of this look in your own numbers year over year?

That is correct, yes.

Okay. So I want to dive into something that Kraft said and understand coffee as we move forward. Kraft down at (inaudible) said hey, we had a tough quarter in coffee, and they actually there with all of you guys (laughter).

We heard.

We're getting promotional — I guess I would say my question to you is, number one, you seem to be gaining a lot of market share, it doesn't seem to be coming because of a lot of promotional or unsustainable promotional activity so what do you guys attribute the market share gains to the number one reason, and is it sustainable?

Yeah. Let me enforce a couple of things, and yes, we obviously did hear that comment. It was brought to our attention. I think in a macro sense you can say that period we had basically owned the business for still less than a year, but it's the ability for our sales and marketing team to leverage up the Folgers and Dunkin brands with our other iconic brands and as we said previously, it gives us the opportunity to maybe get on the front page of the ad or it might get us display activity that we might not have been able to historically. We're honestly a little perplexed as to the comment because when our team looked at the numbers, our quality merchandising was clearly up and our competitors' price points were not as low as they may have been last year, but for the most part they were slightly to significantly below our price points. And so we're not sure that we understand the comment. Now as I mentioned earlier, there were instances where we did not fund the pricing as our retailers chose to use Folgers or in the case they have used our competitors brand to drive foot traffic to their stores to make sure they're competitive within their respective marketplace. But net-net, we're very pleased that our promotion and pricing was executed within our guidelines and with very, very few exceptions, and we obviously will have learnings, but we feel we're in a good place and it is our objective to grow share long term.

Do you think you're gaining shelf space at key retailers and is that something that is happening and can be sustained?

Well, there's always opportunities. Probably the biggest one is that with the Dunkin' brand we have less than a third of skews of the main competitor and yet we have the number one and three of the top five skews turning in there and so we believe there's opportunities for incremental shelvings or facing I should say, of particularly Dunkin', and also I would just add Black Silk which was referred to earlier was a major emphasis of ours. We think it's a great product. We've put some incremental marketing behind it and grew ATV of it as well.

I had another question, 1.5 more if I may. Sorry for taking up so much of your time, but getting back to the dividend question or the cash, the huge cash build that you guys are seeing, I do think you have said a 40% payout ratio is what you're targeting. When you look at that ratio given the big spread between cash earnings and GAAP earnings, what's the number we should be focused in on there? And then I had one more with the K-Cups if I could, a half of one.

Yeah. I would say we have typically paid 40% of our, I guess it would be our GAAP earnings over time. For the longest time there really wasn't a difference and I think that this is one of the discussion points we'll probably go through with the board because, as you suggested, the difference between sort of, particularly a GAAP number and something more that represents the free cash flow or earnings per share. I think it's more likely than not though that it would be probably around our non-GAAP earnings per share. I mean that's what we report to the street, but it will be something that we'll take under advisement with the board.

Okay. And then as far as looking at this K-Cups investment, I mean, is it going to be so substantial that we could get flat earnings as that happens or is not going to be to that level?

No, absolutely not.

Okay, thanks. Thanks for letting me ask so many questions. I appreciate it.

We'll hear from Edward Aaron with RBC Capital Markets.

Thanks. Good morning, everybody. So I just wanted to circle back on Scott's question and about the competitive landscape in coffee and the comments from Kraft. Have you seen any meaningful change more recently? I mean, the January retail data looked like some of the share had shifted maybe a little bit more in their direction and I'm just wondering if you're seeing any type of competitive response from your main competitor there that has you at all concerned?

Yeah. Well, as we all know, month to month there's going to be activity from all of us in the category. Probably the biggest news is, as I think you're all aware, they chose to follow us on our promotional pricing strategy that we implemented in the first quarter. So that was implemented or is being implemented in a January timeframe. If you look at a major customer, they're back on deal at a level that they were pre-holiday and so there's a cycle there and I would just again say that it's below our pricing promotional guideline points. But any one month we can always point to each other and comment about who's on deal and who's not on deal, but we feel very comfortable where we are.

Thanks. A followup just on the K-Cups opportunity, I was just hoping maybe you could help me understand the brand positioning around that? I know you're using Gourmet Select which is your premium product within Folgers, but K-Cups are generally $0.50 a serving and Folgers as a brand on average is something closer to a nickel. So even using the premium product, it seems like the brand kind of price point, that proposition is a bit different from what your accustomed to, and just curious to get your thoughts around how you're sort of managing the positioning around that so that the consumer has a clear message of what Folgers stands for from kind of a price-value perspective.

