UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended July 31, 2012
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
(Exact name of registrant as specified in its charter)
Ohio | 34-0538550 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
One Strawberry Lane Orrville, Ohio |
44667-0280 | |
(Address of principal executive offices) | (Zip code) |
Registrants telephone number, including area code: (330) 682-3000
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller Reporting Company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The Company had 109,453,922 common shares outstanding on August 31, 2012.
The Exhibit Index is located at Page No. 37.
PART I. FINANCIAL INFORMATION
Item 1. | Financial Statements. |
THE J. M. SMUCKER COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
Three Months Ended | ||||||||
July 31, | ||||||||
2012 | 2011 | |||||||
(Dollars in thousands, except per share data) | ||||||||
Net sales |
$ | 1,369,703 | $ | 1,188,883 | ||||
Cost of products sold |
895,966 | 747,373 | ||||||
Cost of products sold - restructuring and merger and integration |
3,964 | 10,426 | ||||||
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|
|
|
|||||
Gross Profit |
469,773 | 431,084 | ||||||
Selling, distribution, and administrative expenses |
232,216 | 216,552 | ||||||
Amortization |
24,191 | 20,235 | ||||||
Other restructuring costs |
10,910 | 9,897 | ||||||
Other merger and integration costs |
6,269 | 4,685 | ||||||
Other special project costs |
6,669 | 0 | ||||||
Other operating income - net |
(1,007 | ) | (988 | ) | ||||
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|
|
|||||
Operating Income |
190,525 | 180,703 | ||||||
Interest income |
278 | 302 | ||||||
Interest expense |
(23,882 | ) | (15,422 | ) | ||||
Other income - net |
344 | 1,243 | ||||||
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Income Before Income Taxes |
167,265 | 166,826 | ||||||
Income taxes |
56,402 | 55,303 | ||||||
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Net Income |
$ | 110,863 | $ | 111,523 | ||||
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Earnings per common share: |
||||||||
Net Income |
$ | 1.00 | $ | 0.98 | ||||
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Net Income - Assuming Dilution |
$ | 1.00 | $ | 0.98 | ||||
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Dividends declared per common share |
$ | 0.52 | $ | 0.48 | ||||
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See notes to unaudited condensed consolidated financial statements.
2
THE J. M. SMUCKER COMPANY
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended | ||||||||
July 31, | ||||||||
2012 | 2011 | |||||||
(Dollars in thousands, except per share data) | ||||||||
Net Income |
$ | 110,863 | $ | 111,523 | ||||
Other comprehensive (loss) income: |
||||||||
Foreign currency translation adjustments |
(5,141 | ) | (3,321 | ) | ||||
Cash-flow hedging derivative activity, net of tax |
2,841 | (7,713 | ) | |||||
Pension and other postretirement benefit plans activity, net of tax |
2,099 | 0 | ||||||
Available-for-sale securities activity, net of tax |
(194 | ) | (133 | ) | ||||
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Total other comprehensive loss |
(395 | ) | (11,167 | ) | ||||
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Comprehensive Income |
$ | 110,468 | $ | 100,356 | ||||
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See notes to unaudited condensed consolidated financial statements.
3
THE J. M. SMUCKER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
July 31, 2012 | April 30, 2012 | |||||||
(Dollars in thousands) | ||||||||
ASSETS |
||||||||
CURRENT ASSETS |
||||||||
Cash and cash equivalents |
$ | 311,474 | $ | 229,708 | ||||
Trade receivables, less allowance for doubtful accounts |
390,924 | 347,518 | ||||||
Inventories: |
||||||||
Finished products |
647,156 | 643,517 | ||||||
Raw materials |
372,183 | 318,059 | ||||||
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1,019,339 | 961,576 | |||||||
Other current assets |
78,591 | 104,663 | ||||||
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Total Current Assets |
1,800,328 | 1,643,465 | ||||||
PROPERTY, PLANT, AND EQUIPMENT |
||||||||
Land and land improvements |
90,320 | 89,599 | ||||||
Buildings and fixtures |
479,455 | 460,242 | ||||||
Machinery and equipment |
1,209,402 | 1,160,307 | ||||||
Construction in progress |
111,840 | 142,983 | ||||||
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1,891,017 | 1,853,131 | |||||||
Accumulated depreciation |
(789,981 | ) | (757,042 | ) | ||||
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Total Property, Plant, and Equipment |
1,101,036 | 1,096,089 | ||||||
OTHER NONCURRENT ASSETS |
||||||||
Goodwill |
3,053,246 | 3,054,618 | ||||||
Other intangible assets - net |
3,162,025 | 3,187,007 | ||||||
Other noncurrent assets |
145,475 | 134,047 | ||||||
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Total Other Noncurrent Assets |
6,360,746 | 6,375,672 | ||||||
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$ | 9,262,110 | $ | 9,115,226 | |||||
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LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
CURRENT LIABILITIES |
||||||||
Accounts payable |
$ | 283,201 | $ | 274,725 | ||||
Accrued trade marketing and merchandising |
115,040 | 62,111 | ||||||
Current portion of long-term debt |
50,000 | 50,000 | ||||||
Other current liabilities |
262,228 | 230,136 | ||||||
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Total Current Liabilities |
710,469 | 616,972 | ||||||
NONCURRENT LIABILITIES |
||||||||
Long-term debt |
2,019,875 | 2,020,543 | ||||||
Deferred income taxes |
995,391 | 992,692 | ||||||
Other noncurrent liabilities |
312,922 | 321,633 | ||||||
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Total Noncurrent Liabilities |
3,328,188 | 3,334,868 | ||||||
SHAREHOLDERS EQUITY |
||||||||
Common shares |
27,610 | 27,571 | ||||||
Additional capital |
4,268,179 | 4,261,171 | ||||||
Retained income |
1,013,831 | 961,207 | ||||||
Amount due from ESOP Trust |
(1,781 | ) | (2,572 | ) | ||||
Accumulated other comprehensive loss |
(84,386 | ) | (83,991 | ) | ||||
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Total Shareholders Equity |
5,223,453 | 5,163,386 | ||||||
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$ | 9,262,110 | $ | 9,115,226 | |||||
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See notes to unaudited condensed consolidated financial statements.
4
THE J. M. SMUCKER COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
Three Months Ended July 31, | ||||||||
2012 | 2011 | |||||||
(Dollars in thousands) | ||||||||
OPERATING ACTIVITIES |
||||||||
Net income |
$ | 110,863 | $ | 111,523 | ||||
Adjustments to reconcile net income to net cash provided by (used for) operating activities: |
||||||||
Depreciation |
36,054 | 27,569 | ||||||
Depreciation - restructuring and merger and integration |
3,590 | 10,415 | ||||||
Amortization |
24,191 | 20,235 | ||||||
Share-based compensation expense |
4,309 | 6,032 | ||||||
Other noncash restructuring charges |
6 | 909 | ||||||
Loss on sale of assets - net |
1,014 | 725 | ||||||
Changes in assets and liabilities, net of effect from businesses acquired: |
||||||||
Trade receivables |
(43,990 | ) | 7,512 | |||||
Inventories |
(58,690 | ) | (330,854 | ) | ||||
Accounts payable and accrued items |
61,120 | 55,380 | ||||||
Defined benefit pension contributions |
(1,033 | ) | (3,691 | ) | ||||
Accrued and prepaid taxes |
44,806 | 41,206 | ||||||
Other - net |
(5,521 | ) | (5,199 | ) | ||||
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Net Cash Provided by (Used for) Operating Activities |
176,719 | (58,238 | ) | |||||
INVESTING ACTIVITIES |
||||||||
Business acquired, net of cash acquired |
0 | (362,846 | ) | |||||
Additions to property, plant, and equipment |
(46,282 | ) | (67,632 | ) | ||||
Sales and maturities of marketable securities |
0 | 18,600 | ||||||
Proceeds from disposal of property, plant, and equipment |
256 | 130 | ||||||
Other - net |
17,713 | (18 | ) | |||||
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Net Cash Used for Investing Activities |
(28,313 | ) | (411,766 | ) | ||||
FINANCING ACTIVITIES |
||||||||
Revolving credit agreement - net |
0 | 306,700 | ||||||
Quarterly dividends paid |
(52,845 | ) | (50,159 | ) | ||||
Purchase of treasury shares |
(4,240 | ) | (5,385 | ) | ||||
Proceeds from stock option exercises |
185 | 242 | ||||||
Other - net |
(7,708 | ) | 2,534 | |||||
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Net Cash (Used for) Provided by Financing Activities |
(64,608 | ) | 253,932 | |||||
Effect of exchange rate changes on cash |
(2,032 | ) | (1,298 | ) | ||||
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Net increase (decrease) in cash and cash equivalents |
81,766 | (217,370 | ) | |||||
Cash and cash equivalents at beginning of period |
229,708 | 319,845 | ||||||
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Cash and Cash Equivalents at End of Period |
$ | 311,474 | $ | 102,475 | ||||
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( ) | Denotes use of cash |
See notes to unaudited condensed consolidated financial statements.
5
THE J. M. SMUCKER COMPANY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, unless otherwise noted, except per share data)
Note 1: Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. 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 notes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included. Certain prior year amounts have been reclassified to conform to current year classifications.
Operating results for the three-month period ended July 31, 2012, are not necessarily indicative of the results that may be expected for the year ending April 30, 2013. For further information, reference is made to the consolidated financial statements and notes included in the Companys Annual Report on Form 10-K for the year ended April 30, 2012.
Note 2: Recently Issued Accounting Standards
In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2011-05, Presentation of Comprehensive Income, which eliminated the option to present the components of other comprehensive income as part of the statement of shareholders equity and required the presentation of net income and other comprehensive income to be in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 does not change the components that are recognized in net income or other comprehensive income. In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05, which defers the requirement to present on the face of the financial statements reclassification adjustments for items that are reclassified from accumulated other comprehensive income to net income while the FASB further deliberates this aspect of the standard. ASU 2011-05, as amended by ASU 2011-12, was effective May 1, 2012, for the Company and the Company elected to present net income and other comprehensive income in two separate but consecutive statements.
In December 2011, the FASB issued ASU 2011-11, Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires the disclosure of both gross and net information about instruments and transactions eligible for offset in the consolidated balance sheet. This ASU will be effective May 1, 2013, for the Company and will require retrospective application. The Company anticipates the adoption of ASU 2011-11 will not impact the financial statements, but will expand the disclosures related to financial instruments.
The FASB issued ASU 2011-08, Testing Goodwill for Impairment and ASU 2012-02, Intangibles Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment in September 2011 and July 2012, respectively. ASU 2011-08 and ASU 2012-02 simplify the guidance for testing impairment of goodwill and indefinite-lived intangible assets by allowing the Company the option to perform a qualitative test to assess the likelihood that the estimated fair value is less than the carrying amount. ASU 2011-08 will be effective for the Companys February 1, 2013 annual impairment test. ASU 2012-02 will be effective for the Companys February 1, 2014 annual impairment test, but early adoption is permitted. The Company anticipates the adoption of ASU 2011-08 and ASU 2012-02 could change the annual process for impairment testing, but will not impact the financial statements or disclosures.
