-----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, Hx+fW8ArXmtppie3t2c6fq7QjEIioOnEzSEVW9ID93wYSVAU/99u60eqzJ0rlS6l WEEbQCBRtghBvPpSq0rvpA== 0000950152-99-001838.txt : 19990315 0000950152-99-001838.hdr.sgml : 19990315 ACCESSION NUMBER: 0000950152-99-001838 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990312 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-Q SEC ACT: SEC FILE NUMBER: 001-05111 FILM NUMBER: 99563730 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-Q 1 THE J.M. SMUCKER COMPANY 10-Q 1 Sequential Page No. 1 of 13 Pages UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission File Number 1-5111 -------------------- THE J. M. SMUCKER COMPANY Ohio 34-0538550 ------------------ -------------------- State of Incorporation IRS Identification No. STRAWBERRY LANE ORRVILLE, OHIO 44667 (330) 682-3000 The Company 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 the past 90 days. The Company had 14,427,289 Class A Common Shares and 14,722,576 Class B Common Shares outstanding on February 28, 1999. The Exhibit Index is located at Sequential Page No. 13. 2 Sequential Page No. 2 PART I. FINANCIAL INFORMATION THE J. M. SMUCKER COMPANY CONDENSED STATEMENTS OF CONSOLIDATED INCOME (Unaudited) Item 1. Financial Statements --------------------
Three Months Ended Nine Months Ended January 31, January 31, ---------------------- ---------------------- 1999 1998 1999 1998 --------- --------- --------- --------- (Dollars in thousands, except per share data) Net sales $ 140,772 $ 130,658 $ 446,166 $ 423,234 Cost of products sold 91,717 83,426 291,559 275,393 --------- --------- --------- --------- 49,055 47,232 154,607 147,841 Selling, distribution, and administrative expenses 35,465 35,005 110,185 105,741 --------- --------- --------- --------- 13,590 12,227 44,422 42,100 Other income (expense) Interest income 370 552 1,433 1,732 Interest expense (252) (30) (512) (120) Other - net 97 412 583 712 --------- --------- --------- --------- Income before income taxes and cumulative effect of change in accounting method 13,805 13,161 45,926 44,424 Income taxes 5,560 5,128 18,202 17,816 --------- --------- --------- --------- Income before cumulative effect of change in accounting method 8,245 8,033 27,724 26,608 Cumulative effect of change in accounting method, net of tax benefit of $1,980 --- (2,958) --- (2,958) --------- --------- --------- --------- Net Income $ 8,245 $ 5,075 $ 27,724 $ 23,650 ========= ========= ========= ========= Net income per Common Share Income before cumulative effect of change $ .28 $ .27 $ .95 $ .91 in accounting method Cumulative effect of change in accounting method --- (.10) --- (.10) --------- --------- --------- --------- Net Income per Common Share $ .28 $ .17 $ .95 $ .81 ========= ========= ========= ========= Net income per Common Share - assuming dilution Income before cumulative effect of change in accounting method $ .28 $ .27 $ .95 .91 Cumulative effect of change in accounting method --- (.10) --- (.10) --------- --------- --------- --------- Net Income per Common Share - assuming dilution $ .28 $ .17 $ .95 $ .81 ========= ========= ========= ========= Dividends declared on Class A and Class B Common Shares $ .14 $ .13 $ .42 $ .39 ========= ========= ========= =========
See notes to condensed consolidated financial statements 3 Sequential Page No. 3 THE J. M. SMUCKER COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS
January 31, 1999 April 30,1998 (Unaudited) (Audited) ----------- --------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 5,824 $ 36,484 Trade receivables, less allowances 49,841 48,732 Inventories: Finished products 47,551 41,264 Raw materials, containers, and supplies 78,367 62,201 --------- --------- 125,918 103,465 Other current assets 12,127 12,825 --------- --------- Total Current Assets 193,710 201,506 PROPERTY, PLANT, AND EQUIPMENT Land and land improvements 15,594 15,058 Buildings and fixtures 81,554 78,658 Machinery and equipment 188,417 177,372 Construction in progress 31,473 13,147 --------- --------- 317,038 284,235 Less allowances for depreciation (152,925) (140,521) --------- --------- Total Property, Plant and Equipment 164,113 143,714 OTHER NONCURRENT ASSETS Intangible assets 58,469 42,410 Other assets 17,816 20,343 --------- --------- Total Other Noncurrent Assets 76,285 62,753 --------- --------- $ 434,108 $ 407,973 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 33,419 $ 41,410 Other current liabilities 64,087 43,490 --------- --------- Total Current Liabilities 97,506 84,900 NONCURRENT LIABILITIES 21,186 20,896 SHAREHOLDERS' EQUITY Class A Common Shares 3,607 3,597 Class B Common Shares (Non-Voting) 3,681 3,689 Additional capital 15,970 14,608 Retained income 312,438 298,316 Less: Deferred compensation (2,052) (2,255) Amount due from ESOP (9,527) (9,787) Accumulated other comprehensive loss (8,701) (5,991) --------- --------- Total Shareholders' Equity 315,416 302,177 --------- --------- $ 434,108 $ 407,973 ========= =========