Well again, I think between Folgers Gourmet Select and our Millstone which is our premium coffees, we feel that it fits very, very nicely with the category. And again, what we're bringing to the party is not only the leading brand — you could debate whether a consumer distinguishes between Folgers and Folgers Gourmet Selection. We are bringing a leading brand to this category, the first national brand to be involved, and we're bringing a choice. We're bringing another opportunity for a consumer to be able to fulfil their needs and hopefully grow this category working with Green Mountain, and we believe that this is a segment that we need to participate in and feel very comfortable with where our initial efforts are.

Thank you.

Next we'll hear from Ian Zaffino with Oppenheimer.

Hi, great, thank you. Just as far as the Green Mountain deal and the Dunkin' agreement, do you have the right to go out and use Dunkin' in a K-Cups format or do you need Dunkin's permission to do so? And on the other side of it, does the agreement you just struck permit you to begin to use Dunkin' in K-Cups as well, or do you have to strike another deal with Green Mountain? And I have a followup, thanks.

You know, as I commented earlier, we'd really prefer not to get into those details at this point. I think that again, we're very excited about being able to enter the relationship and again, the initial effort will be against our two brands that we own, but we prefer not to get into the details of either agreement.

Okay. And then just on a different angle on the agreement, it looks like both you and Green Mountain will be distributing and marketing these products. Are there certain areas that you're going to be doing it in where you have the grocery stores, the food service, or how do the economics vary between the two?

Yeah, let me be clear. We will be marketing and selling the products, our products, in traditional grocery club mass channels. They will not be marketing our products in those channels. They will have the right to basically sell them online through their website, et cetera, but for the most part you need to think about it as we're the ones that will be marketing those brands, our brands.

And it is our coffee.

And it is our coffee.

We supply the coffee, the roast, the blends, so it's our coffee. They put it in the cups for us.

They're manufacturing it for us and then we'll distribute it.

Okay. And given your history of really staying in the traditional channels versus food service, and K-Cups tending to be much more food-service oriented, I mean how do you plan on going about kind of attacking this new area for you?

Well first of all, I'm not sure that I would say that it's primarily a food-service opportunity, but again, our agreement does not contemplate the food service or office channel. We do not have those rights.

Okay. All right, thank you very much.

Next we'll hear from. Eric Serotta with Consumer Edge Research.

Good morning. You guys have made pretty clear in the past that you expect acquisitions to account for, over time on average, about half of your long-term top line and EPS growth goals. Just wondering, with you having not announced any acquisitions recently, and I realize it may be a little bit early for 2011 guidance, but you made a comment in the press release that you reaffirmed your long-term guidance. Do you think you'd be able to hit that in 2011 without any acquisition activity?

Eric, I think the purpose of that statement as we reinforce it over time is that that really is our strategic objective over a timeframe and although I understand the question and a natural tendency to want to just extend that to the next year, I think we really do want folks to focus on that. And then specific to FY11, I think we would just defer to June when we'll have much more details to go through from both a top line and earnings outlook.

Okay. And then in terms of the acquisition environment, any comments on how the pipeline looks and how whether the organization, having now digested Folgers or had Folgers within the fold for about a year, whether you think the organization is ready for another acquisition yet or whether you need a bit more digestion time? Because it certainly looks like the balance sheet is in shape given the debt paydown over the past quarter or so?

Eric, this is Richard. Acquisitions as you know are kind of lumpy. We obviously, as the way we describe it, we have our lines in the water all the time and we're just not exactly sure when the fish are going to hit, but we are — I think your second question is are we acquisition ready? I would say that it's been 12 months and looking around here everybody's finally catching their breath. So I think if we found the right thing we could do it now.

Okay. And then lastly, turning back to a comment in the press release and in your commentary about lower green coffee costs in the quarter, maybe I'm looking at the wrong thing, but when I look at just average New York Board of Trade green coffee costs or Arabica, it looks like they're actually up year-on-year for the quarter on average. So I'm wondering, and maybe I'm looking at the wrong pricing theories versus what you would be buying, but if I'm not — if that would be, I understand the benchmark, what accounts for the difference and why were your coffee costs down year on year? was that largely hedging or was that related to the inventory valuation adjustment in the year ago period?