Note 3: Acquisitions
On January 3, 2012, the Company completed the acquisition of a majority of the North American foodservice coffee and hot beverage business of Sara Lee Corporation (Sara Lee foodservice business), including a liquid coffee manufacturing facility in Suffolk, Virginia, for $420.6 million in an all-cash transaction. Utilizing
6
proceeds from the 3.50 percent Notes issued in October 2011, the Company paid Sara Lee Corporation, recently renamed The Hillshire Brands Company, $375.6 million, net of a working capital adjustment, and will pay an additional $50.0 million in declining installments over the next 10 years to a subsidiary of D.E Master Blenders 1753 N.V., an independent public company recently separated from The Hillshire Brands Company. The additional $50.0 million obligation was included in other current liabilities and other noncurrent liabilities in the Condensed Consolidated Balance Sheet and recorded at a present value of $45 million as of the date of acquisition. During the three months ended July 31, 2012, $10 million was paid and included in other net financing on the Condensed Statement of Consolidated Cash Flows. Total one-time costs related to the acquisition are estimated to be approximately $25.0 million, consisting primarily of transition services provided by Sara Lee Corporation and employee separation and relocation costs, nearly all of which are cash related. The Company has incurred one-time costs of $20.1 million through July 31, 2012, directly related to the merger and integration of the acquired business, and the charges were reported in other merger and integration costs in the Condensed Statements of Consolidated Income. The Company expects the remainder of the costs to be incurred through the next fiscal year.
The acquisition included the market-leading liquid coffee concentrate business sold under the licensed Douwe Egberts® brand, along with a variety of roast and ground coffee, cappuccino, tea, and cocoa products, sold through foodservice channels in North America. Liquid coffee concentrate adds a unique, high-quality, and technology-driven form of coffee to the Companys existing foodservice product offering.
The purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their fair values at the date of acquisition. The Company determined the fair values based on independent appraisals, discounted cash flow analyses, and estimates made by management. The purchase price exceeded the fair value of the net identifiable tangible and intangible assets acquired, and, as such, the excess was allocated to goodwill. The amount allocated to goodwill was primarily attributable to anticipated synergies and market expansion. The following table summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date.
Assets acquired: |
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Cash and cash equivalents |
$ | 1,221 | ||
Other current assets |
42,619 | |||
Property, plant, and equipment |
92,775 | |||
Intangible assets |
138,900 | |||
Goodwill |
149,948 | |||
Other noncurrent assets |
863 | |||
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Total assets acquired |
$ | 426,326 | ||
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Liabilities assumed: |
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Current liabilities |
$ | 3,599 | ||
Noncurrent liabilities |
2,097 | |||
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Total liabilities assumed |
$ | 5,696 | ||
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Net assets acquired |
$ | 420,630 | ||
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Of the total goodwill assigned to the International, Foodservice, and Natural Foods segment, $140.9 million is deductible for tax purposes.
7
The purchase price allocated to the identifiable intangible assets acquired is as follows:
Intangible assets with finite lives: |
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Customer relationships (10-year useful life) |
$ | 92,000 | ||
Technology (10-year useful life) |
23,800 | |||
Trademarks (6-year weighted-average useful life) |
23,100 | |||
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Total intangible assets |
$ | 138,900 | ||
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On May 16, 2011, the Company completed the acquisition of the coffee brands and business operations of Rowland Coffee Roasters, Inc. (Rowland Coffee), a privately-held company headquartered in Miami, Florida, for $362.8 million. The acquisition included a manufacturing, distribution, and office facility in Miami. The Company utilized cash on hand and borrowed $180.0 million under its revolving credit facility to fund the transaction. In addition, the Company has incurred one-time costs of $11.3 million through July 31, 2012, directly related to the merger and integration of Rowland Coffee, which includes approximately $5.0 million in noncash expense items that were reported in cost of products sold. The remaining charges were reported in other merger and integration costs in the Condensed Statements of Consolidated Income. Total one-time costs related to the acquisition are estimated to be approximately $25.0 million, including approximately $10.0 million of noncash charges, primarily accelerated depreciation, associated with consolidating coffee production currently in Miami into the Companys existing facilities in New Orleans, Louisiana. The Company expects these costs to be incurred over the next two fiscal years.
The acquisition of Rowland Coffee, a leading producer of espresso coffee in the U.S., strengthens and broadens the Companys leadership in the U.S. retail coffee category by adding the leading Hispanic brands, Café Bustelo® and Café Pilon®, to the Companys portfolio of brands.
The purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their fair values at the date of acquisition. The Company determined the fair values based on independent appraisals, discounted cash flow analyses, and estimates made by management. The purchase price exceeded the fair value of the net identifiable tangible and intangible assets acquired, and, as such, the excess was allocated to goodwill. The amount allocated to goodwill was primarily attributable to anticipated synergies and market expansion. The following table summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date.
Assets acquired: |
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Current assets |
$ | 33,971 | ||
Property, plant, and equipment |
29,227 | |||
Intangible assets |
213,500 | |||
Goodwill |
91,675 | |||
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Total assets acquired |
$ | 368,373 | ||
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Liabilities assumed: |
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Current liabilities |
$ | 5,527 | ||
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Total liabilities assumed |
$ | 5,527 | ||
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Net assets acquired |
$ | 362,846 | ||
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Goodwill of $84.8 million and $6.9 million was assigned to the U.S. Retail Coffee and the International, Foodservice, and Natural Foods segments, respectively. Of the total goodwill, $87.2 million is deductible for tax purposes.
8
The purchase price allocated to the identifiable intangible assets acquired is as follows:
Intangible assets with finite lives: |
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Customer relationships (19-year weighted-average useful life) |
$ | 147,800 | ||
Trademark (10-year useful life) |
1,600 | |||
Intangible assets with indefinite lives: |
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Trademarks |
64,100 | |||
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Total intangible assets |
$ | 213,500 | ||
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If the Sara Lee foodservice business and Rowland Coffee acquisitions had occurred on May 1, 2011, pro forma consolidated net sales would have been approximately $1.3 billion for the three months ended July 31, 2011, and the contribution of the acquired businesses would not have had a material impact to reported consolidated earnings for the three months ended July 31, 2011. The pro forma consolidated results do not give effect to the synergies of the acquisitions and are not indicative of operations in future periods.
Note 4: Equity Method Investment
On March 26, 2012, the Company acquired a 25 percent equity interest in Guilin Seamild Biologic Technology Development Co., Ltd. (Seamild), a privately-owned manufacturer and marketer of oats products headquartered in Guilin in the Guangxi province of China, for $35.9 million. Seamilds products, primarily oatmeal and oat-based cereals, are sold under the leading Seamild brand with distribution in retail channels throughout China. Seamilds portfolio of quality, trusted products aligns with the Companys strategy of owning and marketing leading food brands.
The initial investment in Seamild was recorded at cost and is included in other noncurrent assets in the Consolidated Balance Sheet. The difference between the carrying amount of the investment and the underlying equity in net assets is primarily attributable to goodwill and other intangible assets. Under the equity method of accounting, the investment is adjusted for the Companys proportionate share of earnings or losses, including consideration of basis differences resulting from the difference between the initial carrying amount of the investment and the underlying equity in net assets. The investment did not have a material impact on the Companys consolidated financial statements for the three months ended July 31, 2012.
Note 5: Restructuring
In calendar 2010, the Company announced its plan to restructure its coffee, fruit spreads, and Canadian pickle and condiments operations as part of its ongoing efforts to enhance the long-term strength and profitability of its leading brands. The initiative includes capital investments for a new state-of-the-art food manufacturing facility in Orrville, Ohio; consolidation of coffee production in New Orleans, Louisiana; and the transition of the Companys pickle and condiments production to third-party manufacturers.
Upon completion, the restructuring plan will result in a reduction of approximately 850 full-time positions and the closing of six of the Companys facilities Memphis, Tennessee; Ste. Marie, Quebec; Sherman, Texas; Kansas City, Missouri; Dunnville, Ontario; and Delhi Township, Ontario. The Sherman, Dunnville, Delhi Township, and Kansas City facilities have been closed and approximately 75 percent of the full-time positions have been reduced as of July 31, 2012.
The Company expects to incur restructuring costs of approximately $245.0 million, of which $203.3 million has been incurred through July 31, 2012. The majority of the remaining costs are anticipated to be recognized through the next fiscal year.
9
The following table summarizes the restructuring activity, including the reserves established and the total amount expected to be incurred.
Long-Lived Asset Charges |
Employee Separation |
Site Preparation and Equipment Relocation |
Production Start-up |
Other Costs | Total | |||||||||||||||||||
Total expected restructuring charge |
$ | 105,000 | $ | 71,000 | $ | 31,000 | $ | 26,000 | $ | 12,000 | $ | 245,000 | ||||||||||||
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Balance at May 1, 2011 |
$ | 0 | $ | 10,198 | $ | 0 | $ | 0 | $ | 0 | $ | 10,198 | ||||||||||||
Charge to expense |
34,195 | 20,364 | 12,963 | 10,689 | 2,930 | 81,141 | ||||||||||||||||||
Cash payments |
0 | (13,754 | ) | (12,963 | ) | (10,689 | ) | (2,930 | ) | (40,336 | ) | |||||||||||||
Noncash utilization |
(34,195 | ) | (8,030 | ) | 0 | 0 | 0 | (42,225 | ) | |||||||||||||||
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Balance at April 30, 2012 |
$ | 0 | $ | 8,778 | $ | 0 | $ | 0 | $ | 0 | $ | 8,778 | ||||||||||||
Charge to expense |
3,172 | 1,284 | 5,575 | 3,606 | 818 | 14,455 | ||||||||||||||||||
Cash payments |
0 | (512 | ) | (5,575 | ) | (3,606 | ) | (818 | ) | (10,511 | ) | |||||||||||||
Noncash utilization |
(3,172 | ) | (6 | ) | 0 | 0 | 0 | (3,178 | ) | |||||||||||||||
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Balance at July 31, 2012 |
$ | 0 | $ | 9,544 | $ | 0 | $ | 0 | $ | 0 | $ | 9,544 | ||||||||||||
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Remaining expected restructuring charge |
$ | 10,194 | $ | 12,203 | $ | 5,863 | $ | 6,495 | $ | 6,981 | $ | 41,736 | ||||||||||||
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Total restructuring charges of $14.5 million and $19.6 million in the three months ended July 31, 2012 and 2011, respectively, were reported in the Condensed Statements of Consolidated Income. Of the total restructuring charges, $3.6 million and $9.7 million were reported in cost of products sold in the three months ended July 31, 2012 and 2011, respectively, while the remaining charges were reported in other restructuring costs. The restructuring costs classified as cost of products sold primarily include long-lived asset charges for accelerated depreciation related to property, plant, and equipment that will be used at the affected production facilities until they are closed or sold.
Employee separation costs include severance, retention bonuses, and pension costs. Severance costs and retention bonuses are being recognized over the estimated future service period of the affected employees. The obligation related to employee separation costs is included in other current liabilities in the Condensed Consolidated Balance Sheets. For additional information on the impact of the restructuring plan on defined benefit pension and other postretirement benefit plans, see Note 11: Pensions and Other Postretirement Benefits.
Other costs include professional fees, costs related to closing the facilities, and miscellaneous expenditures associated with the Companys restructuring initiative and are expensed as incurred.
Note 6: Share-Based Payments
The Company provides for equity-based incentives to be awarded to key employees and non-employee directors. These incentives are administered primarily through the 2010 Equity and Incentive Compensation Plan, and currently consist of restricted shares, restricted stock units, deferred shares, deferred stock units, performance units, and stock options.
The following table summarizes amounts related to share-based payments.
Three Months Ended July 31, |
||||||||
2012 | 2011 | |||||||
Share-based compensation expense included in selling, distribution, and administrative expenses |
$ | 4,116 | $ | 5,151 | ||||
Share-based compensation expense included in other merger and integration costs |
193 | 881 | ||||||
Share-based compensation expense included in other restructuring costs |
6 | 43 | ||||||
|
|
|
|
|||||
Total share-based compensation expense |
$ | 4,315 | $ | 6,075 | ||||
|
|
|
|
|||||
Related income tax benefit |
$ | 1,455 | $ | 2,014 | ||||
|
|
|
|
As of July 31, 2012, total compensation cost related to nonvested share-based awards not yet recognized was approximately $43,344. The weighted-average period over which this amount is expected to be recognized is 3.2 years.
