-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lzji7kfEom8Btj0KnWeVkFer3a2qa0EAxa8+6bOd3L6/3VQ4oHpDFnRDoQ81mMgw pm47auNqV8PjDoG1KrM/hQ== 0000950152-98-006161.txt : 19980727 0000950152-98-006161.hdr.sgml : 19980727 ACCESSION NUMBER: 0000950152-98-006161 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980430 FILED AS OF DATE: 19980724 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SMUCKER J M CO CENTRAL INDEX KEY: 0000091419 STANDARD INDUSTRIAL CLASSIFICATION: CANNED, FRUITS, VEG & PRESERVES, JAMS & JELLIES [2033] IRS NUMBER: 340538550 STATE OF INCORPORATION: OH FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-05111 FILM NUMBER: 98670864 BUSINESS ADDRESS: STREET 1: STRAWBERRY LN CITY: ORRVILLE STATE: OH ZIP: 44667 BUSINESS PHONE: 2166823000 MAIL ADDRESS: STREET 1: STRAWBERRY LANE, P.O. BOX 280 CITY: ORRVILLE STATE: OH ZIP: 44667 10-K 1 THE J.M. SMUCKER COMPANY ANNUAL REPORT-FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended April 30, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-5111 THE J. M. SMUCKER COMPANY OHIO 34-0538550 State of Incorporation I.R.S. Employer Identification No.
One Strawberry Lane Orrville, Ohio 44667-0280 Principal executive offices Telephone number: (330) 682-3000 Securities registered pursuant to Section 12(b) of the Act: Class A Common Shares, no par value Registered on the Class B Common Shares, no par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None The Registrant 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, and has been subject to such filing requirements for at least the past 90 days. 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 registrant's 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. [ ] As of June 30, 1998, 14,393,402 Class A Common Shares and 14,755,836 Class B Common Shares of The J. M. Smucker Company were issued and outstanding. The aggregate market value of the voting Common Shares (Class A) held by non-affiliates of the Registrant at June 30, 1998, was $270,984,384. Certain sections of the Registrant's definitive Proxy Statement, dated July 13, 1998, for the August 18, 1998 Annual Meeting of Shareholders, and of the 1998 Annual Report to Shareholders are incorporated by reference into Parts I, II, III, and IV of this Report. 2 PART I ITEM 1. BUSINESS THE COMPANY. The J. M. Smucker Company was begun in 1897 and was incorporated in Ohio in 1921. The Company, often referred to as "Smucker's" (a registered trademark), operates in one industry, the manufacturing and marketing of food products on a worldwide basis. Unless otherwise indicated by the context, the term "Company" as used in this report means the continuing operations of The J. M. Smucker Company and its subsidiaries. DISCONTINUED OPERATIONS. On May 31, 1996, the Company completed the sale of its "Mrs. Smith's" frozen pie business to a subsidiary of Flowers Industries, Inc. for a combination of cash and notes receivable. In connection with this divestiture, the Company also has entered into agreements to lease property, plant, and equipment of the "Mrs. Smith's" frozen pie business to Flowers Industries, Inc. under operating lease agreements, which include the exclusive right and option to purchase such assets during the term of the leases. PRINCIPAL PRODUCTS. The principal products of the Company are fruit spreads, dessert toppings, peanut butter, industrial fruit products (such as bakery and yogurt fillings), fruit and vegetable juices, juice beverages, syrups, condiments, and gift packages. In its U.S. domestic markets, the Company's products are primarily sold through brokers to chain, wholesale, cooperative, and independent grocery accounts and other consumer outlets, and to foodservice distributors and chains including hotels, restaurants, and institutions. Industrial products such as bakery and fruit fillings are typically sold directly to other food manufacturers and marketers for inclusion in their products. The Company's distribution outside the United States is principally in Canada, Australia and the Pacific Rim, and Latin America, although products are exported to other countries as well. International sales represent approximately 12% of total consolidated Company sales for fiscal 1998. SOURCES AND AVAILABILITY OF RAW MATERIALS. The fruit raw materials used by the Company in the production of its food products are generally purchased from independent growers and suppliers, although the Company, through a joint venture, grows some strawberries for its own use. Because of the seasonal nature and volatility of quantities of most of the crops on which the Company depends, it is necessary to prepare and freeze stocks of fruit, fruit juices, berries, and other food products and to maintain them in cold storage warehouses. Sweeteners, peanuts, and other ingredients are obtained from various other sources. TRADEMARKS. The Company's products are marketed under numerous trademarks owned by the Company. Major trademarks include: "Smucker's", "The R. W. Knudsen Family", "After The Fall", "Simply Nutritious", "Mary Ellen", "Dickinson's", "Lost Acres", "IXL", "Laura Scudder's", "Simply Fruit", "Good Morning", "Double Fruit", "Goober", "Magic Shell", "Sundae Syrup", "Recharge", "Santa Cruz Natural", "Santa Cruz Organic", "Sunberry Farms", "Spritzer", and "Heinke's". In addition, the Company licenses the use of several other trademarks, none of which individually is material to the Company's business. 3 Other slogans or designs considered to be important Company trademarks include (without limitation) the slogan, "With a name like 'Smucker's', it has to be good", "Over 100 Years of Family-Made Goodness", the "Smucker's" banner, the Crock Jar shape, the Gingham design, and the strawberry logo. SEASONALITY. Historically, the Company's business has not been highly seasonal. WORKING CAPITAL. Working capital requirements are greatest during the late spring and summer months due to seasonal procurement of fruits, berries, and peanuts. During this period, short-term borrowings may be used to augment working capital generated by sales. CUSTOMERS. The Company is not dependent either on a single customer or on a very few customers for a major part of its sales. No single domestic or foreign customer accounts for more than 10% of consolidated sales. ORDERS. Generally, orders are filled within a few days of receipt and the backlog of unfilled orders at any particular time is not material. GOVERNMENT BUSINESS. No material portion of the Company's business is subject to negotiation of profits or termination of contracts at the election of the government. COMPETITION. The Company is the U.S. market leader in the fruit spreads, dessert topping, natural peanut butter, and peanut butter combination categories. The Company's business is highly competitive as all its brands compete for retail shelf space with other advertised and branded products as well as unadvertised and private label products. The growth of alternative store formats (i.e. warehouse club and mass merchandise stores) and changes in business practices, resulting from both technological advances and new industry techniques, have added additional variables for companies in the food industry to consider in order to remain competitive. The principal methods of and factors in competition are product quality, price, advertising, and promotion. 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. In relation to consolidated assets and operating expenses, amounts expensed for research and development in each of the areas and in the aggregate were not material in any of the last three years. 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 capital expenditures, earnings, or competitive position of the Company. EMPLOYEES. At April 30, 1998, the Company had approximately 2,000 full-time employees, worldwide. SEGMENT AND GEOGRAPHIC INFORMATION. Information concerning international operations for the years 1998, 1997, and 1996 is hereby incorporated by reference from the 1998 Annual Report to Shareholders, on pages 18 and 19 under Note B: "Operating Segments". 4 ITEM 2. PROPERTIES The table below lists all the Company's manufacturing and fruit processing facilities. All of the Company's properties are maintained and updated on a regular basis, and the Company continues to make investment for expansion and technological improvements. The properties listed below are owned. The Company also leases property in Pottstown, Pennsylvania to a subsidiary of Flowers Industries, Inc. The corporate headquarters are located in Orrville, Ohio.
DOMESTIC MANUFACTURING LOCATIONS PRODUCTS PRODUCED - ------------------------------------------------------------------------------------------------------------- Orrville, Ohio Fruit spreads, toppings, industrial fruit products Salinas, California Fruit spreads, toppings Memphis, Tennessee Fruit spreads, toppings Ripon, Wisconsin Fruit spreads, toppings, condiments New Bethlehem, Pennsylvania Peanut butter and "Goober" products Chico, California Fruit and vegetable juices, beverages Havre de Grace, Maryland Fruit and vegetable juices, beverages FRUIT PROCESSING LOCATIONS FRUIT PROCESSED - ------------------------------------------------------------------------------------------------------------- Watsonville, California Strawberries, oranges, apples, peaches, apricots. Also, produces industrial fruit products. Woodburn, Oregon Strawberries, raspberries, blackberries, blueberries. Also, produces industrial fruit products. Grandview, Washington Grapes, cherries, strawberries, cranberries Oxnard, California Strawberries INTERNATIONAL MANUFACTURING LOCATIONS PRODUCTS PRODUCED - ------------------------------------------------------------------------------------------------------------- Ste-Marie, Quebec, Canada Fruit spreads, pie fillings, sweet spreads Kyabram, Victoria, Australia Fruit spreads, toppings, fruit pulps, fruit bars
ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any pending legal proceeding that would be considered material. ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 5 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The information pertaining to the market for the Company's Common Shares and other related shareholder information is hereby incorporated by reference from the Company's 1998 Annual Report to Shareholders under the caption "Stock Price Data" on page 6. ITEM 6. SELECTED FINANCIAL DATA Five year summaries of selected financial data for the Company and discussions of accounting changes which materially affect the comparability of the selected financial data are hereby incorporated by reference from the Company's 1998 Annual Report to Shareholders under the following captions and page numbers: "Five-Year Summary of Selected Financial Data" on page 5 and Note D: "Divestiture" on pages 19 and 20. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS Management's discussion and analysis of results of operations and financial condition, including a discussion of liquidity and capital resources, is hereby incorporated by reference from the Company's 1998 Annual Report to Shareholders, on pages 7 through 9. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated financial statements of the Company at April 30, 1998, 1997, and 1996, and for each of the three years in the period ended April 30, 1998, with the report of independent auditors and selected unaudited quarterly financial data, are hereby incorporated by reference from the Company's 1998 Annual Report to Shareholders on page 6 and pages 10 through 26. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 6 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding directors and nominees for directorship is incorporated herein by reference from the Company's definitive Proxy Statement, dated July 13, 1998, for the 1998 Annual Meeting of Shareholders on August 18, 1998, on pages 2 through 4, under the caption "Election of Directors". Information regarding disclosure of late filers pursuant to Item 405 of Regulation S-K is incorporated herein by reference from the Company's definitive Proxy Statement, dated July 13, 1998, for the 1998 Annual Meeting of Shareholders on August 18, 1998, on pages 12 and 13 under the caption "Ownership of Common Shares". EXECUTIVE OFFICERS OF THE COMPANY The names, ages as of July 1, 1998, and 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. Paul H. Smucker is the father of Timothy P. and Richard K. Smucker and the father-in-law of H. Reid Wagstaff. All of the officers have held various positions with the Company for more than five years.
