Notes to Consolidated Financial Statements Note A: Accounting Policies The J.M. Smucker Company Principles of Consolidation: The consolidated financial statements include the accounts of the Company, its wholly- owned subsidiaries, and its majority-owned equity investment. All significant intercompany transactions and accounts are eliminated in consolidation. Use of Estimates: The preparation of consolidated financial statements in conformity with accounting principles gen- erally accepted in the United States requires management to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant estimates in these consolidated financial statements include: restructuring costs, allowances for doubtful accounts receivable, estimates of future cash flows associated with assets, asset impairments, useful lives for depreciation and amortization, loss con- tingencies, net realizable value of inventories, accruals for marketing and merchandising programs, and the determi- nation 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 when products are shipped and title has transferred to the  customer. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101,  Revenue Recognition in Financial Statements  (SAB 101), which among other guidance, clarified the Staff’s view on various rev- enue recognition and reporting matters. The implementation of SAB 101 was accounted for as a change in accounting method and applied cumulatively as if the change occurred as of May 1, 2000. The effect of the change was a one-time, noncash reduction to the Company’s earnings of $992,000 (net of tax of $572,000), or approximately $0.04 per share.  Financial Instruments: Financial instruments, other than derivatives, that potentially subject the Company to signifi- cant concentrations of credit risk consist principally of cash investments and accounts receivable. The Company places its cash investments with high quality financial institutions and limits the amount of credit exposure to any one insti- tution. The Company considers all short-term investments with a maturity of three months or less when purchased to be cash equivalents. With respect to accounts receivable, concentration of credit risk is limited due to the large number of customers. The Company does not require collateral from its customers. The fair value of the Company’s financial instruments, other than certain of its fixed-rate long-term debt, approximates their carrying amounts. The fair value of the Company’s fixed-rate long-term debt, estimated using current market rates and a discounted cash flow analysis was approximately $130,350,000 at April 30, 2003.  Major Customer: Sales to Wal-Mart Stores, Inc., and subsidiaries amounted to approximately 14 percent of consolidated net sales in fiscal 2003. These sales are included in the U.S. retail market. No other customer exceeded ten percent of consolidated net sales for any year. Derivative Financial Instruments: The Company utilizes derivative instruments such as commodity futures contracts and interest rate swaps to hedge exposure to changes in commodity prices, interest rates, and foreign currency exchange rates. The Company accounts for these derivative instruments under Statement of Financial Accounting Standards No. 133,  Accounting for Derivative Instruments and Hedging Activities  (SFAS 133). SFAS 133 requires that all derivative instruments be recognized in the financial statements and measured at fair value regardless of the purpose or intent for holding them. For derivatives that are designated as a hedge and used to hedge an existing asset or lia- bility, both the derivative and hedged item are recognized at fair value with any changes recognized immediately in the Statements of Consolidated Income. For derivatives designated as a hedge that are used to hedge an anticipated transaction, changes in fair value are deferred and recorded in shareholders’ equity as a component of accumulated other comprehensive loss to the extent the hedge is effective and then recognized in cost of products sold in the period during which the hedged transaction affects earnings. Any ineffectiveness associated with the hedge or changes in fair value of derivatives that are nonqualifying are recognized immediately in earnings. By policy, the Company has not historically entered into derivative financial instruments for trading purposes or for speculation. Allowance for Doubtful Accounts: On a regular basis, the Company evaluates its accounts receivable and establishes the allowance for doubtful accounts based on a combination of specific customer circumstances, credit conditions, and historical write-offs and collections. A receivable is considered past due if payments have not been received within the agreed upon invoice terms. The allowance for doubtful accounts at April 30, 2003 and 2002, was $972,000 and $515,000, respectively.  24