10
Note 7: Common Shares
The following table sets forth common share information.
July 31, 2012 | April 30, 2012 | |||||||
Common shares authorized |
150,000,000 | 150,000,000 | ||||||
Common shares outstanding |
110,438,142 | 110,284,715 | ||||||
Treasury shares |
18,167,023 | 18,320,450 |
Note 8: Reportable Segments
The Company operates in one industry: the manufacturing and marketing of food products. The Company has three reportable segments: U.S. Retail Coffee, U.S. Retail Consumer Foods, and International, Foodservice, and Natural Foods. The U.S. Retail Coffee segment primarily represents the domestic sales of Folgers®, Dunkin Donuts®, Millstone®, Café Bustelo, and Café Pilon branded coffee; the U.S. Retail Consumer Foods segment primarily includes domestic sales of Smuckers®, Crisco®, Jif®, Pillsbury®, Eagle Brand®, Hungry Jack®, and Martha White® branded products; and the International, Foodservice, and Natural Foods segment is comprised of products distributed domestically and in foreign countries through retail channels, foodservice distributors and operators (e.g., restaurants, lodging, schools and universities, health care operators), and health and natural foods stores and distributors.
Segment profit represents revenue, less direct and allocable operating expenses, and is consistent with the way in which the Company manages its segments. However, the Company does not represent that the segments, if operated independently, would report the segment profit set forth below, as segment profit excludes certain operating expenses such as corporate administrative expenses.
Three Months Ended July 31, |
||||||||
2012 | 2011 | |||||||
Net sales: |
||||||||
U.S. Retail Coffee |
$ | 520,793 | $ | 500,109 | ||||
U.S. Retail Consumer Foods |
528,444 | 459,500 | ||||||
International, Foodservice, and Natural Foods |
320,466 | 229,274 | ||||||
|
|
|
|
|||||
Total net sales |
$ | 1,369,703 | $ | 1,188,883 | ||||
|
|
|
|
|||||
Segment profit: |
||||||||
U.S. Retail Coffee |
$ | 126,388 | $ | 139,711 | ||||
U.S. Retail Consumer Foods |
107,835 | 79,019 | ||||||
International, Foodservice, and Natural Foods |
40,686 | 38,545 | ||||||
|
|
|
|
|||||
Total segment profit |
$ | 274,909 | $ | 257,275 | ||||
|
|
|
|
|||||
Interest income |
278 | 302 | ||||||
Interest expense |
(23,882 | ) | (15,422 | ) | ||||
Share-based compensation expense |
(4,116 | ) | (5,151 | ) | ||||
Cost of products sold - restructuring and merger and integration |
(3,964 | ) | (10,426 | ) | ||||
Other restructuring costs |
(10,910 | ) | (9,897 | ) | ||||
Other merger and integration costs |
(6,269 | ) | (4,685 | ) | ||||
Other special project costs |
(6,669 | ) | 0 | |||||
Corporate administrative expenses |
(52,456 | ) | (46,413 | ) | ||||
Other income - net |
344 | 1,243 | ||||||
|
|
|
|
|||||
Income before income taxes |
$ | 167,265 | $ | 166,826 | ||||
|
|
|
|
11
Note 9: Debt and Financing Arrangements
Long-term debt consists of the following:
July 31, 2012 | April 30, 2012 | |||||||
4.78% Senior Notes due June 1, 2014 |
$ | 100,000 | $ | 100,000 | ||||
6.12% Senior Notes due November 1, 2015 |
24,000 | 24,000 | ||||||
6.63% Senior Notes due November 1, 2018 |
397,201 | 397,906 | ||||||
3.50% Notes due October 15, 2021 |
748,674 | 748,637 | ||||||
5.55% Senior Notes due April 1, 2022 |
400,000 | 400,000 | ||||||
4.50% Senior Notes due June 1, 2025 |
400,000 | 400,000 | ||||||
|
|
|
|
|||||
Total long-term debt |
$ | 2,069,875 | $ | 2,070,543 | ||||
Current portion of long-term debt |
50,000 | 50,000 | ||||||
|
|
|
|
|||||
Total long-term debt, less current portion |
$ | 2,019,875 | $ | 2,020,543 | ||||
|
|
|
|
All of the Companys Senior Notes are unsecured and interest is paid semiannually. Scheduled principal payments are required on the 5.55 percent Senior Notes, the first of which is $50.0 million on April 1, 2013, and on the 4.50 percent Senior Notes, the first of which is $100.0 million on June 1, 2020.
The Company has available a $1.0 billion revolving credit facility with a group of nine banks that matures in July 2016. The Company did not have a balance outstanding under the revolving credit facility at July 31, 2012.
The Companys debt instruments contain certain financial covenant restrictions including consolidated net worth, a leverage ratio, and an interest coverage ratio. The Company is in compliance with all covenants.
Note 10: Earnings per Share
The following table sets forth the computation of net income per common share and net income per common share assuming dilution under the two-class method.
Three Months Ended July 31, | ||||||||
2012 | 2011 | |||||||
Computation of net income per common share: |
||||||||
Net income |
$ | 110,863 | $ | 111,523 | ||||
Net income allocated to participating securities |
954 | 1,127 | ||||||
|
|
|
|
|||||
Net income allocated to common stockholders |
$ | 109,909 | $ | 110,396 | ||||
|
|
|
|
|||||
Weighted-average common shares outstanding |
109,418,592 | 113,122,789 | ||||||
|
|
|
|
|||||
Net income per common share |
$ | 1.00 | $ | 0.98 | ||||
|
|
|
|
|||||
Computation of net income per common share - assuming dilution: |
||||||||
Net income |
$ | 110,863 | $ | 111,523 | ||||
Net income allocated to participating securities |
954 | 1,127 | ||||||
|
|
|
|
|||||
Net income allocated to common stockholders |
$ | 109,909 | $ | 110,396 | ||||
|
|
|
|
|||||
Weighted-average common shares outstanding |
109,418,592 | 113,122,789 | ||||||
Dilutive effect of stock options |
29,536 | 57,637 | ||||||
|
|
|
|
|||||
Weighted-average common shares outstanding - assuming dilution |
109,448,128 | 113,180,426 | ||||||
|
|
|
|
|||||
Net income per common share - assuming dilution |
$ | 1.00 | $ | 0.98 | ||||
|
|
|
|
12
The following table reconciles the weighted-average common shares used in the basic and diluted earnings per share disclosures to the total weighted-average shares outstanding.
Three Months Ended July 31, | ||||||||
2012 | 2011 | |||||||
Weighted-average common shares outstanding |
109,418,592 | 113,122,789 | ||||||
Weighted-average participating shares outstanding |
949,679 | 1,154,758 | ||||||
|
|
|
|
|||||
Total weighted-average shares outstanding |
110,368,271 | 114,277,547 | ||||||
Dilutive effect of stock options |
29,536 | 57,637 | ||||||
|
|
|
|
|||||
Total weighted-average shares outstanding - assuming dilution |
110,397,807 | 114,335,184 | ||||||
|
|
|
|
Note 11: Pensions and Other Postretirement Benefits
The components of the Companys net periodic benefit cost for defined benefit pension and other postretirement benefit plans are shown below.
Three Months Ended July 31, | ||||||||||||||||
Defined Benefit Pension Plans | Other Postretirement Benefits | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Service cost |
$ | 2,298 | $ | 2,062 | $ | 673 | $ | 525 | ||||||||
Interest cost |
6,028 | 6,523 | 765 | 780 | ||||||||||||
Expected return on plan assets |
(6,322 | ) | (6,885 | ) | 0 | 0 | ||||||||||
Recognized net actuarial loss (gain) |
3,362 | 2,201 | 0 | (25 | ) | |||||||||||
Settlement loss |
6,669 | 0 | 0 | 0 | ||||||||||||
Other |
254 | 300 | (106 | ) | (100 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net periodic benefit cost |
$ | 12,289 | $ | 4,201 | $ | 1,332 | $ | 1,180 | ||||||||
|
|
|
|
|
|
|
|
Upon completion of the restructuring plan discussed in Note 5: Restructuring, approximately 850 full-time positions will be reduced. The Company has included the estimated impact of the planned reductions in measuring the net periodic benefit cost of the defined benefit pension and other postretirement benefit plans for the three months ended July 31, 2012, and 2011. During the three months ended July 31, 2012, the Company paid a portion of its terminated pension participants lump-sum cash settlements in order to reduce the Companys future pension obligation and administrative costs. The charges related to the lump-sum cash settlements are included above in settlement loss and were reported in other special project costs in the Condensed Statements of Consolidated Income during the three months ended July 31, 2012.
Note 12: Contingencies
The Company, like other food manufacturers, is from time to time subject to various administrative, regulatory, and other legal proceedings arising in the ordinary course of business. The Company is currently a defendant in a variety of such legal proceedings. The Company cannot predict with certainty the ultimate results of these proceedings or reasonably determine a range of potential loss. The Companys policy is to accrue costs for contingent liabilities when such liabilities are probable and amounts can be reasonably estimated. Based on the information known to date, the Company does not believe the final outcome of these proceedings will have a material adverse effect on the Companys financial position, results of operations, or cash flows.
Note 13: Derivative Financial Instruments
The Company is exposed to market risks, such as changes in commodity prices, foreign currency exchange rates, and interest rates. To manage the volatility related to these exposures, the Company enters into various derivative transactions. By policy, the Company historically has not entered into derivative financial instruments for trading purposes or for speculation.
Commodity Price Management: The Company enters into commodity futures and options contracts to manage the price volatility and reduce the variability of future cash flows related to anticipated inventory purchases of key raw materials, notably green coffee, edible oils, corn, corn sweetener, and flour. The Company also enters into commodity futures and options contracts to manage price risk for energy input costs, including natural gas and diesel fuel. The derivative instruments generally have maturities of less than one year.
13
Certain of the derivative instruments associated with the Companys U.S. Retail Coffee and U.S. Retail Consumer Foods segments meet the hedge criteria and are accounted for as cash flow hedges. The mark-to-market gains or losses on qualifying hedges are deferred and included as a component of accumulated other comprehensive loss to the extent effective, and reclassified to cost of products sold in the period during which the hedged transaction affects earnings. Cash flows related to qualifying hedges are classified consistently with the cash flows from the hedged item in the Condensed Statements of Consolidated Cash Flows. In order to qualify as a hedge of commodity price risk, it must be demonstrated that the changes in the fair value of the commoditys futures contracts are highly effective in hedging price risks associated with the commodity purchased. Hedge effectiveness is measured and assessed at inception and on a monthly basis. The mark-to-market gains or losses on nonqualifying and ineffective portions of commodity hedges are recognized in cost of products sold immediately.
The commodities hedged have a high inverse correlation to price changes of the derivative commodity instrument; thus, the Company would expect that any gain or loss in the estimated fair value of its derivatives would generally be offset by an increase or decrease in the estimated fair value of the underlying exposures.
Foreign Currency Exchange Rate Hedging: The Company utilizes foreign currency forwards and options contracts to manage the effect of foreign currency exchange fluctuations on future cash payments primarily related to purchases of certain raw materials, finished goods, and fixed assets in Canada. The contracts generally have maturities of less than one year. At the inception of the contract, the derivative is evaluated and documented for hedge accounting treatment. Instruments currently used to manage foreign currency exchange exposures do not meet the requirements for hedge accounting treatment and the change in value of these instruments is immediately recognized in cost of products sold. If the contract qualifies for hedge accounting treatment, to the extent the hedge is deemed effective, the associated mark-to-market gains and losses are deferred and included as a component of accumulated other comprehensive loss. These gains or losses are reclassified to earnings in the period the contract is executed. The ineffective portion of these contracts is immediately recognized in earnings.