Years with Served as an Name Age Company Position Officer Since - ---------------------------------------------------------------------------------------------------------------------- Paul H. Smucker 81 59 Chairman of the Executive Committee 1946 Timothy P. Smucker 54 29 Chairman 1973 Richard K. Smucker 50 25 President 1974 Mark R. Belgya 37 13 Corporate Controller 1997 Vincent C. Byrd 43 21 Vice President and General Manager, Consumer 1988 Market K. Edwin Dountz 56 22 Vice President - Sales 1982 Fred A. Duncan 52 20 Vice President and General Manager, Industrial 1984 Market Steven J. Ellcessor 46 12 Vice President - Administration, Secretary, and 1986 General Counsel Robert E. Ellis 51 20 Vice President - Human Resources 1996 Richard G. Jirsa 52 23 Vice President - Information Services 1978 Charles A. Laine 62 33 Vice President and General Manager, 1984 International and Beverage Markets R. Alan McFalls 53 21 Vice President - Corporate Development and 1984 Planning John D. Milliken 53 24 Vice President - Logistics 1981 Robert R. Morrison 63 37 Vice President - Operations 1967 H. Reid Wagstaff 63 22 Vice President - Government and Environmental 1994 Affairs Philip P. Yuschak 59 22 Treasurer 1989
7 ITEM 11. EXECUTIVE COMPENSATION Information regarding the compensation of directors and executive officers is incorporated by reference from the Company's definitive Proxy Statement, dated July 13, 1998, for the 1998 Annual Meeting of Shareholders on August 18, 1998, under the following captions and page numbers: "Additional Information Concerning the Board of Directors of the Company" on page 4, and beginning with "Report of the Executive Compensation Committee of the Board of Directors" on page 5 and continuing through "Pension Plan" on page 10. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding security ownership of certain beneficial owners, of the named executive officers, and of directors and executive officers as a group, is hereby incorporated by reference from the Company's definitive Proxy Statement, dated July 13, 1998, for the 1998 Annual Meeting of Shareholders on August 18, 1998, on pages 12 and 13 under the caption "Ownership of Common Shares." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions is hereby incorporated by reference from the Company's definitive Proxy Statement dated July 13, 1998, for the 1998 Annual Meeting of Shareholders on August 18, 1998, under the captions "Election of Directors" and "Additional Information Concerning the Board of Directors of the Company" on pages 2 through 4. 8 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) 1, 2. Financial Statements and Financial Statement Schedule The index to Consolidated Financial Statements and Financial Statement Schedule is included on page F-1 of this Report. 3. Exhibits
Exhibit No. Description - -------------------------------------------------------------------------------- 3(a) 1991 Amended Articles of Incorporation incorporated by reference to the 1992 Annual Report on Form 10-K. 3(b) Amended Regulations incorporated by reference to the 1988 Annual Report on Form 10-K. 10(a) Amended Restricted Stock Bonus Plan incorporated by reference to the 1994 Annual Report on Form 10-K. 10(b) Top Management Supplemental Retirement Benefit Plan incorporated by reference to the 1994 Annual Report on Form 10-K. 10(c) 1987 Stock Option Plan incorporated by reference to the 1994 Annual Report on Form 10-K. 10(d) Management Incentive Plan incorporated by reference to the 1996 Annual Report on Form 10-K. 10(e) Nonemployee Director Stock Plan dated January 1, 1997 incorporated by reference to the 1997 Annual Report on Form 10-K. 13 Excerpts from 1998 Annual Report to Shareholders 21 Subsidiaries of the Registrant 23 Consent of Independent Auditors 24 Powers of Attorney 27 Financial Data Schedules
9 All other required exhibits are either inapplicable to the Company or require no answer. Copies of exhibits are not attached hereto, but the Company will furnish any of the foregoing exhibits to any shareholder upon written request. Please address inquiries to: The J. M. Smucker Company, Strawberry Lane, Orrville, Ohio 44667, Attention: Steven J. Ellcessor, Secretary. A fee of $1 per page will be charged to help defray the cost of handling, copying, and return postage. (b) Reports on Form 8-K filed in the Fourth Quarter of 1998. No reports on Form 8-K were required to be filed during the last quarter of the period covered by this report. (c) The response to this portion of Item 14 is submitted as a separate section of this report. (d) The response to this portion of Item 14 is submitted as a separate section of this report. 10 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. Date: July 24, 1998 The J. M. Smucker Company /s/ Steven J. Ellcessor ----------------------- By: Steven J. Ellcessor Vice President--Administration, Secretary, and General Counsel Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
- ---------------------------------------- Paul H. Smucker Chairman of the Executive Committee and Director (Principal Executive Officer) - ---------------------------------------- Timothy P. Smucker Chairman and Director (Principal Executive Officer) - ---------------------------------------- Richard K. Smucker President and Director (Principal Executive Officer) (Principal Financial Officer) - ---------------------------------------- Mark R. Belgya Corporate Controller (Principal Accounting Officer) - ---------------------------------------- Kathryn W. Dindo Director - ---------------------------------------- Elizabeth Valk Long Director /s/ Steven J. Ellcessor - ---------------------------------------- ----------------------- Russell G. Mawby Director By: Steven J. Ellcessor Attorney-in-Fact - ---------------------------------------- Charles S. Mechem, Jr. Director Date: July 24, 1998 - ---------------------------------------- Robert R. Morrison Director - ---------------------------------------- William H. Steinbrink Director - ---------------------------------------- Benjamin B. Tregoe, Jr. Director - ---------------------------------------- William Wrigley, Jr. Director
11 THE J. M. SMUCKER COMPANY ANNUAL REPORT ON FORM 10-K ITEMS 14(a) (1) AND (2), (c) AND (d) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE CERTAIN EXHIBITS FINANCIAL STATEMENT SCHEDULE
Form Annual 10-K Report To Report Shareholder -------- ------------- Data incorporated by reference from the 1998 Annual Report to Shareholders of The J. M. Smucker Company: Consolidated Balance Sheets at April 30, 1998 and 1997 . . . . . . . . . . . . 12-13 For the years ended April 30, 1998, 1997, and 1996: Statements of Consolidated Income . . . . . . . . . . . . . . . . . . . . . 11 Statements of Consolidated Cash Flows . . . . . . . . . . . . . . . . . . . 14 Statements of Consolidated Shareholders' Equity . . . . . . . . . . . . . . 15 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 16-26 Consolidated financial statement schedule at April 30, 1998, or for the years ended April 30, 1998, 1997, and 1996: II. Valuation and qualifying accounts . . . . . . . . . . . . . . . . . . . F-2
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. F-1 12 THE J. M. SMUCKER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED APRIL 30, 1998, 1997 AND 1996 (DOLLARS IN THOUSANDS)
Balance at Charged to Charged to Deduc- Balance at Classification Beginning Costs and Other tions End of of Year Expenses Accounts (A) Year - --------------------------------------------------------------------------------------------------------------------------- 1998: Valuation allowance for deferred tax assets $2,094 $ (363) $ --- $ --- $1,731 Allowance for doubtful accounts 353 163 --- 88 428 -------------------------------------------------------------------------- $2,447 $ (200) $ --- $ 88 $2,159 ========================================================================== 1997: Valuation allowance for deferred tax assets $2,009 $ 85 $ --- $ --- $2,094 Allowance for doubtful accounts 687 93 --- 427 353 -------------------------------------------------------------------------- $2,696 $ 178 $ --- $ 427 $2,447 ========================================================================== 1996: Valuation allowance for deferred tax assets $2,660 $ (651) $ --- $ --- $2,009 Allowance for doubtful accounts 475 385 --- 173 687 -------------------------------------------------------------------------- $3,135 $ (266) $ --- $ 173 $2,696 ==========================================================================
(A) Uncollectible accounts written off, net of recoveries. F-2 EX-13 2 EXHIBIT 13 1 Exhibit 13
Five-Year Summary of Selected Financial Data Year Ended April 30, - ----------------------------------------------------- -------------- --------------- -------------- --------------- -------------- (Dollars in thousands, except per share data) 1998 1997 1996 1995 1994 - ----------------------------------------------------- -------------- --------------- -------------- --------------- -------------- Statement of Income: Net sales (1) $565,476 $524,107 $517,832 $503,618 $472,756 Income from continuing operations before cumulative effect of change in accounting method 36,348 30,935 29,453 32,461 31,931 Income (Loss) from discontinued operations (2) --- --- (140) 3,842 (1,433) Cumulative effect of change in accounting method (3) (2,958) --- --- --- --- Net income 33,390 30,935 29,313 36,303 30,498 - ----------------------------------------------------- -------------- --------------- -------------- --------------- -------------- Financial Position: Long-term debt --- --- 60,800 67,100 48,558 Total assets 407,973 384,773 424,952 405,995 362,851 - ----------------------------------------------------- -------------- --------------- -------------- --------------- -------------- Other Data: Earnings per Common Share (4): Income from continuing operations before cumulative effect of change in accounting method 1.25 1.06 1.01 1.12 1.10 Income (Loss) from discontinued operations (2) --- --- --- 0.13 (0.05) Cumulative effect of change in accounting method (3) (0.10) --- --- --- --- Net income 1.15 1.06 1.01 1.25 1.05 Income from continuing operations before cumulative effect of change in accounting method - assuming dilution 1.24 1.06 1.00 1.11 1.09 Income (Loss) from discontinued operations - assuming dilution (2) --- --- --- 0.13 (0.05) Cumulative effect of change in accounting method - assuming dilution (3) (0.10) --- --- --- --- Net income - assuming dilution 1.14 1.06 1.00 1.24 1.04 Dividends declared per Common Share: Class A 0.53 0.52 0.52 0.505 0.47 Class B 0.53 0.52 0.52 0.505 0.47 - ----------------------------------------------------- -------------- --------------- -------------- --------------- --------------
(1) Net sales for 1994 through 1997 reflect an accounting reclassification. (2) Represents "Mrs. Smith's" as described in Note D to the consolidated financial statements. (3) Reflects, in 1998, the cumulative effect of adopting the provisions of the Emerging Issues Task Force of the Financial Accounting Standards Board consensus ruling No. 97-13, Accounting for Costs Incurred in Connection with a Consulting Contract that Combines Business Process Reengineering and Information Technology Transformation (EITF 97-13), as discussed in Note A to the consolidated financial statements. (4) Per share amounts prior to 1998 have been restated to comply with Statement of Financial Accounting Standards No. 128, Earnings per Share (SFAS 128). For further discussion of earnings per share and the impact of SFAS 128, see Note C to the consolidated financial statements. 2 Summary of Quarterly Results of Operations The following is a summary of unaudited quarterly results of operations for the years ended April 30, 1998 and 1997. The Company adopted Statement of Financial Accounting Standards No. 128, Earnings per Share (SFAS 128), during the quarter ended January 31, 1998. All per share amounts shown for periods prior to adoption have been restated to conform to the provisions of SFAS 128.