Well, I think what we're trying to comment on is if you say where we were priced to in our first and second quarters versus where green was at versus say our third and now going into our fourth quarter, clearly Arabica coffees have increased over that timeframe. And then also you have to keep in mind that we, as you look across all of our offerings, we use a combination of Arabica and Robustas and so in our case you can't just look at Arabica coffee. But as we look out, and based on our current positions, we know that our green coffee costs have increased versus where they rested in the fourth quarter of last year and the first half of this year.

Okay. And am I correct that the green coffee, that your Arabica prices, excluding hedging or spot Arabicas, that you would use that as your benchmark? I realize you're not using all Arabicas, but those were up pretty substantially in the fiscal third quarter year on year for the quarter on average.

Yes. Eric, just to underscore Vince's comment, and I think we've tried to be clear on this, but when we talk about this favorable benefit of coffee, really across all the quarters, it is always to this price too. We have been talking about lower costs on some other raw materials and that's clearly period-over-period lower costs, but in midst of that we are being a little more specific to the benefit versus the price to position.

Okay, great. Well, thanks a lot. I'll pass it on.

Next we'll hear from John McMillan with Lord Abbett.

Good morning, everybody. When you talk about your investments in K-Cups, basically you're doing distribution, you're providing the beans, Vince, there's really no major investment, correct?

Well no, sure there is. We're going to support the product through promotional spending, marketing support, demonstrations, all kinds of things, John. So yeah, we will be investment spending in it.

Can you quantify it at all?

Not at this point.

What kind of returns do you expect?

Well again, I think as I mentioned earlier, long term we do not believe it will be dilutive. I think on an initial basis it clearly will be an investment if you would just evaluate it as a segment, but that's like any new product when we launch it.

Yeah. You may look at it like when we first came out or first did Dunkin'. We had marketing programs behind Dunkin' when we came out with that and this is very similar to that.

And I think too, we'll look at it in the context of the overall marketing support for coffee. That is a sector of that that'll come into consideration as we look at the overall marketing spend next year.

Well, if it works half as well as Dunkin' I think we'll be okay (laughter). Thanks a lot.

And now we'll take a follow up from Eric Katzman.

Hi, thanks for taking the follow up. I was just kind of curious, I think you had said that the organic or natural business was up, and most of what we hear is that that segment is quite weak. So could you just comment a little bit on that?

Mark, do you want to take that?

Sorry, what was the question?

The question was about the natural category being up, why it was up?

Yeah, the natural category was up basically because we had seen several of our customers who had, as you know — the whole industry has been down and we saw that there was some lag in some of the off take in the first couple of quarters and essentially we just recovered a lot of the volume that we had seen go down the first couple of quarters. We do believe that that industry is going to continue to be challenged and so we will, from us strategically, we're looking at bolstering our core business, but also looking at how we might start to participate in some parallel categories.

Eric, if I might just make one additional point and it's that in the natural we actually — our growth income was from the branded side. So I guess just to underscore Mark's comments both from our R.W. Knudsen brand and our Santa Cruz Organic, so we were very pleased to see the branded side of that business return back.

Yeah. And the other thing I would comment there also is that as we look at that business, and it's hard to know because there isn't really good data in the industry, but our feeling is that the organic side of the business tends to be more consistently strong than say the natural side, if that makes sense. There seems to be a core sort of die-hard organic consumer that is true to that category and does not leave that category even though it is a higher-priced area.

Yeah. I am very familiar with that at home (laughter). And then just as a followup, thanks for that, followup to Mark, and I think it was a question earlier, I loathe to focus on the quarter, but the 407 that you were talking about on the high end, you're including the $0.05 impairment, right, in that number?

Yes.

And then there is also, you said I guess about $0.11 year-over-year increase in the fourth quarter in the A&P spending, that's the $20 million?

Yes.

Okay. And then I can't remember, but what was the — the peanut butter hit a year ago, that was in the fourth quarter, right?

It was.

And how much was that?

Steve, you can jump in, but I think early on the whole category was down 20%. We tracked better than that.

Correct.

And for the full quarter, Steve?