Interest Rate Hedging: The Company utilizes derivative instruments to manage changes in the fair value of its debt. Interest rate swaps mitigate the risk associated with the underlying hedged item. At the inception of the contract, the instrument is evaluated and documented for hedge accounting treatment. If the contract is designated as a cash flow hedge, the mark-to-market gains or losses on the swap are deferred and included as a component of accumulated other comprehensive loss to the extent effective, and reclassified to interest expense in the period during which the hedged transaction affects earnings. If the contract is designated as a fair value hedge, the swap would be recognized at fair value on the balance sheet and changes in the fair value would be recognized in interest expense.
The following table sets forth the fair value of derivative instruments recognized in the Condensed Consolidated Balance Sheets.
July 31, 2012 | April 30, 2012 | |||||||||||||||
Other Current Assets |
Other Current Liabilities |
Other Current Assets |
Other Current Liabilities |
|||||||||||||
Derivatives designated as hedging instruments: |
||||||||||||||||
Commodity contracts |
$ | 10,441 | $ | 3,282 | $ | 6,569 | $ | 19,510 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivatives designated as hedging instruments |
$ | 10,441 | $ | 3,282 | $ | 6,569 | $ | 19,510 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Derivatives not designated as hedging instruments: |
||||||||||||||||
Commodity contracts |
$ | 24,366 | $ | 10,286 | $ | 3,166 | $ | 3,631 | ||||||||
Foreign currency exchange contracts |
205 | 549 | 436 | 982 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivatives not designated as hedging instruments |
$ | 24,571 | $ | 10,835 | $ | 3,602 | $ | 4,613 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivatives instruments |
$ | 35,012 | $ | 14,117 | $ | 10,171 | $ | 24,123 | ||||||||
|
|
|
|
|
|
|
|
14
The Company has elected to not offset fair value amounts recognized for commodity derivative instruments and its cash margin accounts executed with the same counterparty. The Company maintained cash margin accounts of $5,390 and $32,529 at July 31, 2012 and April 30, 2012, respectively, that are included in other current assets in the Condensed Consolidated Balance Sheets.
The following table presents information on pre-tax commodity contract gains and losses recognized on derivatives designated as cash flow hedges.
Three Months Ended July 31, | ||||||||
2012 | 2011 | |||||||
Losses recognized in other comprehensive loss (effective portion) |
$ | (2,210 | ) | $ | (6,014 | ) | ||
(Losses) gains reclassified from accumulated other comprehensive loss to cost of products sold (effective portion) |
(6,538 | ) | 6,108 | |||||
|
|
|
|
|||||
Change in accumulated other comprehensive loss |
$ | 4,328 | $ | (12,122 | ) | |||
|
|
|
|
|||||
Losses recognized in cost of products sold (ineffective portion) |
$ | (84 | ) | $ | (121 | ) | ||
|
|
|
|
Included as a component of accumulated other comprehensive loss at July 31, 2012 and April 30, 2012, were deferred pre-tax losses of $19,959 and $24,287, respectively, related to commodity contracts. The related tax impact recognized in accumulated other comprehensive loss was a benefit of $7,249 and $8,820 at July 31, 2012 and April 30, 2012, respectively. The entire amount of the deferred loss included in accumulated other comprehensive loss at July 31, 2012, is expected to be recognized in earnings within one year as the related commodity is sold.
The following table presents information on the pre-tax losses recognized on the interest rate swap designated as a cash flow hedge.
Three Months Ended July 31, | ||||||||
2012 | 2011 | |||||||
Gains recognized in other comprehensive loss (effective portion) |
$ | 0 | $ | 0 | ||||
Losses reclassified from accumulated other comprehensive loss to interest expense (effective portion) |
(132 | ) | 0 | |||||
|
|
|
|
|||||
Change in accumulated other comprehensive loss |
$ | 132 | $ | 0 | ||||
|
|
|
|
|||||
Gains recognized in interest expense (ineffective portion) |
$ | 0 | $ | 0 | ||||
|
|
|
|
Included as a component of accumulated other comprehensive loss at July 31, 2012 and April 30, 2012, were deferred pre-tax losses of $5,782 and $5,914, respectively, related to the termination of the interest rate contract. The related tax benefit recognized in accumulated other comprehensive loss was $2,085 and $2,133 at July 31, 2012 and April 30, 2012, respectively. Approximately $500 of the loss will be recognized over the next 12 months.
The following table presents the net gains and losses recognized in cost of products sold on derivatives not designated as qualified hedging instruments.
Three Months Ended July 31, |
||||||||
2012 | 2011 | |||||||
Unrealized gains on commodity contracts |
$ | 19,622 | $ | 4,401 | ||||
Unrealized gains (losses) on foreign currency exchange contracts |
102 | (205 | ) | |||||
|
|
|
|
|||||
Total unrealized gains recognized in cost of products sold |
$ | 19,724 | $ | 4,196 | ||||
|
|
|
|
|||||
Realized (losses) gains on commodity contracts |
$ | (7,841 | ) | $ | 9,296 | |||
Realized gains on foreign currency exchange contracts |
103 | 290 | ||||||
|
|
|
|
|||||
Total realized (losses) gains recognized in cost of products sold |
$ | (7,738 | ) | $ | 9,586 | |||
|
|
|
|
|||||
Total gains recognized in cost of products sold |
$ | 11,986 | $ | 13,782 | ||||
|
|
|
|
15
The following table presents the gross contract notional value of outstanding derivative contracts.
July 31, 2012 | April 30, 2012 | |||||||
Commodity contracts |
$ | 926,765 | $ | 983,381 | ||||
Foreign currency exchange contracts |
121,398 | 94,424 |
Note 14: Other Financial Instruments and Fair Value Measurements
Financial instruments, other than derivatives, that potentially subject the Company to significant concentrations of credit risk consist principally of cash investments and trade receivables. The fair value of the Companys financial instruments, other than its long-term debt, approximates their carrying amounts. The following table provides information on the carrying amount and fair value of the Companys financial instruments.
July 31, 2012 | April 30, 2012 | |||||||||||||||
Carrying Amount |
Fair Value | Carrying Amount |
Fair Value | |||||||||||||
Other investments |
45,240 | 45,240 | 36,173 | 36,173 | ||||||||||||
Derivative financial instruments - net |
20,895 | 20,895 | (13,952 | ) | (13,952 | ) | ||||||||||
Long-term debt |
(2,069,875 | ) | (2,471,540 | ) | (2,070,543 | ) | (2,443,514 | ) |
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect the Companys market assumptions.
The following tables summarize the fair values and the levels within the fair value hierarchy in which the fair value measurements fall for the Companys financial assets (liabilities).
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Fair Value at July 31, 2012 |
|||||||||||||
Other investments: (A) |
||||||||||||||||
Equity mutual funds |
$ | 18,419 | $ | 0 | $ | 0 | $ | 18,419 | ||||||||
Municipal obligations |
0 | 24,831 | 0 | 24,831 | ||||||||||||
Other investments |
1,990 | 0 | 0 | 1,990 | ||||||||||||
Derivatives: (B) |
||||||||||||||||
Commodity contracts - net |
21,118 | 121 | 0 | 21,239 | ||||||||||||
Foreign currency exchange contracts - net |
0 | (344 | ) | 0 | (344 | ) | ||||||||||
Long-term debt (C) |
(803,651 | ) | (1,667,889 | ) | 0 | (2,471,540 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial instruments measured at fair value |
$ | (762,124 | ) | $ | (1,643,281 | ) | $ | 0 | $ | (2,405,405 | ) | |||||
|
|
|
|
|
|
|
|
16
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Fair Value at April 30, 2012 |
|||||||||||||
Other investments: (A) |
||||||||||||||||
Equity mutual funds |
$ | 14,649 | $ | 0 | $ | 0 | $ | 14,649 | ||||||||
Municipal obligations |
0 | 20,392 | 0 | 20,392 | ||||||||||||
Other investments |
1,132 | 0 | 0 | 1,132 | ||||||||||||
Derivatives: (B) |
||||||||||||||||
Commodity contracts - net |
(12,788 | ) | (618 | ) | 0 | (13,406 | ) | |||||||||
Foreign currency exchange contracts - net |
(1 | ) | (545 | ) | 0 | (546 | ) | |||||||||
Long-term debt (C) |
(777,023 | ) | (1,666,491 | ) | 0 | (2,443,514 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial instruments measured at fair value |
$ | (774,031 | ) | $ | (1,647,262 | ) | $ | 0 | $ | (2,421,293 | ) | |||||
|
|
|
|
|
|
|
|
(A) | The Companys other investments consist of funds maintained for the payment of benefits associated with nonqualified retirement plans. The funds include equity securities listed in active markets and municipal obligations valued by a third party using valuation techniques which utilize inputs that are derived principally from or corroborated by observable market data. As of July 31, 2012, the Companys municipal obligations are scheduled to mature as follows: $3,605 in 2013, $731 in 2014, $2,727 in 2015, $928 in 2016, and $16,840 in 2017 and beyond. |
(B) | The Companys Level 1 derivatives are valued using quoted market prices for identical instruments in active markets. The Level 2 derivatives are valued using quoted prices for similar assets or liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability. For additional information, see Note 13: Derivative Financial Instruments. |
(C) | The Companys long-term debt is comprised of public Notes classified as Level 1 and private Senior Notes classified as Level 2. The public Notes are traded in an active secondary market and valued using quoted prices. The value of the private Senior Notes is based on the net present value of each interest and principal payment calculated, utilizing an interest rate derived from a fair market yield curve. For additional information, see Note 9: Debt and Financing Arrangements. |
Note 15: Income Taxes
Income tax expense increased $1.1 million in the three months ended July 31, 2012, resulting in an increase in the effective tax rate to 33.7 percent, compared to 33.2 percent in the first quarter of 2012.
During the three-month period ended July 31, 2012, the effective income tax rate varied from the U.S. statutory income tax rate primarily due to the domestic manufacturing deduction, partially offset by state income taxes.
Within the next 12 months, it is reasonably possible that the Company could decrease its unrecognized tax benefits by an additional $0.6 million, primarily as a result of expiring statute of limitations periods.
Note 16: Guarantor and Non-Guarantor Financial Information
In October 2011, the Company filed a registration statement on Form S-3 registering certain securities described therein, including debt securities which are guaranteed by certain of the Companys subsidiaries. The Company issued $750.0 million of 3.50 percent Notes pursuant to the registration statement that are fully and unconditionally guaranteed, on a joint and several basis, by the following 100 percent wholly-owned subsidiaries of the Company: J.M. Smucker LLC and The Folgers Coffee Company (the subsidiary guarantors). The following condensed consolidated financial information for the Company, the subsidiary guarantors, and the non-guarantor subsidiaries is provided below. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions, including transactions with the Companys 100 percent wholly-owned subsidiary guarantors and non-guarantor subsidiaries. The Company has accounted for investments in subsidiaries using the equity method.