See notes to condensed consolidated financial statements 4 Sequential Page No. 4 THE J. M. SMUCKER COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended January 31, ---------------------- 1999 1998 ---- ---- (Dollars in Thousands) OPERATING ACTIVITIES Net income $ 27,724 $ 23,650 Cumulative effect of change in accounting method --- 2,958 Adjustments (18,208) 9,311 -------- -------- Net cash provided by operating activities 9,516 35,919 INVESTING ACTIVITIES Businesses acquired - net of cash (27,117) --- Additions to property, plant, and equipment (28,156) (21,681) Proceeds from the sale of property, plant, and equipment 248 341 Other - net 1,288 889 -------- -------- Net cash used for investing activities (53,737) (20,451) FINANCING ACTIVITIES Proceeds from short-term debt - net 26,712 --- Purchase of common shares (811) (3,220) Dividends paid (12,183) (11,333) Other - net 567 708 -------- -------- Net cash provided by (used for) financing activities 14,285 (13,845) Cash flows (used in) provided by operations (29,936) 1,623 Effect of exchange rate changes (724) (878) -------- -------- Net (decrease) increase in cash and cash equivalents (30,660) 745 Cash and cash equivalents at beginning of period 36,484 24,091 -------- -------- Cash and cash equivalents at end of period $ 5,824 $ 24,836 ======== ========
( ) Denotes use of cash See notes to condensed consolidated financial statements 5 Sequential Page No. 5 THE J. M. SMUCKER COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note A - Basis of Presentation --------------------- The accompanying unaudited, condensed, consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the nine-month period ended January 31, 1999, are not necessarily indicative of the results that may be expected for the year ended April 30, 1999. For further information, reference is made to the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended April 30, 1998. Note B - Common Shares ------------- At January 31, 1999, 35,000,000 Class A Common Shares and 35,000,000 Class B Common Shares were authorized. At January 31, 1999, there were 14,427,289 and 14,722,779 outstanding shares of Class A Common and Class B Common, respectively, while 14,387,402 Class A and 14,754,734 Class B Common Shares were outstanding at April 30, 1998. Outstanding shares of each class are shown net of 1,784,999 Class A and 1,489,509 Class B treasury shares at January 31, 1999, and 1,824,886 Class A and 1,457,554 Class B treasury shares at April 30, 1998. Note C - Credit Facilities ----------------- The Company has available uncommitted lines of credit providing up to $50,000,000 for short-term borrowings, of which $26,712,000 was outstanding at January 31, 1999. The interest rate to be charged on any outstanding balance is based on prevailing market rates. 6 Sequential Page No. 6 Note D - Income Per Share ---------------- The following table sets forth the computation of earnings per Common Share and earnings per Common Share - assuming dilution:
Three Months Ended Nine Months Ended January 31, January 31, --------------------------- --------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- (Dollars in thousands, except per share data) Numerator: Net income $ 8,245 $ 5,075 $ 27,724 $ 23,650 =========== =========== =========== =========== Denominator: Denominator for earnings per Common Share - weighted-average shares 29,071,579 29,034,886 29,047,187 29,039,548 Effect of dilutive securities: Stock options 193,110 271,000 198,746 228,000 Restricted stock 29,379 76,205 40,218 51,316 ----------- ----------- ----------- ----------- Denominator for earnings per Common Share - assuming dilution 29,294,068 29,382,091 29,286,151 29,318,864 =========== =========== =========== =========== Net income per Common Share $ .28 $ .17 $ .95 $ .81 =========== =========== =========== =========== Net income per Common Share - assuming dilution $ .28 $ .17 $ .95 $ .81 =========== =========== =========== ===========
Note E - Comprehensive Income -------------------- The Company adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130), as of May 1, 1998, which established standards for reporting and displaying comprehensive income and its components in the financial statements. The adoption of SFAS 130, which had no impact on the Company's net income or shareholders' equity, requires foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of SFAS 130. During the three-month periods ended January 31, 1999 and 1998, total comprehensive income was $7,437,000 and $4,432,000, respectively. Total comprehensive income for the nine-month periods ended January 31, 1999 and 1998 was $25,014,000 and $20,194,000, respectively. Note F - Recently Issued Accounting Standards ------------------------------------ The Financial Accounting Standards Board has issued final statements that change the method of determining and reporting business segments, change the disclosure requirements for pensions and other postretirement benefits, and change the accounting for derivative instruments. 