Net Income per Common Net Income per Common Share (Dollars in thousands, except per share data) Share (2) - Assuming Dilution (2) ----------------------- ------------------------------- Income Income Income Before Before Before Cumulative Cumulative Cumulative (1) (1) Effect of Effect of Effect of Quarter Net Gross Accounting Net Accounting Net Accounting Net Ended Sales Profit Change Income Change Income Change Income - -------- ------------- ----------- ------------ ------------ --------- ------------- --------- ----------------- ---------------- 1998 July 31 $147,389 $51,396 $9,973 $9,973 $0.34 $0.34 $0.34 $0.34 October 31 145,187 49,213 8,602 8,602 0.30 0.30 0.29 0.29 January 31 130,658 47,232 8,033 5,075 0.27 0.17 0.27 0.17 April 30 142,242 52,022 9,740 9,740 0.34 0.34 0.33 0.33 - -------- ------------- ----------- ------------ ------------ --------- ------------- --------- ----------------- ---------------- 1997 July 31 $129,629 $43,746 $7,489 $7,489 $0.26 $0.26 $0.26 $0.26 October 31 138,296 44,139 7,818 7,818 0.27 0.27 0.27 0.27 January 31 120,251 39,868 6,533 6,533 0.22 0.22 0.22 0.22 April 30 135,931 47,405 9,095 9,095 0.31 0.31 0.31 0.31 - -------- ------------- ----------- ------------ ------------ --------- ------------- --------- ----------------- ----------------
(1) Net sales and gross profit for 1997 reflect an accounting reclassification. (2) Annual earnings per share may not equal the sum of the individual quarters due to differences in the average number of shares outstanding during the respective periods. Stock Price Data The Company's Class A and Class B Common Shares are listed on the New York Stock Exchange - ticker symbols SJMA and SJMB, respectively. The table below presents the high and low market prices for the shares and the quarterly dividends declared. The number of Class A and Class B shareholders of record as of June 30, 1998 was 6,238 and 3,968, respectively.
Class A Common Shares Class B Common Shares - -------- ----------------- --------- -------- ------------- ----------- ----------------- --------- --------- ------------ Quarter Ended High Low Dividends Quarter Ended High Low Dividends - -------- ----------------- --------- -------- ------------- ----------- ----------------- --------- --------- ------------ 1998 July 31 $24.13 $16.38 $0.13 July 31 $23.00 $16.13 $0.13 October 31 29.44 22.63 0.13 October 31 27.00 22.25 0.13 January 31 27.75 23.63 0.13 January 31 25.25 22.81 0.13 April 30 28.06 23.63 0.14 April 30 27.19 23.75 0.14 - -------- ----------------- --------- -------- ------------- ----------- ----------------- --------- --------- ------------ 1997 July 31 $21.75 $17.75 $0.13 July 31 $20.38 $17.50 $0.13 October 31 18.25 16.50 0.13 October 31 17.75 15.38 0.13 January 31 18.75 16.50 0.13 January 31 17.38 15.50 0.13 April 30 18.88 16.25 0.13 April 30 17.75 15.63 0.13 - -------- ----------------- --------- -------- ------------- ----------- ----------------- --------- --------- ------------
3 Management's Discussion and Analysis Results of Operations COMPARISON OF 1998 WITH 1997 Fiscal 1998 sales increased $41,369,000, or nearly 8%, over those of the prior year. The largest percentage increase came in the industrial area where sales once again achieved double-digit growth over last year. The industrial area's growth came from a combination of new and existing products in the bakery, yogurt filling, and frozen dairy categories. Sales also increased significantly in the domestic fruit spreads category with the majority of the increase coming from the Company's grocery and mass retail markets. Record sales in the mass retail market resulted in this channel contributing nearly 15% of the Company's overall sales growth for the year. The addition of the "Kraft" brand fruit spreads business, acquired during the fourth quarter of fiscal 1997, also contributed to the fiscal 1998 sales increase. Sales of dessert toppings rebounded from 1997 and "Goober" sales also were up. In the international area, sales and profit contribution were up over fiscal 1997. Although sales were up over prior year, the increase was impacted by the effect of a stronger U.S. dollar versus the Australian and Canadian dollars. If the relation of the latter two currencies to the U.S. dollar had remained constant with fiscal 1997 levels, the Company would have reported additional sales of approximately $4,000,000. The Company's consumer businesses in Australia and Canada remained strong with share of market gains achieved in both countries. Sales gains were also realized in export sales to the Greater Europe and Latin America markets. Income before the cumulative effect of an accounting change increased approximately 17% over last year as earnings per share rose from $1.06 to $1.25. During the third quarter, the Emerging Issues Task Force of the Financial Accounting Standards Board issued a consensus ruling requiring that certain "business process reengineering and information technology transformation" costs that had previously been capitalized need to be expensed as incurred. In accordance with this ruling, the Company incurred a one time, net of tax charge in the third quarter of $2,958,000, or $.10 per share, for the cumulative effect of expensing previously capitalized costs. This cumulative effect adjustment reduced earnings per share for the year to $1.15. In addition to the sales growth, certain other factors contributed to the improved earnings. The Company's gross profit improved from 33.4% of sales last year to 35.3% in fiscal 1998 due mostly to lower raw material fruit and sweetener costs and a more profitable mix of products sold. In addition, interest expense decreased $1,603,000 from last year, as the Company incurred only seasonal borrowings against its lines of credit. Somewhat offsetting these cost reductions was an increase in selling, distribution, and administrative expenses with the majority of the higher costs relating to two areas. First, marketing expenditures increased approximately 25% in fiscal 1998, primarily in support of initiatives within the fruit spreads category. Secondly, administrative expenses were up significantly due to costs incurred in conjunction with the Company's ongoing information technology reengineering (ITR) project. 4 COMPARISON OF 1997 WITH 1996 During 1997, sales increased $6,275,000, or 1%, over those of the prior year. The Company's industrial, foodservice, and beverage business areas all realized sales increases. The largest increase came in the industrial area, which achieved double-digit growth over fiscal 1996. The majority of the increase was related to an increase in new and existing business with current customers. The foodservice area realized a 6% increase in sales, due mostly to volume gains in the portion control and toppings categories. In the beverage area, the introduction of the "R. W. Knudsen Family's Simply Nutritious" line of functional / fortified beverages into the natural foods market accounted for much of that area's growth. Sales in the consumer area were down 3% compared to fiscal 1996 sales as a decline in the grocery market was slightly offset by an increase in the mass retail market. Although sales in the consumer area were down, total fruit spreads volume in fiscal 1997 was up over 3%, as the Company recognized substantial gains in its share of the fruit spreads market during the latter half of the year. The growth was primarily in the area of traditional fruit spreads in the mass retail and warehouse clubstore markets and expanded distribution of "Smucker's Light", which the Company rolled out nationally during fiscal 1997. While the rollout of "Light" enabled the Company to expand its dominant position in the low calorie / light segment, the fruit-only segment continued to decline. In the peanut butter category, sales increased over last year due to volume growth in "Goober" products and the rollout of reduced fat natural peanut butter. Dessert toppings sales were down from fiscal 1996, due mostly to significant competitive activity. Overall, profitability in the area decreased from fiscal 1996 due to increased marketing expenses, higher fruit costs, and mix of products sold. In the international area, operating income improved approximately $2,650,000, although sales were down approximately $4,500,000 from the prior year. The sales decline was mostly due to the divestiture of Elsenham Quality Foods, the Company's U.K. subsidiary, in December 1995. The Company realized sales growth in its Australasian (including China) and Mexican markets. Approximately one-half of the increase in the Australasian market was due to increased sales, and the remainder resulted from favorable exchange rates. 5 Net income increased approximately 6% in fiscal 1997 as earnings per share rose from $1.01 to $1.06. Sales growth contributed to the overall increase in earnings, particularly in the fourth quarter. The gross profit percentage on these sales decreased from 34.9% to 33.4% as a result of a general increase in the overall cost of fruit raw materials, although this was mitigated somewhat in the second half of the year by the effect of lower corn sweetener prices. Other factors that contributed to the improved profitability for the year included the Company's ongoing cost reduction efforts, including improvements in plant efficiencies and reduced freight and distribution costs, along with the previously mentioned improvement in the Company's international business. Interest expense also decreased $645,000 as the Company reduced its outstanding debt balance during the year. Capital Resources and Liquidity The Company's overall financial condition remained strong throughout the year as cash provided from operations helped increase the April 30, 1998, cash balances by $12,393,000 compared to the end of fiscal 1997. Significant uses of cash consisted of capital expenditures, dividends, and the repurchase of stock. During the year, the Company invested $29,058,000 in capital expenditures while dividends paid on all Common Shares were at $0.52 per share or $15,100,000 in total. In addition, the Company repurchased approximately 150,000 shares during the year as part of a previously approved repurchase plan authorized during fiscal 1997. The Company has available an uncommitted line of credit providing up to $25,000,000 in short-term borrowings. The Company may borrow against this line of credit during fiscal 1999 to finance its annual procurement of fruit and to meet other cash requirements. Fiscal 1999 capital expenditures are estimated at approximately $30,000,000, of which $6,000,000 is anticipated to relate to the ITR project. Subsequent to April 30, 1998, subsidiaries of the Company completed two small acquisitions utilizing available cash. In Australia, Henry Jones Foods Pty. Ltd. acquired the licensing rights to the "Allowrie" jam brand and certain other assets of Silvan Foods. In the U.S., Smucker Quality Beverages, Inc. acquired Garratt & Gunn Ltd., which markets the "Mrs. Wiggles Rocket Juice" brand of fortified beverages. Assuming there are no other significant acquisitions or other investments requiring cash outlays and the results of operations are at least comparable to fiscal 1998, the Company expects cash provided from operations and borrowings to be sufficient to meet cash requirements in fiscal 1999. 