17
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
Three Months Ended July 31, 2012 | ||||||||||||||||||||
The J.M. Smucker Company (Parent) |
Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | 1,000,194 | $ | 318,136 | $ | 1,309,239 | $ | (1,257,866 | ) | $ | 1,369,703 | |||||||||
Cost of products sold |
890,654 | 290,753 | 973,657 | (1,255,134 | ) | 899,930 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross Profit |
109,540 | 27,383 | 335,582 | (2,732 | ) | 469,773 | ||||||||||||||
Selling, distribution, and administrative expenses, restructuring, merger and integration, and other special project costs |
56,850 | 11,910 | 187,304 | 0 | 256,064 | |||||||||||||||
Amortization |
2,934 | 0 | 21,257 | 0 | 24,191 | |||||||||||||||
Other operating (income) expense - net |
(670 | ) | (539 | ) | 202 | 0 | (1,007 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating Income |
50,426 | 16,012 | 126,819 | (2,732 | ) | 190,525 | ||||||||||||||
Interest (expense) income - net |
(23,819 | ) | 298 | (83 | ) | 0 | (23,604 | ) | ||||||||||||
Other income (expense) - net |
4,422 | 505 | (4,583 | ) | 0 | 344 | ||||||||||||||
Equity in net earnings of subsidiaries |
89,336 | 33,183 | 16,514 | (139,033 | ) | 0 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income Before Income Taxes |
120,365 | 49,998 | 138,667 | (141,765 | ) | 167,265 | ||||||||||||||
Income taxes |
9,502 | 101 | 46,799 | 0 | 56,402 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net Income |
$ | 110,863 | $ | 49,897 | $ | 91,868 | $ | (141,765 | ) | $ | 110,863 | |||||||||
Other comprehensive (loss) income, net of tax |
(395 | ) | 2,341 | (2,522 | ) | 181 | (395 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive Income |
$ | 110,468 | $ | 52,238 | $ | 89,346 | $ | (141,584 | ) | $ | 110,468 | |||||||||
|
|
|
|
|
|
|
|
|
|
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
Three Months Ended July 31, 2011 | ||||||||||||||||||||
The J.M. Smucker Company (Parent) |
Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | 917,109 | $ | 347,488 | $ | 753,389 | $ | (829,103 | ) | $ | 1,188,883 | |||||||||
Cost of products sold |
780,585 | 318,295 | 484,957 | (826,038 | ) | 757,799 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross Profit |
136,524 | 29,193 | 268,432 | (3,065 | ) | 431,084 | ||||||||||||||
Selling, distribution, and administrative expenses, restructuring, and merger and integration costs |
59,315 | 12,202 | 159,617 | 0 | 231,134 | |||||||||||||||
Amortization |
1,297 | 0 | 18,938 | 0 | 20,235 | |||||||||||||||
Other operating expense (income) - net |
67 | (498 | ) | (557 | ) | 0 | (988 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating Income |
75,845 | 17,489 | 90,434 | (3,065 | ) | 180,703 | ||||||||||||||
Interest (expense) income - net |
(15,374 | ) | 975 | (721 | ) | 0 | (15,120 | ) | ||||||||||||
Other income - net |
791 | 117 | 335 | 0 | 1,243 | |||||||||||||||
Equity in net earnings of subsidiaries |
69,586 | 46,319 | 17,608 | (133,513 | ) | 0 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income Before Income Taxes |
130,848 | 64,900 | 107,656 | (136,578 | ) | 166,826 | ||||||||||||||
Income taxes |
19,325 | 323 | 35,655 | 0 | 55,303 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net Income |
$ | 111,523 | $ | 64,577 | $ | 72,001 | $ | (136,578 | ) | $ | 111,523 | |||||||||
Other comprehensive (loss) income, net of tax |
(11,167 | ) | (7,591 | ) | (11,003 | ) | 18,594 | (11,167 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive Income |
$ | 100,356 | $ | 56,986 | $ | 60,998 | $ | (117,984 | ) | $ | 100,356 | |||||||||
|
|
|
|
|
|
|
|
|
|
18
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, 2012 | ||||||||||||||||||||
The J.M. Smucker Company (Parent) |
Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
CURRENT ASSETS |
||||||||||||||||||||
Cash and cash equivalents |
$ | 195,817 | $ | 0 | $ | 115,657 | $ | 0 | $ | 311,474 | ||||||||||
Inventories |
0 | 154,103 | 882,831 | (17,595 | ) | 1,019,339 | ||||||||||||||
Other current assets |
384,865 | 12,068 | 72,582 | 0 | 469,515 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Current Assets |
580,682 | 166,171 | 1,071,070 | (17,595 | ) | 1,800,328 | ||||||||||||||
PROPERTY, PLANT, AND EQUIPMENT |
226,619 | 400,411 | 474,006 | 0 | 1,101,036 | |||||||||||||||
INVESTMENTS IN SUBSIDIARIES AND INTERCOMPANY |
5,646,246 | 4,123,437 | 580,143 | (10,349,826 | ) | 0 | ||||||||||||||
OTHER NONCURRENT ASSETS |
||||||||||||||||||||
Goodwill |
981,606 | 0 | 2,071,640 | 0 | 3,053,246 | |||||||||||||||
Other intangible assets - net |
433,538 | 0 | 2,728,487 | 0 | 3,162,025 | |||||||||||||||
Other noncurrent assets |
69,595 | 13,529 | 62,351 | 0 | 145,475 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Other Noncurrent Assets |
1,484,739 | 13,529 | 4,862,478 | 0 | 6,360,746 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 7,938,286 | $ | 4,703,548 | $ | 6,987,697 | $ | (10,367,421 | ) | $ | 9,262,110 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||||||||||||||
CURRENT LIABILITIES |
$ | 376,036 | $ | 94,826 | $ | 239,607 | $ | 0 | $ | 710,469 | ||||||||||
NONCURRENT LIABILITIES |
||||||||||||||||||||
Long-term debt |
2,019,875 | 0 | 0 | 0 | 2,019,875 | |||||||||||||||
Deferred income taxes |
105,729 | 0 | 889,662 | 0 | 995,391 | |||||||||||||||
Other noncurrent liabilities |
213,193 | 20,002 | 79,727 | 0 | 312,922 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Noncurrent Liabilities |
2,338,797 | 20,002 | 969,389 | 0 | 3,328,188 | |||||||||||||||
SHAREHOLDERS EQUITY |
5,223,453 | 4,588,720 | 5,778,701 | (10,367,421 | ) | 5,223,453 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 7,938,286 | $ | 4,703,548 | $ | 6,987,697 | $ | (10,367,421 | ) | $ | 9,262,110 | ||||||||||
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, 2012 | ||||||||||||||||||||
The J.M. Smucker Company (Parent) |
Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
CURRENT ASSETS |
||||||||||||||||||||
Cash and cash equivalents |
$ | 108,281 | $ | 0 | $ | 121,427 | $ | 0 | $ | 229,708 | ||||||||||
Inventories |
0 | 161,411 | 815,030 | (14,865 | ) | 961,576 | ||||||||||||||
Other current assets |
334,220 | 3,499 | 114,462 | 0 | 452,181 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Current Assets |
442,501 | 164,910 | 1,050,919 | (14,865 | ) | 1,643,465 | ||||||||||||||
PROPERTY, PLANT, AND EQUIPMENT |
220,354 | 389,163 | 486,572 | 0 | 1,096,089 | |||||||||||||||
INVESTMENTS IN SUBSIDIARIES AND INTERCOMPANY |
5,684,496 | 4,241,145 | 702,550 | (10,628,191 | ) | 0 | ||||||||||||||
OTHER NONCURRENT ASSETS |
||||||||||||||||||||
Goodwill |
981,606 | 0 | 2,073,012 | 0 | 3,054,618 | |||||||||||||||
Other intangible assets - net |
435,713 | 0 | 2,751,294 | 0 | 3,187,007 | |||||||||||||||
Other noncurrent assets |
59,992 | 11,137 | 62,918 | 0 | 134,047 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Other Noncurrent Assets |
1,477,311 | 11,137 | 4,887,224 | 0 | 6,375,672 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 7,824,662 | 4,806,355 | $ | 7,127,265 | $ | (10,643,056 | ) | $ | 9,115,226 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||||||||||||||
CURRENT LIABILITIES |
$ | 323,608 | $ | 101,714 | $ | 191,650 | $ | 0 | $ | 616,972 | ||||||||||
NONCURRENT LIABILITIES |
||||||||||||||||||||
Long-term debt |
2,020,543 | 0 | 0 | 0 | 2,020,543 | |||||||||||||||
Deferred income taxes |
104,822 | 311 | 887,559 | 0 | 992,692 | |||||||||||||||
Other noncurrent liabilities |
212,303 | 20,031 | 89,299 | 0 | 321,633 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Noncurrent Liabilities |
2,337,668 | 20,342 | 976,858 | 0 | 3,334,868 | |||||||||||||||
SHAREHOLDERS EQUITY |
5,163,386 | 4,684,299 | 5,958,757 | (10,643,056 | ) | 5,163,386 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 7,824,662 | $ | 4,806,355 | $ | 7,127,265 | $ | (10,643,056 | ) | $ | 9,115,226 | ||||||||||
|
|
|
|
|
|
|
|
|
|
19
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
Three Months Ended July 31, 2012 | ||||||||||||||||||||
The J.M. Smucker Company (Parent) |
Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net Cash Provided by Operating Activities |
$ | 32,018 | $ | 16,971 | $ | 127,730 | $ | 0 | $ | 176,719 | ||||||||||
INVESTING ACTIVITIES |
||||||||||||||||||||
Additions to property, plant, and equipment |
(8,008 | ) | (23,227 | ) | (15,047 | ) | 0 | (46,282 | ) | |||||||||||
Proceeds from disposal of property, plant, and equipment |
0 | 34 | 222 | 0 | 256 | |||||||||||||||
Other - net |
(9,452 | ) | 3,102 | 24,063 | 0 | 17,713 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net Cash (Used for) Provided by Investing Activities |
(17,460 | ) | (20,091 | ) | 9,238 | 0 | (28,313 | ) | ||||||||||||
FINANCING ACTIVITIES |
||||||||||||||||||||
Quarterly dividends paid |
(52,845 | ) | 0 | 0 | 0 | (52,845 | ) | |||||||||||||
Purchase of treasury shares |
(4,240 | ) | 0 | 0 | 0 | (4,240 | ) | |||||||||||||
Proceeds from stock option exercises |
185 | 0 | 0 | 0 | 185 | |||||||||||||||
Intercompany |
127,586 | 3,120 | (130,706 | ) | 0 | 0 | ||||||||||||||
Other - net |
2,292 | 0 | (10,000 | ) | 0 | (7,708 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash Provided by (Used for) Financing Activities |
72,978 | 3,120 | (140,706 | ) | 0 | (64,608 | ) | |||||||||||||
Effect of exchange rate changes on cash |
0 | 0 | (2,032 | ) | 0 | (2,032 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net increase (decrease) in cash and cash equivalents |
87,536 | 0 | (5,770 | ) | 0 | 81,766 | ||||||||||||||
Cash and cash equivalents at beginning of period |
108,281 | 0 | 121,427 | 0 | 229,708 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and Cash Equivalents at End of Period |
$ | 195,817 | $ | 0 | $ | 115,657 | $ | 0 | $ | 311,474 | ||||||||||
|
|
|
|
|
|
|
|
|
|
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
Three Months Ended July 31, 2011 | ||||||||||||||||||||
The J.M. Smucker Company (Parent) |
Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net Cash Provided by (Used for) Operating Activities |
$ | 83,115 | $ | 5,393 | $ | (146,746 | ) | $ | 0 | $ | (58,238 | ) | ||||||||
INVESTING ACTIVITIES |
||||||||||||||||||||
Business acquired, net of cash acquired |
0 | 0 | (362,846 | ) | 0 | (362,846 | ) | |||||||||||||
Additions to property, plant, and equipment |
(15,952 | ) | (32,150 | ) | (19,530 | ) | 0 | (67,632 | ) | |||||||||||
Sales and maturities of marketable securities |
18,600 | 0 | 0 | 0 | 18,600 | |||||||||||||||
Proceeds from disposal of property, plant, and equipment |
9 | 9 | 112 | 0 | 130 | |||||||||||||||
Other - net |
2 | (1 | ) | (19 | ) | 0 | (18 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net Cash Provided by (Used for) Investing Activities |
2,659 | (32,142 | ) | (382,283 | ) | 0 | (411,766 | ) | ||||||||||||
FINANCING ACTIVITIES |
||||||||||||||||||||
Revolving credit agreement - net |
306,700 | 0 | 0 | 0 | 306,700 | |||||||||||||||
Quarterly dividends paid |
(50,159 | ) | 0 | 0 | 0 | (50,159 | ) | |||||||||||||
Purchase of treasury shares |
(5,385 | ) | 0 | 0 | 0 | (5,385 | ) | |||||||||||||
Proceeds from stock option exercises |
242 | 0 | 0 | 0 | 242 | |||||||||||||||
Intercompany |
(546,476 | ) | 26,749 | 519,727 | 0 | 0 | ||||||||||||||
Other - net |
2,534 | 0 | 0 | 0 | 2,534 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net Cash (Used for) Provided by Financing Activities |
(292,544 | ) | 26,749 | 519,727 | 0 | 253,932 | ||||||||||||||
Effect of exchange rate changes |
0 | 0 | (1,298 | ) | 0 | (1,298 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net decrease in cash and cash equivalents |
(206,770 | ) | 0 | (10,600 | ) | 0 | (217,370 | ) | ||||||||||||
Cash and cash equivalents at beginning of period |
206,845 | 0 | 113,000 | 0 | 319,845 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and Cash Equivalents at End of Period |
$ | 75 | $ | 0 | $ | 102,400 | $ | 0 | $ | 102,475 | ||||||||||
|
|
|
|
|
|
|
|
|
|
20
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
This discussion and analysis deals with comparisons of material changes in the unaudited condensed consolidated financial statements for the three-month periods ended July 31, 2012 and 2011. Results for the three months ended July 31, 2012, include the operations of the North American foodservice coffee and hot beverage business acquired from Sara Lee Corporation (Sara Lee foodservice business) on January 3, 2012.