Yeah. We were up about half that much, but the key here is we think the peanut butter business is our toughest one to call, where is it going to shake out in the quarter. And that's because a year ago, if you remember, we went out with Nashville Media. We partnered with a number of customers and had front page ads, Trust Jif, so we had a lot of business in the Jif brand in the last two months of the quarter. And although we've got great promotional support, it's difficult for us to really tell you how are we going to shake out versus the year ago? Will we be up, will we be flat? We don't think we'll be anything worse than flat. We hope we'll be up a little bit. Early indications are great, but there's a lot of noise in the last two months in peanut butter and I look forward to commenting on it in the next meeting, but with the business it's very solid, but the comparables are difficult in the last two months I guess is what I'm saying.

Okay. And then lastly, I guess historically it seems like to a certain extent you've won fall bake on the oils business and then you've kind of — ConAgra has kind of pushed it around I guess Easter and stuff. So is that kind of how you see it shaping up again this year?

Hey, Paul here. Yeah, I would say that we pretty much won the O&D time period. We felt very good about that. It's clearly going to be competitive coming into the fourth quarter. That being said, we feel pretty confident that we have some good promotions lined up.

Okay. All right, thank you.

We'll now hear from Jon Andersen with William Blair.

Good morning, everyone. It's actually Ross in for Jon. Congratulations on the quarter. Just a quick one for you, after the $550 million paydown in debt this quarter it doesn't look like you have anything due for quite awhile. Do you have any restrictions or prepayments on these that prevent you from repaying that debt going forward?

There are actually. In all our notes there is a prepayment penalty and obviously based on the market condition that can be very sizable so we look at that very periodically, but yes, we do have that up there.

Okay great, I'm glad.

And next we'll hear from Jane Galfund.

Thanks very much for taking the follow up. Just a quick question on breads. You mentioned some sort-of targeted price declines, just wanted to get a little bit more color on whether that's part of a strategy, whether it's more tactical in relation to something you're seeing out there in the market, and most importantly, are you seeing results as you adjust some of those price gaps?

Sure. I'll comment on food spreads and peanut butter. First of all, a year ago we had an anomaly in the food spread business. We had a very short crop uncertain of the premium cane berries; blackberries, raspberries, et cetera, and we took a 30% price increase, okay? So obviously that had big effect on that whole business. We have since rolled a big portion of that back and so those are material varieties during the third quarter so that's some of the price decline in the food spread business. As far as peanut butter, we're sort of between crops right now and there have been some favorable costs in the peanut butter industry. When you compare that to the fact that the retailers, as Vince mentioned earlier, are looking for those front-page items, and we all as an industry have soft comparables. Some of that favorable peanut butter cost has been spent back on the peanut butter business. Now we've tried to balance that. I think we've been able to increase margins, been able to increase our tonnage, and there's even another compound to that. Some of the segments like club, and the consumer is looking at — there's tremendous value in some of those segments right now and so we're even seeing larger sizes very effective right now. So there's a lot of variables, but we're looking close at the peanut butter business. If we think those things are sustainable, we'll roll them into price as we always have, if not they'll probably just be short-term promotions.

Thanks very much. And just one more quick one, as we think about spreads and as you look at that business, how comfortable are you with where some of those core item price gaps are relative to private label or do you see more opportunity there over time to adjust it a little bit more?

We have to be careful there. Obviously our advertising, our brand scores — the brand-health measures of that business are as high as they've ever been so we feel great about our connection with the consumer right now, but we are the largest strawberry preserve producer in the world and we have to leverage that scale. We have to provide value to the consumer. To short term let that gap get too large and take that margin gain and allow consumers the opportunity to try private label, we just think it's the wrong decision. So we may give up some of those short-term margin opportunities and keep the pressure on, continue to give them value on an everyday basis with those items so we'll try to continue to leverage our scale, keep that gap close to where it is right now.

Thank you again.

And there are no additional questions at this time. Gentlemen, I'll turn the conference back to you.

Well thank you very much for your attention today and great questions and again, thank our team for great results. So have a good day and we'll be talking to you probably later on today. Mark and (inaudible) as we try to take a number of questions so thanks so much.

And ladies and gentlemen, if you wish to access the rebroadcast after this live call you may do so by dialing 1-888-203-1112 or 719-457-0820 with pass code of 7290467 or by accessing the website for a downloadable MP3 format. This does conclude our conference call for today. Thank you for participating and have a nice day.