6 Year 2000 The Company is in the process of replacing its primary computer systems as part of its information technology reengineering (ITR) project, which is intended primarily to increase efficiency in operations through both the addition of an enterprise-wide information system and the reengineering of business processes. In connection with the Company's ITR project, the Company has completed an assessment of its Year 2000 requirements. The new systems will all be fully Year 2000 compliant. The total ITR project cost is estimated at approximately $34,000,000, which includes $21,000,000 for the purchase of software and other capital costs and $13,000,000 that will be expensed as incurred. To date, the Company has spent approximately $16,000,000 towards the project of which $8,000,000 has been capitalized at April 30, 1998. Capitalized costs will be expensed over a period ranging from three to seven years in accordance with the Company's accounting policy. A substantial portion of the ITR project is expected to be completed prior to any anticipated impact of the Year 2000 problem on the Company's operating systems. With regard to those systems not being replaced as part of the ITR project, the Company has identified the software that will be affected by the Year 2000 problem and has plans in place to make corrections. The Company estimates that $2,000,000, in addition to the ITR costs, will be expensed specifically related to software modifications to existing systems. The Company believes that with conversion to the new software and with the scheduled modifications to existing software, the Year 2000 issue will not pose significant operational problems for its computer systems. The costs of the ITR project and the date on which the Company believes it will complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. 7 Certain Forward-Looking Statements This annual report includes certain forward-looking statements that are based on current expectations and are subject to a number of risks and uncertainties. Actual results may differ depending on a number of factors including: the success of the Company's marketing programs during the coming year; competitive activity; the mix of products sold; the level of marketing expenditures needed to generate sales; an increase in fruit costs or costs of other significant ingredients, including sweeteners; the ability of the Company to maintain and/or improve sales and earnings performance of its non-retail business areas; foreign currency exchange rate fluctuations; and the successful implementation of the Company's information technology reengineering project and Year 2000 modifications. 8 Statements of Consolidated Income The J. M. Smucker Company
- -------------------------------------------------------------------------------------------------------------------- Year Ended April 30, - ----------------------------------------------------------------- --------------- ---------------- ---------------- (Dollars in thousands, except per share data) 1998 1997 1996 - ----------------------------------------------------------------- --------------- ---------------- ---------------- Net sales $565,476 $524,107 $517,832 Cost of products sold 365,613 348,949 337,095 - ----------------------------------------------------------------- --------------- ---------------- ---------------- Gross Profit 199,863 175,158 180,737 Selling, distribution, and administrative expenses 142,799 121,954 126,743 - ----------------------------------------------------------------- --------------- ---------------- ---------------- Operating Income 57,064 53,204 53,994 Interest income 2,525 2,048 1,173 Other income (expense) - net 1,315 (338) (983) - ----------------------------------------------------------------- --------------- ---------------- ---------------- 60,904 54,914 54,184 Interest expense 145 1,748 2,393 Loss on disposal of foreign subsidiary --- --- 6,996 - ----------------------------------------------------------------- --------------- ---------------- ---------------- Income from Continuing Operations Before Income Taxes and Cumulative Effect of Change in Accounting Method 60,759 53,166 44,795 Income taxes 24,411 22,231 15,342 - ----------------------------------------------------------------- --------------- ---------------- ---------------- Income from Continuing Operations Before Cumulative Effect of Change in Accounting Method 36,348 30,935 29,453 Discontinued Operations: Income from discontinued operations, net of income taxes --- --- 1,284 Loss on discontinuance, net of income taxes --- --- (1,424) Cumulative effect of change in accounting method, net of tax benefit of $1,980 (2,958) --- --- - ----------------------------------------------------------------- --------------- ---------------- ---------------- Net Income $ 33,390 $ 30,935 $ 29,313 - ----------------------------------------------------------------- --------------- ---------------- ---------------- Earnings per Common Share: Income from continuing operations before cumulative effect of change in accounting method $ 1.25 $ 1.06 $ 1.01 Cumulative effect of change in accounting method (0.10) --- --- - ----------------------------------------------------------------- --------------- ---------------- ---------------- Net Income per Common Share $ 1.15 $ 1.06 $ 1.01 - ----------------------------------------------------------------- --------------- ---------------- ---------------- Earnings per Common Share - Assuming Dilution: Income from continuing operations before cumulative effect of change in accounting method $ 1.24 $ 1.06 $ 1.00 Cumulative effect of change in accounting method (0.10) --- --- - ----------------------------------------------------------------- --------------- ---------------- ---------------- Net Income per Common Share - Assuming Dilution $ 1.14 $ 1.06 $ 1.00 ================================================================= =============== ================ ================
See notes to consolidated financial statements 9 Consolidated Balance Sheets The J. M. Smucker Company
Assets - ------------------------------------------------------------------------ -------------------------------- April 30, - ------------------------------------------------------------------------ -------------------------------- (Dollars in thousands) 1998 1997 - ------------------------------------------------------------------------ --------------- ---------------- Current Assets Cash and cash equivalents $ 36,484 $ 24,091 Trade receivables, less allowance for doubtful accounts 48,732 48,140 Inventories: Finished products 41,264 39,054 Raw materials, containers, and supplies 62,201 55,052 - ------------------------------------------------------------------------ --------------- ---------------- 103,465 94,106 Other current assets 12,825 12,135 - ------------------------------------------------------------------------ --------------- ---------------- Total Current Assets 201,506 178,472 - ------------------------------------------------------------------------ --------------- ---------------- Property, Plant, and Equipment Land and land improvements 15,058 13,820 Buildings and fixtures 78,658 74,709 Machinery and equipment 177,372 170,160 Construction in progress 13,147 6,881 - ------------------------------------------------------------------------ --------------- ---------------- 284,235 265,570 Accumulated depreciation (140,521) (125,935) - ------------------------------------------------------------------------ --------------- ---------------- Total Property, Plant, and Equipment 143,714 139,635 - ------------------------------------------------------------------------ --------------- ---------------- Other Noncurrent Assets Goodwill 32,722 34,041 Trademarks and patents 9,688 11,352 Other assets 20,343 21,273 - ------------------------------------------------------------------------ --------------- ---------------- Total Other Noncurrent Assets 62,753 66,666 - ------------------------------------------------------------------------ --------------- ---------------- $407,973 $384,773 ======================================================================== =============== ================
10
Liabilities and Shareholders' Equity ------------------------------------------------------------------------- -------------------------------- April 30, ------------------------------------------------------------------------- -------------------------------- (Dollars in thousands) 1998 1997 ------------------------------------------------------------------------- ----------------- -------------- Current Liabilities Accounts payable $ 41,410 $ 36,582 Salaries, wages, and additional compensation 11,225 9,636 Accrued marketing and merchandising 13,319 11,057 Income taxes 6,731 4,116 Dividends payable 4,082 3,823 Other current liabilities 8,133 6,802 ------------------------------------------------------------------------- ----------------- -------------- Total Current Liabilities 84,900 72,016 ------------------------------------------------------------------------- ----------------- -------------- Noncurrent Liabilities Postretirement benefits other than pensions 11,858 11,068 Deferred income taxes 6,804 7,604 Other noncurrent liabilities 2,234 2,194 ------------------------------------------------------------------------- ----------------- -------------- Total Noncurrent Liabilities 20,896 20,866 ------------------------------------------------------------------------- ----------------- -------------- Shareholders' Equity Serial Preferred Shares - no par value: Authorized - 3,000,000 shares; outstanding - none --- --- Common Shares - no par value: Class A - Authorized - 35,000,000 shares; outstanding - 14,387,402 in 1998 and 14,423,126 in 1997 (net of 1,824,886 and 1,789,162 treasury shares, respectively), at stated value 3,597 3,606 Class B - (Non-voting) Authorized - 35,000,000 shares; outstanding - 14,754,734 in 1998 and 14,785,203 in 1997 (net of 1,457,554 and 1,427,085 treasury shares, respectively), at stated value 3,689 3,696 Additional capital 14,608 12,439 Retained income 298,316 284,605 Less: Deferred compensation (2,255) (1,396) Amount due from ESOP Trust (9,787) (10,027) Currency translation adjustment (5,991) (1,032) ------------------------------------------------------------------------- ----------------- -------------- Total Shareholders' Equity 302,177 291,891 ------------------------------------------------------------------------- ----------------- -------------- $407,973 $384,773 ========================================================================= ================= ==============
See notes to consolidated financial statements 11 Statements of Consolidated Cash Flows The J. M. Smucker Company