The Company is the owner of all trademarks, except for the following which are used under license: Pillsbury, the Barrelhead logo, and the Doughboy character are trademarks of The Pillsbury Company, LLC; Carnation® is a trademark of Société des Produits Nestlé S.A.; Dunkin Donuts is a registered trademark of DD IP Holder, LLC; and Douwe Egberts and Pickwick® are registered trademarks of D.E Master Blenders 1753 N.V. Borden® and Elsie are also trademarks used under license.
Dunkin Donuts brand is licensed to the Company for packaged coffee products sold in retail channels such as grocery stores, mass merchandisers, club stores, and drug stores. Information in this document does not pertain to Dunkin Donuts coffee or other products for sale in Dunkin Donuts restaurants. K-Cup® and K-Cups® are trademarks of Keurig, Incorporated.
Results of Operations
Three Months Ended July 31, | ||||||||
2012 | 2011 | |||||||
(Dollars in millions, except per share data) | ||||||||
Net sales |
$ | 1,369.7 | $ | 1,188.9 | ||||
Gross profit |
$ | 469.8 | $ | 431.1 | ||||
% of net sales |
34.3 | % | 36.3 | % | ||||
Operating income |
$ | 190.5 | $ | 180.7 | ||||
% of net sales |
13.9 | % | 15.2 | % | ||||
Net income: |
||||||||
Net income |
$ | 110.9 | $ | 111.5 | ||||
Net income per common share assuming dilution |
$ | 1.00 | $ | 0.98 | ||||
Gross profit excluding special project costs (1) |
$ | 473.7 | $ | 441.5 | ||||
% of net sales |
34.6 | % | 37.1 | % | ||||
Operating income excluding special project costs (1) |
$ | 218.3 | $ | 205.7 | ||||
% of net sales |
15.9 | % | 17.3 | % | ||||
Net income excluding special project costs: (1) |
||||||||
Income |
$ | 129.3 | $ | 128.2 | ||||
Income per common share assuming dilution |
$ | 1.17 | $ | 1.12 |
(1) | Refer to Non-GAAP Measures located on page 28 for a reconciliation to the comparable GAAP financial measure. |
Net sales increased 15 percent in the first quarter of 2013, compared to the first quarter of 2012, due to the contribution from the acquired Sara Lee foodservice business, favorable sales mix, higher prices, and volume growth. Operating income increased five percent in the first quarter of 2013, compared to the first quarter of 2012, and increased six percent over the same time period excluding the impact of restructuring, merger and integration, and certain pension settlement costs (special project costs), as the benefit of net price realization and an increase in favorable unrealized mark-to-market adjustments on derivative contracts was somewhat offset by higher commodity costs and an increase in selling, distribution, and administrative (SD&A) expenses. Net income decreased one percent in the first quarter of 2013, compared to the first quarter of
21
2012, as higher interest expense reduced the increase in operating income. The Companys net income per diluted share was $1.00 and $0.98 for the first quarters of 2013 and 2012, respectively, an increase of two percent. The Companys net income per diluted share excluding special project costs was $1.17 and $1.12 for the first quarters of 2013 and 2012, respectively, an increase of four percent, primarily due to a decrease in weighted-average common shares outstanding as a result of the Companys share repurchase activity during 2012.
Net Sales
Three Months Ended July 31, | ||||||||||||||||
2012 | 2011 | Increase (Decrease) |
% | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Net sales |
$ | 1,369.7 | $ | 1,188.9 | $ | 180.8 | 15 | % | ||||||||
Adjust for certain noncomparable items: |
||||||||||||||||
Acquisition |
(86.7 | ) | 0 | (86.7 | ) | (7 | %) | |||||||||
Divestiture |
0 | (5.0 | ) | 5.0 | 0 | % | ||||||||||
Foreign exchange |
5.5 | 0 | 5.5 | 0 | % | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net sales adjusted for the noncomparable impact of acquisition, divestiture, and foreign exchange |
$ | 1,288.5 | $ | 1,183.9 | $ | 104.6 | 9 | % | ||||||||
|
|
|
|
|
|
|
|
Amounts may not add due to rounding.
Net sales increased $180.8 million, or 15 percent, in the first quarter of 2013, compared to the first quarter of 2012, as the impact of acquisition, volume, price, and mix were all positive. The acquired Sara Lee foodservice business contributed seven percentage points of the net sales growth. Favorable sales mix and higher net realized prices each contributed to growth. Price increases taken on peanut butter since May 2011 were somewhat offset by net declines in coffee prices over the same period. Overall volume, excluding the acquisition, increased two percent in the first quarter of 2013, compared to the first quarter of 2012, primarily due to Jif peanut butter and Folgers coffee.
Operating Income
The following table presents components of operating income as a percentage of net sales.
Three Months Ended July 31, | ||||||||
2012 | 2011 | |||||||
Gross profit |
34.3 | % | 36.3 | % | ||||
Selling, distribution, and administrative expenses: |
||||||||
Marketing |
5.4 | % | 5.8 | % | ||||
Selling |
3.4 | 3.4 | ||||||
Distribution |
2.7 | 3.2 | ||||||
General and administrative |
5.5 | 5.8 | ||||||
|
|
|
|
|||||
Total selling, distribution, and administrative expenses |
17.0 | % | 18.2 | % | ||||
|
|
|
|
|||||
Amortization |
1.8 | 1.7 | ||||||
Other restructuring, merger and integration, and special project costs |
1.7 | 1.2 | ||||||
Other operating income - net |
(0.1 | ) | (0.1 | ) | ||||
|
|
|
|
|||||
Operating income |
13.9 | % | 15.2 | % | ||||
|
|
|
|
Amounts may not add due to rounding.
22
Gross profit increased $38.7 million, or nine percent, in the first quarter of 2013, compared to the first quarter of 2012. Excluding special project costs, gross profit increased $32.2 million, or seven percent, primarily due to the acquired Sara Lee foodservice business and a $15.5 million increase in the benefit of unrealized mark-to-market adjustments on derivative contracts, which increased to a gain of $19.7 million in the first quarter of 2013 from a gain of $4.2 million in the first quarter of 2012. A significant portion of the current quarter unrealized gain is expected to be offset later in the fiscal year as the related contracts are closed.
Although the impact by product category varied, overall commodity costs were higher during the first quarter of 2013, compared to the first quarter of 2012, and were not fully offset by price realization. Gross margin contracted from 37.1 percent in the first quarter of 2012 to 34.6 percent in the first quarter of 2013, excluding special project costs.
SD&A expenses increased seven percent in the first quarter of 2013, compared to the first quarter of 2012, but decreased as a percentage of net sales from 18.2 percent to 17.0 percent. Selling expenses increased 16 percent, generally in line with the increase in net sales and driven in part by the acquired Sara Lee foodservice business. General and administrative and marketing expenses increased eight percent and six percent, respectively, while distribution expenses decreased two percent due to the consolidation within the Companys retail direct-to-store delivery system.
Higher amortization expense was recognized in the first quarter of 2013, compared to the first quarter of 2012, primarily related to the intangible assets associated with the acquired Sara Lee foodservice business.
Operating income increased $9.8 million, or five percent, in the first quarter of 2013, compared to the first quarter of 2012. Excluding the impact of special project costs in both periods, operating income increased $12.6 million, or six percent, and declined from 17.3 percent of net sales in 2012 to 15.9 percent in 2013.
Other
Interest expense increased $8.5 million in the first quarter of 2013, compared to the first quarter of 2012, primarily representing the cost of higher average debt outstanding due to the Companys October 2011 public debt issuance.
Income taxes increased $1.1 million, or two percent, in the first quarter of 2013, compared to the first quarter of 2012, reflecting both an increase in income before income taxes and a higher effective tax rate. The effective tax rate was 33.7 percent in the first quarter of 2013, compared to 33.2 percent in the first quarter of 2012.
Restructuring
In calendar 2010, the Company announced its plan to restructure its coffee, fruit spreads, and Canadian pickle and condiments operations as part of its ongoing efforts to enhance the long-term strength and profitability of its leading brands. The initiative includes capital investments for a new state-of-the-art food manufacturing facility in Orrville, Ohio; consolidation of coffee production in New Orleans, Louisiana; and the transition of the Companys pickle and condiments production to third-party manufacturers and is a long-term investment to optimize production capacity and lower the overall cost structure.
Upon completion, the restructuring plan will result in a reduction of approximately 850 full-time positions and the closing of six of the Companys facilities Memphis, Tennessee; Ste. Marie, Quebec; Sherman, Texas; Kansas City, Missouri; Dunnville, Ontario; and Delhi Township, Ontario. The Sherman, Dunnville, Delhi Township, and Kansas City facilities have been closed and approximately 75 percent of the full-time positions have been reduced as of July 31, 2012. The Companys pickle and condiments production was transitioned to third-party manufacturers during fiscal 2012. The consolidation of coffee production in New Orleans is nearing completion, and initial production at the new manufacturing facility in Orrville has begun.
The Company expects to incur restructuring costs of approximately $245.0 million, of which $203.3 million has been incurred through July 31, 2012, including $14.5 million and $19.6 million in the first quarters of 2013 and 2012, respectively. The majority of the remaining costs are anticipated to be recognized through the next fiscal year.