7 Sequential Page No. 7 The Company is currently evaluating the effects of these new standards and will adopt the disclosure requirements of Statement of Financial Accounting Standards No. 131 (SFAS 131), Disclosures about Segments of an Enterprise and Related Information, and SFAS 132, Employers' Disclosure about Pensions and Other Postretirement Benefits, in the fourth quarter of fiscal 1999, as required. SFAS 133, Accounting for Derivative Instruments and Hedging Activities, is required to be adopted in the first quarter of fiscal 2001. As the Company does not have significant participation in derivative instruments, the potential impact of adopting SFAS 133 is not expected to be material to future earnings. - -------------------------------------------------------------------------------- Item 2. Management's Discussion and Analysis ------------------------------------ This discussion and analysis deals with comparisons of material changes in the condensed, consolidated financial statements for the three-month and nine-month periods ended January 31, 1999 and 1998, respectively. Results of Operations - --------------------- Sales for the third quarter ended January 31, 1999, were up approximately 8%, to $140,772,000 from $130,658,000 in the same period last year. For the first nine months of the fiscal year, sales were $446,166,000, up approximately 5% over $423,234,000 last year. Sales increases were realized in all areas of the business. In the consumer area, the majority of the increase was the result of (i) a favorable mix of products sold within the fruit spreads category and (ii) the introduction earlier this year of "Smucker's Snackers", the Company's new shelf-stable peanut butter and jelly offering for lunches and snacks. The Company's market position in the core fruit spreads, toppings, and peanut butter categories remains strong with share of market growing in each area. In the industrial area, the growth came primarily from sales of ingredients for new products of bakery and dairy customers. In beverages, growth in "R. W. Knudsen Family" brand products and the addition of sales from the recently acquired "Mrs. Wiggles Rocket Juice" beverage line accounted for the majority of that area's increase. Volume growth in the portion control category accounted for the foodservice increase. The international area showed strong growth, with all of its markets reporting increases over the prior year. The majority of the growth occurred in the Australasian markets. Acquisitions contributed approximately 14% to international sales for the year to date. The growth in international occurred despite the continued adverse effect of exchange rates on the results in Australia and Canada. Had the exchange rates held constant with last year, consolidated sales for both the quarter and year-to-date would have been approximately 1% higher. Cost of sales for the quarter was 65.2% of net sales, up from 63.9% for the same quarter last year due to differences in the mix of products sold, an increase in the cost of certain fruits, and costs associated with implementing production improvements. Cost of sales for the fiscal year to date was 65.3% of net sales, up only slightly from 65.1% last year. 8 Sequential Page No. 8 Selling, distribution, and administrative expenses, although up from the same period last year, have increased at a slower rate than sales. The increase was due to higher marketing costs, primarily to support the introduction of "Smuckers's Snackers", the Company's consumer direct initiative, and other existing products. Distribution expenses were also up. An increase in borrowings over the past year has resulted in the Company incurring more interest expense along with earning less interest income on funds available for investment. The Company's effective income tax rate was 40.3%, up from 39.0% for the same quarter last year, primarily due to the timing of favorable tax credits recorded last year. For the fiscal year-to-date, the effective tax rate has decreased slightly to 39.6% from 40.1% last year. Financial Condition - Liquidity and Capital Resources - ----------------------------------------------------- The financial position of the Company remains strong despite the reduction in cash and cash equivalents of $30,660,000 during the first nine months of the year. Since the beginning of the fiscal year, the Company has completed several small acquisitions utilizing a total of approximately $27,117,000. In addition to acquisitions, other significant uses of cash during the third quarter and the nine-month period were capital expenditures, including capitalized software and consulting costs, and the payment of dividends. At January 31, 1999, the Company had $26,712,000 outstanding in short-term debt. Based on projected investment spending through the remainder of the fiscal year and assuming that the results of operations are as currently anticipated, the Company expects (i) cash provided from operations and borrowing to be sufficient to meet cash requirements and (ii) all short-term borrowing to be repaid by April 30, 1999. Impact of Year 2000 - ------------------- As part of the information technology reengineering (ITR) project previously reported, the Company has completed an assessment of the Year 2000 problem as it may affect its information technology (IT) systems. The new IT systems being installed are fully Year 2000 compliant and will replace 80% of the Company's non-compliant IT systems. The total ITR project cost, which includes an enterprise-wide information system and business process reengineering, is estimated at approximately $34,000,000, excluding internal staff costs. To date, the Company has incurred approximately 70% of these costs. 