- ---------------------------------------------------------------------------- --------------------------------------------- Year Ended April 30, - ---------------------------------------------------------------------------- -------------- -------------- --------------- (Dollars in thousands) 1998 1997 1996 - ---------------------------------------------------------------------------- -------------- -------------- --------------- Operating Activities Income from continuing operations $33,390 $30,935 $29,453 Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Depreciation 18,780 18,337 15,288 Amortization 3,759 3,502 2,185 Cumulative effect of change in accounting method, net of tax benefit 2,958 --- --- Loss on disposal of foreign subsidiary --- --- 6,996 Deferred income tax (benefit) expense (2,285) 4,026 764 Changes in assets and liabilities, net of effects from business acquisitions and discontinued operations: Trade receivables (1,697) (8,043) 1,931 Inventories (10,522) 1,792 (9,738) Other current assets 653 (1,174) (350) Accounts payable and accrued items 10,855 341 3,841 Income taxes 5,683 7,114 (6,856) Other - net (533) 2,693 4,297 - ---------------------------------------------------------------------------- -------------- -------------- --------------- Net Cash Provided by Operating Activities 61,041 59,523 47,811 - ---------------------------------------------------------------------------- -------------- -------------- --------------- Investing Activities Business acquired - net of cash (1,406) (5,593) --- Additions to property, plant, and equipment (29,058) (15,751) (25,585) Proceeds from the sale of property, plant, and equipment 682 627 722 Proceeds from the sale of assets of discontinued operations --- 44,695 --- Other - net 1,196 767 1,494 - ---------------------------------------------------------------------------- -------------- -------------- --------------- Net Cash (Used for) Provided by Investing Activities (28,586) 24,745 (23,369) - ---------------------------------------------------------------------------- -------------- -------------- --------------- Financing Activities Reduction in long-term debt --- (60,800) (6,300) (Purchase) sale of Common Shares - net (4,465) (245) 98 Net amount received from ESOP 240 224 190 Dividends paid (15,100) (15,113) (15,123) Other - net 160 140 1,104 - ---------------------------------------------------------------------------- -------------- -------------- --------------- Net Cash (Used for) Financing Activities (19,165) (75,794) (20,031) - ---------------------------------------------------------------------------- -------------- -------------- --------------- Cash flows provided by continuing operations 13,290 8,474 4,411 Cash flows (used in) provided by discontinued operations --- (1,858) 1,901 Effect of exchange rate changes on cash (897) (172) 91 - ---------------------------------------------------------------------------- -------------- -------------- --------------- Net increase in cash and cash equivalents 12,393 6,444 6,403 Cash and cash equivalents at beginning of year 24,091 17,647 11,244 - ---------------------------------------------------------------------------- -------------- -------------- --------------- Cash and Cash Equivalents at End of Year $36,484 $24,091 $17,647 - ---------------------------------------------------------------------------- -------------- -------------- ---------------
( ) Denotes use of cash See notes to consolidated financial statements 12 Statements of Consolidated Shareholders' Equity The J. M. Smucker Company
Total COMMON SHARES Deferred Amount Currency Share- Additional Retained Compen- due from Translation holders' (Dollars in thousands) Class A Class B Capital Income sation ESOP Trust Adjustment Equity - --------------------------- --------- -------- ------------ ----------- ---------- ------------ ------------ ---------- Balance at April 30, 1995 $3,596 $3,695 $10,963 $254,854 $(1,292) $(10,441) $(3,383) $257,992 Net income 29,313 29,313 Purchase of treasury shares (14) (14) Stock plans 1 1 110 565 677 Cash dividends declared - $.52 a share (15,117) (15,117) Other 396 190 2,904 3,490 - --------------------------- --------- -------- ------------ ----------- ---------- ------------ ------------ ---------- Balance at April 30, 1996 $3,597 $3,696 $11,469 $269,036 $ (727) $(10,251) $ (479) $276,341 Net income 30,935 30,935 Purchase of treasury shares (3) (2) (240) (245) Stock plans 12 841 (669) 184 Cash dividends declared - $.52 a share (15,126) (15,126) Other 131 224 (553) (198) - --------------------------- --------- -------- ------------ ----------- ---------- ------------ ------------ ---------- Balance at April 30, 1997 $3,606 $3,696 $12,439 $284,605 $(1,396) $(10,027) $(1,032) $291,891 Net income 33,390 33,390 Purchase of treasury shares (33) (18) (94) (4,320) (4,465) Stock plans 24 11 1,629 (859) 805 Cash dividends declared - $.53 a share (15,359) (15,359) Other 634 240 (4,959) (4,085) - --------------------------- --------- -------- ------------ ----------- ---------- ------------ ------------ ---------- Balance at April 30, 1998 $3,597 $3,689 $14,608 $298,316 $(2,255) $(9,787) $(5,991) $302,177
See notes to consolidated financial statements 13 Notes to Consolidated Financial Statements The J. M. Smucker Company Note A: Accounting Policies Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant intercompany transactions and accounts are eliminated in consolidation. Cash and Cash Equivalents: The Company considers all short-term investments with a maturity of three months or less to be cash equivalents. Financial Instruments: The fair value of the Company's financial instruments approximates their carrying amounts. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Stock Compensation: The Company has elected to follow Accounting Principle Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. If compensation cost for the stock options granted in 1998, 1997, and 1996 had been determined based on the fair value method of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), the Company's net income and earnings per share would not have been materially different from amounts determined using the intrinsic method of APB 25. 14 Inventories: The Company values its inventories at the lower of cost or market, with market considered as replacement value. Cost is determined on the last-in, first-out (LIFO) method for the majority of domestic inventories. Inventories not on the LIFO method are valued principally by the first-in, first-out (FIFO) method. If the FIFO method (which approximates current cost) had been used for all inventories, the balances would have been $11,006,000 and $13,643,000 higher than reported at April 30, 1998 and 1997, respectively. Goodwill and Intangible Assets: The excess cost over net assets of businesses acquired and other intangibles, principally trademarks and patents, are being amortized using the straight-line method over periods ranging from 5 to 40 years. The Company continually evaluates whether events or circumstances have occurred which would indicate that the carrying value may not be recoverable or that the useful life warrants revision. When factors indicate that goodwill and other intangible assets should be evaluated for possible impairment, the Company analyzes the future recoverability of the asset using an estimate of the related undiscounted future cash flows of the business, and recognizes any adjustment to the asset's carrying value on a current basis. Accumulated amortization of goodwill and intangible assets at April 30, 1998 and 1997, was $20,223,000 and $17,209,000, respectively. Property, Plant, and Equipment: Property, plant, and equipment are recorded at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets, as follows: 3 to 15 years for machinery and equipment; and 10 to 40 years for buildings, fixtures, and improvements. Property sold or retired is eliminated from the accounts in the year of disposition. Software Costs: The Company capitalizes significant costs associated with the development and installation of internal use software. Amounts deferred are amortized over the estimated useful lives of the software, ranging from 3 to 7 years, beginning with the project's completion. Net deferred internal use software costs as of April 30, 1998 and 1997, were $8,794,000 and $4,976,000, respectively. In November 1997, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board issued a consensus ruling on accounting for business process reengineering costs. EITF 97-13, Accounting for Costs Incurred in Connection with a Consulting Contract that Combines Business Process Reengineering and Information Technology Transformation, requires that the cost of business process reengineering activities that are part of a project to acquire, develop, or implement internal use software, whether done internally or by third parties, be expensed as incurred. Previously, the Company capitalized certain of these costs as systems' development costs. 15 In accordance with EITF 97-13, the Company incurred a one-time, net of tax charge of $2,958,000, or $.10 per share, in the third quarter of fiscal 1998 for the cumulative effect of expensing these previously capitalized costs. Consistent with the requirements of EITF 97-13, no restatement of prior year financial statements has been made. Such costs had primarily been incurred during the fourth quarter of fiscal 1997. 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 separate component of shareholders' equity. Advertising Expense: Advertising costs are expensed as incurred. Advertising expense was $10,809,000, $10,321,000, and $9,421,000 in fiscal 1998, 1997, and 1996, respectively. Recently Issued Accounting Standards: In 1997 and early 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130), SFAS 131, Disclosure about Segments of an Enterprise and Related Information, and SFAS 132, Employers' Disclosures about Pensions and Other Postretirement Benefits. SFAS 130 establishes standards for reporting comprehensive income and its components in the financial statements. Currently, the Company's only significant component of comprehensive income relates to currency translation adjustments. SFAS 131 establishes standards for reporting and disclosing information about operating segments in financial statements. Although the Company has not yet determined the impact of adopting SFAS 131 on its financial statement disclosures, it does not expect any change to its primary financial statements. SFAS 132 revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. The Company is required to adopt these statements in fiscal 1999. Risks and Uncertainties: The principal products of the Company are fruit spreads, dessert toppings, peanut butter, industrial fruit products (such as bakery and yogurt fillings), fruit and vegetable juices, juice beverages, syrups, condiments, and gift packages. Within the domestic markets, the Company's products are primarily sold through brokers to chain, wholesale, cooperative, and independent grocery accounts and other consumer markets, and to foodservice distributors and chains including hotels, restaurants, and institutions. Industrial products are typically sold directly to other food manufacturers. The Company's distribution outside the United States is principally in Canada, Australia and the Pacific Rim, and Latin America. The fruit raw materials used by the Company are generally purchased from 16 independent growers and suppliers, although the Company grows some strawberries for its own use. Because of the seasonal nature and volatility of quantities of most of the crops on which the Company depends, it is necessary to prepare and freeze stocks of fruit and fruit juices and to maintain them in cold storage warehouses. The Company believes there is no concentration of risk with any single customer or supplier whose failure or non-performance would materially affect the Company's results. In addition, the Company insures its business and assets in each country against insurable risks as and to the extent that it deems appropriate based upon an analysis of the relative risks and costs. It believes that the risk of loss from non-insurable events would not have a material adverse effect on the Company's operations as a whole. Reclassifications: Certain prior year amounts have been reclassified to conform to current year classifications. Note B: Operating Segments The Company operates in one industry: the manufacturing and marketing of food products. The following presents information about operations in different geographic areas:
- -------------------------------------- --------------------------------------------------------------- Year Ended April 30, - -------------------------------------- --------------------- --------------------- ------------------- (Dollars in thousands) 1998 1997 1996 - -------------------------------------- --------------------- --------------------- ------------------- Net sales: United States $498,072 $458,063 $447,296 Foreign 67,404 66,044 70,536 - -------------------------------------- --------------------- --------------------- ------------------- Total net sales $565,476 $524,107 $517,832 - -------------------------------------- --------------------- --------------------- ------------------- Operating income: United States $95,853 $85,507 $87,905 Foreign 6,509 5,045 2,392 - -------------------------------------- --------------------- --------------------- ------------------- 102,362 90,552 90,297 Corporate expenses (45,298) (37,348) (36,303) - -------------------------------------- --------------------- --------------------- ------------------- Total operating income $57,064 $53,204 $53,994 - -------------------------------------- --------------------- --------------------- ------------------- Identifiable assets: United States $354,522 $326,739 $365,697 Foreign 53,451 58,034 59,255 - -------------------------------------- --------------------- --------------------- ------------------- Total assets $407,973 $384,773 $424,952 - -------------------------------------- --------------------- --------------------- -------------------
17 Identifiable assets include corporate and all other assets identified with operations in each geographic area. There was no material amount of transfers between geographic areas. Note C: Earnings per Share During 1998, the Company adopted Statement of Financial Accounting Standards No. 128, Earnings per Share (SFAS 128), replacing the previously reported primary and fully diluted earnings per share with earnings per share and earnings per share - assuming dilution. Unlike primary earnings per share, earnings per share exclude the dilutive effects of options, warrants, and convertible securities. All earnings per share amounts prior to 1998 have been restated to comply with SFAS 128. The following table sets forth the computation of earnings per Common Share and earnings per Common Share - assuming dilution:
Year Ended April 30, --------------------------------------------------- -------------- -------------- -------------- (Dollars in thousands, except per share data) 1998 1997 1996 --------------------------------------------------- -------------- -------------- -------------- Numerator: Income before cumulative effect of change in accounting method for earnings per Common Share and earnings per Common Share - assuming dilution $36,348 $30,935 $29,313 --------------------------------------------------- -------------- -------------- -------------- --------------------------------------------------- -------------- -------------- -------------- Denominator: Denominator for earnings per Common Share - weighted-average shares 29,038,723 29,104,969 29,104,124 Effect of dilutive securities: Stock options 247,155 42,190 69,245 Restricted stock 59,400 32,921 27,095 --------------------------------------------------- -------------- -------------- -------------- Denominator for earnings per Common Share - assuming dilution 29,345,278 29,180,080 29,200,464 --------------------------------------------------- -------------- -------------- -------------- Earnings per Common Share before cumulative effect of change in accounting method $ 1.25 $ 1.06 $ 1.01 --------------------------------------------------- -------------- -------------- -------------- Earnings per Common Share before cumulative effect of change in accounting method - assuming dilution $ 1.24 $ 1.06 $ 1.00 --------------------------------------------------- -------------- -------------- --------------
18 Note D: Divestiture In fiscal 1997, the Company completed the sale of its "Mrs. Smith's" frozen pie business to a subsidiary of Flowers Industries, Inc. for a combination of cash and notes receivable. In connection with this divestiture, the Company also entered into agreements to lease certain property, plant, and equipment to a Flowers Industries subsidiary under operating lease agreements. "Mrs. Smith's" revenues were $2,926,000 and $104,582,000 for the years ended April 30, 1997 and 1996, respectively. Based upon debt specifically identified to "Mrs. Smith's", interest expense of $271,000 and $3,244,000 was allocated to discontinued operations in fiscal 1997 and 1996, respectively. A tax benefit of $2,069,000 was allocated to discontinued operations in fiscal 1996. Note E: Retirement Plans The Company has pension plans covering substantially all of its 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. Net periodic pension cost included the following components:
Year Ended April 30, - ---------------------------------------------------------------- -------------- ------------ ----------- (Dollars in thousands) 1998 1997 1996 - ---------------------------------------------------------------- -------------- ------------ ----------- Service cost - benefits earned during the period $1,392 $1,481 $1,537 Interest cost on projected benefit obligation 3,930 3,816 3,684 Actual return on plan assets (15,039) (3,681) (6,343) Deferred gain (loss) 10,641 (498) 2,620 Net amortization and deferral 379 381 373 - ---------------------------------------------------------------- -------------- ------------ ----------- Net periodic pension cost $1,303 $1,499 $1,871 - ---------------------------------------------------------------- -------------- ------------ -----------
19 The following sets forth the funded status and amounts recognized in the Company's consolidated balance sheets for all Company-administered domestic pension plans:
---------------------------------------------------------------- ------------------------------ -------------------------------- April 30, 1998 April 30, 1997 ---------------------------------------------------------------- ------------------------------ -------------------------------- Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed (Dollars in thousands) Benefits Assets Benefits Assets ---------------------------------------------------------------- --------------- -------------- ---------------- --------------- Actuarial present value of accumulated benefit obligation: Vested benefits $40,333 $7,630 $24,237 $16,458 Non-vested benefits 3,490 419 1,550 1,890 ---------------------------------------------------------------- --------------- -------------- ---------------- --------------- Accumulated benefit obligation 43,823 8,049 25,787 18,348 ---------------------------------------------------------------- --------------- -------------- ---------------- --------------- Projected benefit obligation for service rendered to date 48,983 10,173 30,192 20,648 Plan assets at fair value 60,303 3,010 37,195 12,860 ---------------------------------------------------------------- --------------- -------------- ---------------- --------------- Projected benefit obligation less than (in excess of) plan assets 11,320 (7,163) 7,003 (7,788) Unrecognized prior service cost 4,156 615 2,767 2,222 Unrecognized net gain from past experience (9,545) (21) (3,369) (843) Unamortized net (asset) obligation at transition (1,668) 345 (1,878) 465 ---------------------------------------------------------------- --------------- -------------- ---------------- --------------- Prepaid (accrued) pension cost $ 4,263 $(6,224) $ 4,523 $ (5,944) ---------------------------------------------------------------- --------------- -------------- ---------------- ---------------
The expected long-term rate of return on plan assets was 9% for 1998, 1997, and 1996. Plan assets consist of listed stocks and government obligations, including 168,000 of both of the Company's Class A and Class B Common Shares at April 30, 1998 and 1997. The discount rate was 7% in 1998 and 7.75% in 1997, while the rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation was 5% in 1998 and 5.25% in 1997. Prior service costs are being amortized over the average remaining service lives of the employees expected to receive benefits. The Company also charged to operations approximately $716,000, $687,000, and $651,000 in 1998, 1997, and 1996, respectively, for contributions to foreign pension plans and to plans not administered by the Company on behalf of employees subject to certain labor contracts. These amounts were determined in accordance with foreign actuarial computations and provisions of those labor contracts. For those plans not self-administered, the Company is unable to determine its share of either the accumulated plan benefits or net assets available for benefits under those plans. 20 Note F: Postretirement Benefits Other Than Pensions In addition to providing pension benefits, the Company sponsors several unfunded defined postretirement plans which provide health care and life insurance benefits to substantially all active and retired, domestic employees not covered by certain collective bargaining agreements, and their covered dependents and beneficiaries. 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 have reached age 55 and attained 10 years of service. Net periodic postretirement benefit cost related to these plans for 1998, 1997, and 1996 included the following components:
- ----------------------------------------------------- ------------------------------------------- Year Ended April 30, - ----------------------------------------------------- --------------- ------------- ------------- (Dollars in thousands) 1998 1997 1996 - ----------------------------------------------------- --------------- ------------- ------------- Service cost $ 393 $ 424 $ 427 Interest cost 732 708 657 Net amortization and deferral (63) (12) (64) - ----------------------------------------------------- --------------- ------------- ------------- Net periodic postretirement benefit cost $1,062 $1,120 $1,020 - ----------------------------------------------------- --------------- ------------- -------------
The following table sets forth the combined status of the plans as recognized in the consolidated balance sheets at April 30, 1998 and 1997:
- --------------------------------------------------------- -------------------------- April 30, - --------------------------------------------------------- ------------- ------------ (Dollars in thousands) 1998 1997 - --------------------------------------------------------- ------------- ------------ Accumulated benefit obligation: Retirees $ 3,460 $ 3,256 Fully eligible active participants 1,656 1,604 Other active participants 5,384 4,728 Unrecognized actuarial gain 1,358 1,480 - --------------------------------------------------------- ------------- ------------ Postretirement benefits other than pensions $11,858 $11,068 - --------------------------------------------------------- ------------- ------------