23
Segment Results
Three Months Ended July 31, | ||||||||||||
2012 | 2011 | %
Increase (Decrease) |
||||||||||
(Dollars in millions) | ||||||||||||
Net sales: |
||||||||||||
U.S. Retail Coffee |
$ | 520.8 | $ | 500.1 | 4 | % | ||||||
U.S. Retail Consumer Foods |
528.4 | 459.5 | 15 | % | ||||||||
International, Foodservice, and Natural Foods |
320.5 | 229.3 | 40 | % | ||||||||
Segment profit: |
||||||||||||
U.S. Retail Coffee |
$ | 126.4 | $ | 139.7 | (10 | %) | ||||||
U.S. Retail Consumer Foods |
107.8 | 79.0 | 36 | % | ||||||||
International, Foodservice, and Natural Foods |
40.7 | 38.5 | 6 | % | ||||||||
Segment profit margin: |
||||||||||||
U.S. Retail Coffee |
24.3 | % | 27.9 | % | ||||||||
U.S. Retail Consumer Foods |
20.4 | % | 17.2 | % | ||||||||
International, Foodservice, and Natural Foods |
12.7 | % | 16.8 | % |
U.S. Retail Coffee
The U.S. Retail Coffee segment net sales increased four percent in the first quarter of 2013, compared to the first quarter of 2012, as increased volume and favorable sales mix driven by K-Cups were somewhat offset by lower net price realization reflecting price declines since the first quarter of 2012. Segment volume increased five percent in the first quarter of 2013, compared to the first quarter of 2012, as the Folgers brand increased four percent and Dunkin Donuts packaged coffee increased 11 percent. Overall segment results also benefited from approximately two weeks of incremental Café Bustelo brand net sales included in fiscal 2013 related to the acquisition of Rowland Coffee on May 16, 2011. Net sales of Folgers Gourmet Selections® and Millstone K-Cups remained strong and increased $30.7 million, compared to the first quarter of 2012. K-Cups represented six percentage points of segment net sales growth, while contributing only one percentage point growth to volume.
The U.S. Retail Coffee segment profit decreased $13.3 million, or 10 percent, in the first quarter of 2013, compared to a strong first quarter of 2012, which benefited from the timing of higher prices in advance of the higher costs recognized in subsequent quarters in fiscal 2012. Additionally, in the current quarter, the timing of lower prices and higher green coffee costs realized impacted results unfavorably. The timing impact was somewhat offset by the benefit of sales mix, lower selling and distribution expenses, and favorable unrealized mark-to-market adjustments. The benefit of unrealized mark-to-market adjustments on derivative contracts was a gain of $8.1 million in the first quarter of 2013, compared to a gain of $7.0 million in the first quarter of 2012. The Companys current pricing reflects its expectation that lower green coffee costs will be recognized in upcoming quarters.
U.S. Retail Consumer Foods
The U.S. Retail Consumer Foods segment net sales increased 15 percent in the first quarter of 2013, compared to the first quarter of 2012, due primarily to the impact of price increases and favorable sales mix, while segment volume was flat. Excluding a previously announced cake mix downsizing, segment volume increased one percent. Jif brand net sales increased 48 percent in the first quarter of 2013, compared to the first quarter of 2012, primarily reflecting price increases taken in fiscal 2012. Volume of the Jif brand increased eight percent compared to the prior year. Jif peanut butter volume in the first quarter of fiscal 2012 was
24
impacted by temporary item rationalizations and a reduction of promotional activity in response to an expected decline in the availability of the peanut supply. Smuckers fruit spreads net sales were flat and volume was down two percent in the first quarter of 2013, compared to the first quarter of 2012. Net sales and volume of Smuckers Uncrustables® frozen sandwiches increased 31 percent and 25 percent, respectively, in the first quarter of 2013, compared to the first quarter of 2012.
Crisco brand net sales were flat and volume increased two percent in the first quarter of 2013, compared to the first quarter of 2012. For the same period, net sales for the Pillsbury brand increased 10 percent, while volume was flat as increases in frostings and flour were offset by declines in baking mixes, which reflects the tonnage impact of downsizing. Canned milk net sales and volume decreased four percent and one percent, respectively, during the first quarter of 2013, compared to the first quarter of 2012.
The U.S. Retail Consumer Foods segment profit increased $28.8 million, or 36 percent, in the first quarter of 2013, compared to the first quarter of 2012, led by peanut butter and the benefit of unrealized mark-to-market adjustments on derivative contracts. Price increases taken in fiscal 2012 to offset higher peanut costs were the primary reason for the increase in peanut butter profitability, while volume gains also contributed. The benefit of unrealized mark-to-market adjustments on derivative contracts increased $7.7 million to a gain of $6.6 million in the first quarter of 2013, compared to a loss of $1.1 million in the first quarter of 2012. Segment profit margin was 20.4 percent in the first quarter of 2013, compared to 17.2 percent in the first quarter of 2012.
International, Foodservice, and Natural Foods
Net sales in the International, Foodservice, and Natural Foods segment increased 40 percent in the first quarter of 2013, compared to the first quarter of 2012, due primarily to the acquired Sara Lee foodservice business, which contributed $86.7 million, or 38 percentage points, of the net sales growth. Excluding the impact of acquisition, divestiture, and foreign exchange, segment net sales increased seven percent over the same period last year. Volume was up four percent with gains realized in the Robin Hood®, Golden Temple®, and Five Roses® Canadian flour brands, as well as Santa Cruz Organic® beverages, more than offsetting declines in Bicks® pickles.
Segment profit increased $2.1 million, or six percent, in the first quarter of 2013, compared to the first quarter of 2012, due to a $4.5 million increase in the benefit of unrealized mark-to-market adjustments on derivative contracts, which increased to a gain of $4.4 million in the first quarter of 2013, compared to a loss of $0.1 million in the first quarter of 2012. The Sara Lee foodservice business contributed to segment profit but was more than offset by the overall segments higher supply chain costs and marketing expense.
Financial Condition Liquidity and Capital Resources
Liquidity
Three Months Ended July 31, | ||||||||
(Dollars in millions) |
2012 | 2011 | ||||||
Net cash provided by (used for) operating activities |
$ | 176.7 | $ | (58.2 | ) | |||
Net cash used for investing activities |
(28.3 | ) | (411.8 | ) | ||||
Net cash (used for) provided by financing activities |
(64.6 | ) | 253.9 | |||||
|
|
|
|
|||||
Net cash provided by (used for) operating activities |
$ | 176.7 | $ | (58.2 | ) | |||
Additions to property, plant, and equipment |
(46.3 | ) | (67.6 | ) | ||||
|
|
|
|
|||||
Free cash flow |
$ | 130.4 | $ | (125.9 | ) | |||
|
|
|
|
Amounts may not add due to rounding.
25
On an annual basis, the Companys principal source of funds is cash generated from operations, supplemented by borrowings against the Companys revolving credit facility. Total cash and cash equivalents at July 31, 2012, were $311.5 million, compared to $229.7 million at April 30, 2012.
The Company typically expects a significant use of cash to fund working capital requirements during the first half of each fiscal year, primarily due to seasonal fruit procurement, the buildup of inventories to support the Fall Bake and Holiday period, and the additional increase of coffee inventory in advance of the Atlantic hurricane season. The Company expects cash provided by operations in the second half of its fiscal year to significantly exceed the amount in the first half of the year, upon completion of the Companys Fall Bake and Holiday period.
Cash provided by operating activities was $176.7 million in the first quarter of 2013, compared to cash used for operating activities of $58.2 million during the first quarter of 2012. The significant amount of cash provided by operating activities in the first quarter of 2013 is contrary to the Companys typical expectation for the first half of its fiscal year, as noted above. The $235.0 million increase in cash generated by operating activities is primarily due to a significant reduction between years in the use of cash required to fund inventory, which was mainly the result of lower green coffee costs and a reduction in inventory levels.
Cash used for investing activities was $28.3 million in the first quarter of 2013, compared to $411.8 million in the same period of 2012. The decrease in cash used for investing activities in 2013, compared to 2012, was primarily related to the use of $362.8 million for the Rowland Coffee acquisition in 2012.
Cash used for financing activities during the first quarter of 2013 was $64.6 million, consisting primarily of quarterly dividend payments of $52.8 million. During the first quarter of 2012, total cash of $253.9 million was provided by financing activities, consisting primarily of borrowings from the Companys revolving credit facility of $306.7 million, partially offset by quarterly dividend payments of $50.2 million.
Capital Resources
The following table presents the Companys capital structure.
July 31, 2012 | April 30, 2012 | |||||||
(Dollars in millions) | ||||||||
Current portion of long-term debt |
$ | 50.0 | $ | 50.0 | ||||
Long-term debt |
2,019.9 | 2,020.5 | ||||||
|
|
|
|
|||||
Total debt |
$ | 2,069.9 | $ | 2,070.5 | ||||
Shareholders equity |
5,223.5 | 5,163.4 | ||||||
|
|
|
|
|||||
Total capital |
$ | 7,293.3 | $ | 7,233.9 | ||||
|
|
|
|
Amounts may not add due to rounding.
The Company has available a $1.0 billion revolving credit facility with a group of nine banks that matures in July 2016. The Company did not have a balance outstanding under the revolving credit facility at July 31, 2012.
At July 31, 2012, the Company had 3,944,300 common shares remaining available for repurchase under its Board of Directors most recent authorization in January 2012. On August 23, 2012, the Company entered into a Rule 10b5-1 trading plan (the Plan) to facilitate the potential repurchase of 2,000,000 of the remaining 3,944,300 common shares authorized for repurchase. Purchases under the Plan commenced on August 24, 2012, and the Plan expires on February 24, 2013. Purchases will be transacted by a broker based upon the guidelines and parameters of the Plan.
From August 24, 2012, through August 31, 2012, the Company repurchased 991,000 common shares for approximately $84.2 million, resulting in 1,009,000 common shares remaining available for repurchase under the Plan. There are 2,953,300 common shares in total remaining available for repurchase under the Companys Board of Directors authorization.
26
Absent any material acquisitions or other significant investments, the Company believes that cash on hand, combined with cash provided by operations and borrowings available under its credit facility, will be sufficient to meet cash requirements for the next 12 months, including capital expenditures, the payment of quarterly dividends, and interest and principal on debt outstanding.
27
Non-GAAP Measures
The Company uses non-GAAP measures including net sales adjusted for the noncomparable impact of acquisitions, divestiture, and foreign exchange rate; gross profit, operating income, net income, and net income per diluted share, excluding special project costs; and free cash flow as key measures for purposes of evaluating performance internally. These non-GAAP measures are not intended to replace the presentation of financial results in accordance with U.S. generally accepted accounting principles (GAAP). Rather, the presentation of these non-GAAP measures supplements other metrics used by management to internally evaluate its businesses and facilitate the comparison of past and present operations. These non-GAAP measures may not be comparable to similar measures used by other companies and may exclude certain nondiscretionary expenses and cash payments. The following table reconciles certain non-GAAP financial measures to the comparable GAAP financial measure.
Three Months Ended July 31, | ||||||||
2012 | 2011 | |||||||
(Dollars in millions, except per share data) | ||||||||
Reconciliation to gross profit: |
||||||||
Gross Profit |
$ | 469.8 | $ | 431.1 | ||||
Cost of products sold - restructuring and merger and integration |
4.0 | 10.4 | ||||||
|
|
|
|
|||||
Gross profit excluding special project costs |
$ | 473.7 | $ | 441.5 | ||||
|
|
|
|
|||||
Reconciliation to operating income: |
||||||||
Operating income |
$ | 190.5 | $ | 180.7 | ||||
Cost of products sold - restructuring and merger and integration |
4.0 | 10.4 | ||||||
Other restructuring costs |
10.9 | 9.9 | ||||||
Other merger and integration costs |
6.3 | 4.7 | ||||||
Other special project costs |
6.7 | 0.0 | ||||||
|
|
|
|
|||||
Operating income excluding special project costs |
$ | 218.3 | $ | 205.7 | ||||
|
|
|
|
|||||
Reconciliation to net income: |
||||||||
Net income |
$ | 110.9 | $ | 111.5 | ||||
Income taxes |
56.4 | 55.3 | ||||||
Cost of products sold - restructuring and merger and integration |
4.0 | 10.4 | ||||||
Other restructuring costs |
10.9 | 9.9 | ||||||
Other merger and integration costs |
6.3 | 4.7 | ||||||
Other special project costs |
6.7 | 0.0 | ||||||
|
|
|
|
|||||
Income before income taxes, excluding special project costs |
195.1 | 191.8 | ||||||
Income taxes, as adjusted |
65.8 | 63.6 | ||||||
|
|
|
|
|||||
Net income excluding special project costs |
$ | 129.3 | $ | 128.2 | ||||
Weighted-average shares - assuming dilution |
110,397,807 | 114,335,184 | ||||||
Net income per common share excluding special project costs - assuming dilution |
$ | 1.17 | $ | 1.12 |
Amounts may not add due to rounding.