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 IT systems. Implementation of components of the ITR project has been prioritized to ensure replacement of the IT systems most affected by the Year 2000 problem. Implementation progress has proceeded as planned. The Company has all critical components implemented in test locations and anticipates full implementation by September 1, 1999. With regard to the IT systems that either are not being replaced by the ITR project or will not be replaced in time to meet the change in millenium, the Company has plans in place to make corrections to the affected 9 Sequential Page No. 9 software. The Company has engaged outside consultants to assist with these corrections, which it estimates will cost approximately $2,000,000 in additional expense, of which approximately one-half has been spent to date. The Company expects to complete planned corrections by September 1, 1999. 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 IT systems. The Company also has developed a plan to identify and replace all non-compliant non-IT systems. The cost to replace non-IT systems is not expected to be material. In addition, the Company is in the process of contacting all critical vendors to obtain status on their Year 2000 issues. The Company also has plans to contact all major customers in the coming months. The possible consequences of the Company, its vendors, or its customers not being fully Year 2000 compliant include temporary plant closings, delays in delivery of finished goods or receipt of raw materials, invoice and collection errors, and possible inventory and supply obsolescence. Should these events occur, the impact on the Company's results of operations, financial condition, and cash flows could be material. The Company believes that its approach to the Year 2000 issue should reduce the likelihood of any such disruptions and should help to minimize the adverse effects if they do occur. Once developed, contingency plans and related cost estimates will be continually updated, as additional information becomes available. The costs of the ITR project, the date on which the Company believes it will complete the Year 2000 modifications, and the statements with regard to the potential effect of the Year 2000 issue on the Company's operations and financial condition 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. Recently Issued Accounting Standards - ------------------------------------ The Financial Accounting Standards Board has issued final statements that change the method of determining and reporting business segments, change the disclosure requirements for pensions and other postretirement benefits, and change the accounting for derivative instruments. The Company is currently evaluating the effects of these new standards and will adopt the disclosure requirements of Statement of Financial Accounting Standards No. 131 (SFAS 131), Disclosures about Segments of an Enterprise and Related Information, and SFAS 132, Employers' Disclosure about Pensions and Other Postretirement Benefits, in the fourth quarter of fiscal 1999, as required. SFAS 133, Accounting for Derivative Instruments and Hedging Activities, is required to be adopted in the first quarter of fiscal 2001. As the Company does not have significant participation in derivative instruments, the potential impact of adopting SFAS 133 is not expected to be material to future earnings. 10 Sequential Page No. 10 Certain Forward-Looking Statements - ---------------------------------- This quarterly 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 year; competitive activity; the mix of products sold and 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; level of capital resources required for and success of future acquisitions; and the successful implementation of the Company's information technology reengineering project and Year 2000 modifications 11 Sequential Page No. 11 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits -------- See the Index of Exhibits that appears on Sequential Page No. 13 of this report. (b) Reports on Form 8-K ------------------- No Reports on Form 8-K were required to be filed during the quarter for which this report is filed. 12 Sequential Page No. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. March 12, 1999 THE J. M. SMUCKER COMPANY /s/ Steven J. Ellcessor ------------------------ BY STEVEN J. ELLCESSOR Vice President-Administration, Secretary, and General Counsel /s/ Richard K. Smucker ------------------------ AND RICHARD K. SMUCKER President 13 Sequential Page No. 13 INDEX OF EXHIBITS That are filed with the Commission and The New York Stock Exchange Assigned Sequential Exhibit No. * Description Page No. - -------------------------------------------------------------------------------- 27 Financial data schedules pursuant to Article 5 in Regulation S-X. * Exhibits 2, 3, 4, 10, 11, 15, 18, 19, 22, 23, 24, and 99 are either inapplicable to the Company or require no answer. EX-27 2 EXHIBIT 27
5 1,000 9-MOS APR-30-1999 MAY-01-1998 JAN-31-1999 5,824 0 50,497 (656) 125,918 193,710 317,038 (152,925) 434,108 97,506 0 0 0 7,288 308,128 434,108 446,166 446,166 291,559 291,559 110,185 0 512 45,926 18,202 27,724 0 0 0 27,724 .95 .95
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