The discount rate assumption used to determine the actuarial present value of the accumulated postretirement benefit obligation was 7% in 1998 and 7.75% in 1997. For 1999, the assumed health care cost trend rates are 7.75% for participants under age 65 and 5.75% for participants age 65 or older. Both rates are assumed to decrease gradually to 5% in the year 2003. The health care cost trend rate assumption has a significant effect on the amount of the obligation and periodic cost reported. A one-percent annual increase in the assumed cost trend rate in each year would increase the accumulated postretirement benefit obligation as of April 30, 1998, by $1,706,000 and the net periodic postretirement benefit cost for the year by $230,000. 21 In addition, certain of the Company's active employees participate in multi-employer plans which provide defined postretirement health care benefits. The aggregate amount contributed to these plans, including the charge for net periodic postretirement benefit costs, totaled $1,727,000, $1,439,000, and $1,469,000 in 1998, 1997, and 1996, respectively. Note G: Stock Benefit Plans ESOP: The Company sponsors an Employee Stock Ownership Plan and Trust (ESOP) for domestic, non-represented employees. The Company has entered into loan agreements with the Trustee of the ESOP for purchases by the Trustee in amounts not to exceed a total of 1,200,000 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 1/2% over prime and are payable as shares are allocated to participants. Contributions to the plan are made annually in amounts sufficient to fund ESOP debt repayment. Dividends on unallocated shares are used to reduce expense and were $363,000, $377,000, and $398,000 in 1998, 1997, and 1996, respectively. The principal payments received from the ESOP in 1998, 1997, and 1996 were $240,000, $224,000, and $190,000, respectively. The Company measures compensation expense based upon the fair value of the shares committed to be released to plan participants in accordance with Statement of Position 93-6, Employers' Accounting for Employee Stock Ownership Plans (SOP 93-6). Under the "grandfather" provision of SOP 93-6, the Company does not apply the statement to shares purchased prior to the transition date of December 31, 1992. Since all shares currently held by the ESOP were acquired prior to 1993, the Company will continue to recognize future compensation expense using the cost basis. At April 30, 1998, the ESOP held 685,048 unallocated shares consisting of 204,124 Class A and 480,924 Class B Common Shares. All shares held by the ESOP were considered outstanding in earnings per share calculations for all periods presented. Savings Plan: The Company offers employee savings plans under Section 401(k) of the Internal Revenue Code for all domestic employees not covered by certain collective bargaining agreements. The Company's contributions under these plans are based on a specified percentage of employee contributions. Charges to operations for these plans in 1998, 1997, and 1996 were $981,000, $901,000, and $890,000, respectively. 22 Restricted Stock: The Restricted Stock Bonus Plan provides for issuance of Common Shares to key employees. There are 44,100 Class A and 87,100 Class B Common Shares available for issuance under the plan at April 30, 1998. Shares awarded under this plan contain certain restrictions for four years relating, among other things, to forfeiture in the event of termination of employment and to transferability. Shares awarded are issued as of the effective date of the award and recorded at market value. A corresponding deferred compensation charge is expensed over the period during which restrictions are in effect. In fiscal 1998, an award of 30,500 shares of Class A and Class B Common Shares was made while no awards were granted in 1997 and 1996. Stock Options: The Company has a stock option plan covering officers and certain key employees. Options granted under this plan become exercisable at the rate of one-third per year, beginning one year after the date of grant, and the option price is equal to the market value of the shares on the effective date of the grant. 23 A summary of the Company's stock option activity, and related information follows:
- ------------------------------------------------------ -------------- --------------- -------------- -------------- Weighted- Weighted- Average Average Class A Exercise Class B Exercise Options Price Options Price - ------------------------------------------------------ -------------- --------------- -------------- -------------- Outstanding at April 30, 1995 945,600 $23.00 481,300 $18.28 Granted 148,500 18.00 148,500 15.94 Exercised (3,500) 15.94 (3,500) 15.94 Forfeited (6,200) 21.84 (4,200) 20.58 - ------------------------------------------------------ --------------- --------------- -------------- -------------- Outstanding at April 30, 1996 1,084,400 $22.34 622,100 $17.72 Granted 168,000 17.25 168,000 16.25 Exercised (3,288) 11.19 (3,288) 11.19 Forfeited (9,500) 21.50 (6,500) 16.87 - ------------------------------------------------------ --------------- --------------- -------------- -------------- Outstanding at April 30, 1997 1,239,612 $21.69 780,312 $17.44 Granted 151,500 25.78 151,500 24.31 Exercised (71,876) 14.44 (68,576) 13.84 Forfeited (1,000) 17.63 (1,000) 16.10 - ------------------------------------------------------ --------------- --------------- -------------- -------------- Outstanding at April 30, 1998 1,318,236 $22.56 862,236 $18.93 Exercisable at April 30, 1998 1,008,069 $22.87 552,069 $18.26 Available for Future Grants at April 30, 1996 502,866 965,166 1997 344,366 803,666 1998 193,866 653,166 - ------------------------------------------------------ --------------- --------------- -------------- --------------
The following table summarizes the range of exercise prices and weighted-average exercise prices for options outstanding and exercisable at April 30, 1998, under the Company's stock option plan:
- ------------ --------------------- ----------------- --------------- ---------------- ---------------- ---------------- Weighted- Weighted- Average Weighted- Average Remaining Average Share Range of Exercise Contractual Exercise Class Exercise Prices Outstanding Price Life (yrs.) Exercisable Price - ------------ --------------------- ----------------- --------------- ---------------- ---------------- ---------------- Class A $15.25 - $19.13 625,936 $18.01 4.9 467,269 $18.20 Class A $23.69 - $31.50 692,300 $26.66 5.9 540,800 $26.91 Class B $15.25 - $24.31 862,236 $18.93 5.9 552,069 $18.26 - ------------ --------------------- ----------------- --------------- ---------------- ---------------- ----------------
The Company granted stock options during fiscal 1996 for the purchase of 150,000 Class B Common Shares to non-employees for consulting services rendered. The options, which contain a weighted-average exercise price of $20.75, were all considered outstanding and exercisable at April 30, 1998. The Company recognized expense relating to these options of $66,000 and $165,000 in 1997 and 1996, respectively. 24 Note H: Credit Facilities The Company has available an uncommitted line of credit providing up to $25,000,000 for short-term borrowings. The interest rate to be charged on any outstanding balance is based on prevailing market rates. Interest paid on all borrowings approximated total interest expense in each of the three years ended April 30, 1998, 1997, and 1996. Note I: Leases The Company leases certain land, buildings, and equipment for varying periods of time, with renewal options. Leases of cold storage facilities are continually renewed for short periods. Rental expense in 1998, 1997, and 1996 totaled $10,950,000, $9,783,000, and $10,264,000, respectively; included therein were cold storage facility rentals, based on quantities stored, amounting to $4,956,000, $4,357,000, and $4,699,000, respectively. 25 Note J: Income Taxes Deferred income taxes reflect the net 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:
- ---------------------------------------------------------------- ---------------------------- April 30, - ---------------------------------------------------------------- ---------------------------- (Dollars in thousands) 1998 1997 - ---------------------------------------------------------------- -------------- ------------- Deferred tax liabilities: Depreciation $13,244 $13,551 Other (each less than 5% of total liabilities) 2,035 1,893 - ---------------------------------------------------------------- -------------- ------------- Total deferred tax liabilities 15,279 15,444 Deferred tax assets: Postretirement benefits other than pensions 5,092 4,697 Other employee benefits 4,007 3,118 Foreign net operating loss carryforwards 711 1,234 Other (each less than 5% of total assets) 5,920 4,984 - ---------------------------------------------------------------- -------------- ------------- Total deferred tax assets 15,730 14,033 Valuation allowance for deferred tax assets (1,731) (2,094) - ---------------------------------------------------------------- -------------- ------------- Total deferred tax assets less allowance 13,999 11,939 - ---------------------------------------------------------------- -------------- ------------- Net deferred tax liability $ (1,280) $ (3,505) - ---------------------------------------------------------------- -------------- -------------
At April 30, 1998, the Company has foreign net operating loss carryforwards of $2,700,000 for income tax purposes expiring in 2003. The Company has recorded a valuation allowance related to foreign tax loss carryforwards and certain other foreign deferred tax assets due to the uncertainty of their realization. The change in the valuation allowance relates principally to the utilization of certain foreign net operating loss carryforwards. Income from continuing operations before income taxes and cumulative effect of change in accounting method is as follows:
- ------------------------------------------------------------------- --------------------------------------------------- Year Ended April 30, - ------------------------------------------------------------------- ---------------- ----------------- ---------------- (Dollars in thousands) 1998 1997 1996 - ------------------------------------------------------------------- ---------------- ----------------- ---------------- Domestic $57,061 $50,540 $45,706 Foreign 3,698 2,626 (911) - ------------------------------------------------------------------- ---------------- ----------------- ---------------- Income from continuing operations before income taxes and cumulative effect of change in accounting method $60,759 $53,166 $44,795 - ------------------------------------------------------------------- ---------------- ----------------- ----------------
26 The components of the provision for income taxes are as follows:
- ------------------------------------------------------------------- --------------------------------------------------- Year Ended April 30, - ------------------------------------------------------------------- ---------------- ----------------- ---------------- (Dollars in thousands) 1998 1997 1996 - ------------------------------------------------------------------- ---------------- ----------------- ---------------- Current: Federal $21,684 $14,577 $12,230 Foreign 1,499 760 557 State and local 3,513 2,868 1,791 Deferred (2,285) 4,026 764 - ------------------------------------------------------------------- ---------------- ----------------- ---------------- Total income tax expense from continuing operations $24,411 $22,231 $15,342 - ------------------------------------------------------------------- ---------------- ----------------- ----------------
A reconciliation of the statutory federal income tax rate and the effective tax rate follows:
- ------------------------------------------------------------------- --------------------------------------------------- - ------------------------------------------------------------------- --------------------------------------------------- Percent of Pretax Income Year Ended April 30, - ------------------------------------------------------------------- --------------------------------------------------- (Dollars in thousands) 1998 1997 1996 - ------------------------------------------------------------------- ---------------- ----------------- ---------------- Statutory federal income tax rate 35.0% 35.0% 35.0% Decrease in income taxes resulting from: Loss on divestiture of foreign subsidiary --- --- (8.6) Increase in income taxes resulting from: State and local income taxes, net of federal income tax benefit 3.8 3.5 3.4 Foreign losses not utilized --- --- 1.7 Other items 1.4 3.3 2.7 - ------------------------------------------------------------------- ---------------- ----------------- ---------------- Effective income tax rate 40.2% 41.8% 34.2% - ------------------------------------------------------------------- ---------------- ----------------- ---------------- Income taxes paid, including amounts for discontinued operations $20,755 $10,200 $17,979 - ------------------------------------------------------------------- ---------------- ----------------- ----------------
Note K: Common Shares The Company's Amended Articles of Incorporation provide that but for certain exceptions, those acquiring the Company's Class A Common Shares will be entitled to cast one vote per share on matters requiring shareholder approval until they have held their shares for four years, after which time they will be entitled to cast ten votes per share. The Company's Class B Common Shares are non-voting, except under certain conditions outlined in the Company's Amended Articles of Incorporation. EX-21 3 EXHIBIT 21 1 Exhibit 21 SUBSIDIARIES OF THE COMPANY
Subsidiaries State or Jurisdiction of Incorporation - ----------------------------------------------------------------------------------- After The Fall Products, Inc. Ohio J.M. Smucker (Pennsylvania), Inc. Pennsylvania The Dickinson Family, Inc. Ohio Henry Jones Foods Pty Ltd. Victoria, Australia Juice Creations Co. Ohio Knudsen & Sons, Inc. Ohio Smucker Quality Beverages, Inc. California Mary Ellen's Incorporated Ohio Smucker Holdings, Inc. Ohio Santa Cruz Natural Incorporated California Smucker Australia, Inc. Ohio J.M. Smucker (Canada) Inc. Ontario, Canada Smucker International, Ltd. U.S. Virgin Islands Smucker Latin America, Inc. Ohio J.M. Smucker de Mexico, S.A. de C.V. Mexico (domesticated in Delaware) JMS Specialty Foods, Inc. Wisconsin Smucker Hong Kong Limited Hong Kong, People's Republic of China Smucker U.K., Inc. Ohio Alternative Attitudes, Inc. Ohio Sunberry Farms, Inc. Ohio Garratt & Gunn Ltd. California Smucker Direct, Inc. Ohio Simply Smucker's Inc. Ohio
EX-23 4 EXHIBIT 23 1 Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report on Form 10-K of The J. M. Smucker Company of our report dated June 10, 1998, included in the 1998 Annual Report to Shareholders of The J. M. Smucker Company. Our audit also included the financial statement schedule of The J. M. Smucker Company listed in item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements (Form S-8 No. 33-21273 and Form S-8 No. 33-38011) pertaining to the 1987 Stock Option Plan, of our report dated June 10, 1998, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report on Form 10-K of The J. M. Smucker Company. /s/ ERNST & YOUNG LLP Akron, Ohio July 20, 1998 EX-24 5 EXHIBIT 24 1 Exhibit 24 THE J. M. SMUCKER COMPANY REGISTRATION ON FORM 10-K POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that ELIZABETH VALK LONG, director of The J. M. Smucker Company, hereby appoints Timothy P. Smucker, Richard K. Smucker, and Steven J. Ellcessor, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 1998, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned director might or could do in person, in furtherance of the foregoing. /s/ Elizabeth Valk Long ------------------------------ Director 2 THE J. M. SMUCKER COMPANY REGISTRATION ON FORM 10-K POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that KATHRYN W. DINDO, director of The J. M. Smucker Company, hereby appoints Timothy P. Smucker, Richard K. Smucker, and Steven J. Ellcessor, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 1998, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned director might or could do in person, in furtherance of the foregoing. /s/ Kathryn W. Dindo ------------------------------ Director 3 THE J. M. SMUCKER COMPANY REGISTRATION ON FORM 10-K POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that ROBERT R. MORRISON, director of The J. M. Smucker Company, hereby appoints Timothy P. Smucker, Richard K. Smucker, and Steven J. Ellcessor, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 1998, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned director might or could do in person, in furtherance of the foregoing. /s/ Robert R. Morrison ------------------------------ Director 4 THE J. M. SMUCKER COMPANY REGISTRATION ON FORM 10-K POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that PAUL H. SMUCKER, director of The J. M. Smucker Company, hereby appoints Timothy P. Smucker, Richard K. Smucker, and Steven J. Ellcessor, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 1998, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned director might or could do in person, in furtherance of the foregoing. /s/ Paul H. Smucker ------------------------------ Director 5 THE J. M. SMUCKER COMPANY REGISTRATION ON FORM 10-K POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that CHARLES S. MECHEM, JR., director of The J. M. Smucker Company, hereby appoints Timothy P. Smucker, Richard K. Smucker, and Steven J. Ellcessor, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 1998, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned director might or could do in person, in furtherance of the foregoing. /s/ Charles S. Mechem, Jr. ------------------------------ Director 6 THE J. M. SMUCKER COMPANY REGISTRATION ON FORM 10-K POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that RUSSELL G. MAWBY, director of The J. M. Smucker Company, hereby appoints Timothy P. Smucker, Richard K. Smucker, and Steven J. Ellcessor, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 1998, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned director might or could do in person, in furtherance of the foregoing. /s/ Russell G. Mawby ------------------------------ Director 7 THE J. M. SMUCKER COMPANY REGISTRATION ON FORM 10-K POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that BENJAMIN B. TREGOE, JR., director of The J. M. Smucker Company, hereby appoints Timothy P. Smucker, Richard K. Smucker, and Steven J. Ellcessor, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 1998, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned director might or could do in person, in furtherance of the foregoing. /s/ Benjamin B. Tregoe, Jr. ------------------------------ Director 8 THE J. M. SMUCKER COMPANY REGISTRATION ON FORM 10-K POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that WILLIAM WRIGLEY, JR., director of The J. M. Smucker Company, hereby appoints Timothy P. Smucker, Richard K. Smucker, and Steven J. Ellcessor, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 1998, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned director might or could do in person, in furtherance of the foregoing. /s/ William Wrigley, Jr. ------------------------------ Director 9 THE J. M. SMUCKER COMPANY REGISTRATION ON FORM 10-K POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that MARK R. BELGYA, corporate controller of The J. M. Smucker Company, hereby appoints Timothy P. Smucker, Richard K. Smucker, and Steven J. Ellcessor, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 1998, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned corporate controller might or could do in person, in furtherance of the foregoing. /s/ Mark R. Belgya ------------------------------ Corporate Controller 10 THE J. M. SMUCKER COMPANY REGISTRATION ON FORM 10-K POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that RICHARD K. SMUCKER, director of The J. M. Smucker Company, hereby appoints Timothy P. Smucker and Steven J. Ellcessor, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 1998, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned director might or could do in person, in furtherance of the foregoing. /s/ Richard K. Smucker ------------------------------ Director 11 THE J. M. SMUCKER COMPANY REGISTRATION ON FORM 10-K POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that TIMOTHY P. SMUCKER, director of The J. M. Smucker Company, hereby appoints Richard K. Smucker and Steven J. Ellcessor, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 1998, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned director might or could do in person, in furtherance of the foregoing. /s/ Timothy P. Smucker ------------------------------ Director 12 THE J. M. SMUCKER COMPANY REGISTRATION ON FORM 10-K POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that WILLIAM H. STEINBRINK, director of The J. M. Smucker Company, hereby appoints Timothy P. Smucker, Richard K. Smucker, and Steven J. Ellcessor, and each of them, with full power of substitution, as attorney or attorneys of the undersigned, to execute an Annual Report on Form 10-K for the fiscal year ended April 30, 1998, in a form that The J. M. Smucker Company deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, all pursuant to applicable legal provisions, with full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned director might or could do in person, in furtherance of the foregoing. /s/ William H. Steinbrink ------------------------------ Director EX-27.1 6 EXHIBIT 27.1
5 1,000 YEAR APR-30-1998 MAY-01-1997 APR-30-1998 36,484 0 49,160 (428) 103,465 201,506 284,235 (140,521) 407,973 84,900 0 0 0 7,286 294,891 407,973 565,476 565,476 365,613 365,613 142,799 0 145 60,759 24,411 36,348 0 0 (2,958) 33,390 1.15 1.14
EX-27.2 7 EXHIBIT 27.2
5 1,000 YEAR APR-30-1997 MAY-01-1996 APR-30-1997 24,091 0 48,493 (353) 94,106 178,472 265,570 (125,935) 384,773 72,016 0 0 0 7,302 284,589 384,773 524,107 524,107 348,949 348,949 121,954 0 1,748 53,166 22,231 30,935 0 0 0 30,935 1.06 1.06
EX-27.3 8 EXHIBIT 27.3
5 1,000 YEAR APR-30-1996 MAY-01-1995 APR-30-1996 17,647 0 40,928 (687) 95,495 214,462 252,812 (109,728) 424,952 67,510 60,800 0 0 7,293 269,048 424,952 517,832 517,832 337,095 337,095 126,743 0 2,393 44,795 15,342 29,453 (140) 0 0 29,313 1.01 1.00
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