28
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to market risk related to changes in interest rates, foreign currency exchange rates, and commodity prices.
Interest Rate Risk. The fair value of the Companys cash and short-term investment portfolio at July 31, 2012, approximates carrying value. Exposure to interest rate risk on the Companys long-term debt is mitigated due to fixed-rate maturities.
The Company utilizes derivative instruments to manage changes in the fair value of its debt. Interest rate swaps mitigate the risk associated with the underlying hedged item. At the inception of the contract, the instrument is evaluated and documented for hedge accounting treatment. If the contract is designated as a cash flow hedge, the mark-to-market gains or losses on the swap are deferred and included as a component of accumulated other comprehensive loss to the extent effective, and reclassified to interest expense in the period during which the hedged transaction affects earnings. If the contract is designated as a fair value hedge, the swap would be recognized at fair value on the balance sheet and changes in the fair value would be recognized in interest expense.
Based on the Companys overall interest rate exposure as of and during the three-month period ended July 31, 2012, including derivatives and other instruments sensitive to interest rates, a hypothetical 10 percent movement in interest rates would not materially affect the Companys results of operations. In measuring interest rate risk by the amount of net change in fair value of the Companys liabilities, a hypothetical one percent decrease in interest rates at July 31, 2012, would increase the fair value of the Companys long-term debt by approximately $114.9 million.
Foreign Currency Exchange Risk. The Company has operations outside the U.S. with foreign currency denominated assets and liabilities, primarily denominated in Canadian currency. Because the Company has foreign currency denominated assets and liabilities, financial exposure may result, primarily from the timing of transactions and the movement of exchange rates. The foreign currency balance sheet exposures as of July 31, 2012, are not expected to result in a significant impact on future earnings or cash flows.
The Company utilizes foreign currency exchange forwards and options contracts to manage the price volatility of foreign currency exchange fluctuations on future cash transactions. The contracts generally have maturities of less than one year. Instruments currently used to manage foreign currency exchange exposures do not meet the requirements for hedge accounting treatment and the change in value of these instruments is immediately recognized in cost of products sold. If the contract qualifies for hedge accounting treatment, to the extent the hedge is deemed effective, the associated mark-to-market gains and losses are deferred and included as a component of accumulated other comprehensive loss. These gains or losses are reclassified to earnings in the period the contract is executed. Based on the Companys hedged foreign currency positions as of July 31, 2012, a hypothetical 10 percent change in exchange rates would not result in a material loss of fair value.
Revenues from customers outside the U.S. represented approximately nine percent of net sales during the three-month period ended July 31, 2012. Thus, certain revenues and expenses have been, and are expected to be, subject to the effect of foreign currency fluctuations and these fluctuations may have an impact on operating results.
Commodity Price Risk. Raw materials and other commodities used by the Company are subject to price volatility. To manage the volatility related to anticipated commodity purchases, the Company uses futures and options with maturities generally less than one year. Certain of these instruments are designated as cash flow hedges. The mark-to-market gains or losses on qualifying hedges are included in accumulated other comprehensive loss to the extent effective, and reclassified into cost of products sold in the period during which the hedged transaction affects earnings. The mark-to-market gains or losses on nonqualifying, excluded, and ineffective portions of hedges are recognized in cost of products sold immediately.
29
The following sensitivity analysis presents the Companys potential loss of fair value resulting from a hypothetical 10 percent change in market prices.
(Dollars in millions) |
July 31, 2012 | April 30, 2012 | ||||||
Raw material commodities: |
||||||||
High |
$ | 34.5 | $ | 28.0 | ||||
Low |
7.7 | 6.4 | ||||||
Average |
18.6 | 14.6 |
Fair value was determined using quoted market prices and was based on the Companys net derivative position by commodity for the previous four quarters. The calculations are not intended to represent actual losses in fair value that the Company expects to incur. In practice, as markets move, the Company actively manages its risk and adjusts hedging, derivative, and purchasing strategies as appropriate. The commodities hedged have a high inverse correlation to price changes of the derivative commodity instrument; thus, the Company would expect that any gain or loss in the fair value of its derivatives would generally be offset by an increase or decrease in the fair value of the underlying exposures.
Certain Forward-Looking Statements
Certain statements included in this Quarterly Report contain forward-looking statements within the meaning of federal securities laws. The forward-looking statements may include statements concerning the Companys current expectations, estimates, assumptions, and beliefs concerning future events, conditions, plans, and strategies that are not historical fact. Any statement that is not historical in nature is a forward-looking statement and may be identified by the use of words and phrases such as expects, anticipates, believes, will, plans, and similar phrases.
Federal securities laws provide a safe harbor for forward-looking statements to encourage companies to provide prospective information. The Company is providing this cautionary statement in connection with the safe harbor provisions. Readers are cautioned not to place undue reliance on any forward-looking statements as such statements are by nature subject to risks, uncertainties, and other factors, many of which are outside of the Companys control and could cause actual results to differ materially from such statements and from the Companys historical results and experience. These risks and uncertainties include, but are not limited to, the following:
| volatility of commodity markets from which raw materials, particularly green coffee beans, wheat, soybean oil, milk, peanuts, corn, and sugar, are procured and the related impact on costs; |
| risks associated with derivative and purchasing strategies employed by the Company to manage commodity pricing risks, including the risk that such strategies could result in significant losses and adversely impact the Companys liquidity; |
| crude oil price trends and their impact on transportation, energy, and packaging costs; |
| the ability to successfully implement and realize the full benefit of price changes that are intended to fully recover cost and the competitive, retailer, and consumer response; |
| the success and cost of introducing new products and the competitive response; |
| the success and cost of marketing and sales programs and strategies intended to promote growth in the Companys businesses; |
| general competitive activity in the market, including competitors pricing practices and promotional spending levels; |
| the ability of the Company to successfully integrate acquired and merged businesses in a timely and cost effective manner; |
30
| the successful completion of the Companys restructuring programs and the ability to realize anticipated savings and other potential benefits within the time frames currently contemplated; |
| the impact of food security concerns involving either the Companys or its competitors products; |
| the impact of accidents and natural disasters, including crop failures and storm damage; |
| the concentration of certain of the Companys businesses with key customers and suppliers and the ability to manage and maintain key relationships; |
| the loss of significant customers, a substantial reduction in orders from these customers, or the bankruptcy of any such customer; |
| changes in consumer coffee preferences and other factors affecting the coffee business, which represents a substantial portion of the Companys business; |
| a change in outlook or downgrade in the Companys public credit rating by a rating agency; |
| the ability of the Company to obtain any required financing; |
| the timing and amount of capital expenditures, share repurchases, and restructuring costs; |
| impairments in the carrying value of goodwill, other intangible assets, or other long-lived assets or changes in useful lives of other intangible assets; |
| the impact of new or changes to existing governmental laws and regulations and their application; |
| the impact of future legal, regulatory, or market measures regarding climate change; |
| the outcome of current and future tax examinations, changes in tax laws, and other tax matters, and their related impact on the Companys tax positions; |
| foreign currency and interest rate fluctuations; |
| political or economic disruption; |
| other factors affecting share prices and capital markets generally; and |
| risks related to other factors described under Risk Factors in other reports and statements filed by the Company with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K. |
Readers are cautioned not to unduly rely on such forward-looking statements, which speak only as of the date made, when evaluating the information presented in this Quarterly Report. The Company does not undertake any obligation to update or revise these forward-looking statements to reflect new events or circumstances.
31
Item 4. | Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures. The Companys management, including the Companys principal executive officer and principal financial officer, evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of July 31, 2012 (the Evaluation Date). Based on that evaluation, the Companys principal executive officer and principal financial officer have concluded that, as of the Evaluation Date, the Companys disclosure controls and procedures were effective in ensuring that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (2) accumulated and communicated to the Companys management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls. There were no changes in the Companys internal control over financial reporting that occurred during the quarter ended July 31, 2012, that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
32
PART II. OTHER INFORMATION
Item 1A. Risk Factors.
The Companys business, operations, and financial condition are subject to various risks and uncertainties. The risk factors described in Part I, Item 1A. Risk Factors in the Companys Annual Report on Form 10-K for the year ended April 30, 2012, should be carefully considered, together with the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q and in the Companys other filings with the Securities and Exchange Commission in connection with evaluating the Company, its business, and the forward-looking statements contained in this Quarterly Report. Additional risks and uncertainties not presently known to the Company or that the Company currently deems immaterial also may affect the Company. The occurrence of any of these known or unknown risks could have a material adverse impact on the Companys business, financial condition, and results of operations.
33
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
(a) Not applicable.
(b) Not applicable.
(c) Issuer Purchases of Equity Securities
(a) | (b) | (c) | (d) | |||||||||||||
Period |
Total Number of Shares Purchased |
Average Price Paid Per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs |
||||||||||||
May 1, 2012 - May 31, 2012 |
1,729 | $ | 61.73 | 0 | 3,944,300 | |||||||||||
June 1, 2012 - June 30, 2012 |
63,324 | 62.06 | 0 | 3,944,300 | ||||||||||||
July 1, 2012 - July 31, 2012 |
32 | 48.54 | 0 | 3,944,300 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
65,085 | $ | 62.04 | 0 | 3,944,300 | |||||||||||
|
|
|
|
|
|
|
|
Information set forth in the table above represents activity in the Companys first fiscal quarter.
(a) | Shares in this column include shares repurchased from stock plan recipients in lieu of cash payments. |
(d) | On August 23, 2012, the Company entered into a Rule 10b5-1 trading plan to facilitate the potential repurchase of up to 2,000,000 of the 3,944,300 common shares remaining for repurchase under its January 2012 Board of Directors authorization. The Rule 10b5-1 trading plan became effective on August 24, 2012, and expires on February 24, 2013. From the effective date of the Rule 10b5-1 trading plan to August 31, 2012, the Company repurchased 991,000 common shares for approximately $84.2 million. |
34
Item 6. | Exhibits. |
See the Index of Exhibits that appears on Page No. 37 of this report.
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
September 6, 2012 | THE J. M. SMUCKER COMPANY | |||
/s/ Richard K. Smucker |
||||
By: RICHARD K. SMUCKER | ||||
Chief Executive Officer | ||||
/s/ Mark R. Belgya |
||||
By: MARK R. BELGYA | ||||
Senior Vice President and Chief Financial Officer |
36
INDEX OF EXHIBITS
Exhibit No. |
Description | |
10.1 | The J. M. Smucker Company Restoration Plan, effective as of May 1, 2012.* | |
10.2 | Amendment No. 1 to The J. M. Smucker Company Defined Contribution Supplemental Executive Retirement Plan, effective as of May 1, 2012.* | |
12 | Computation of Ratio of Earnings to Fixed Charges. | |
31.1 | Certifications of Richard K. Smucker pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. | |
31.2 | Certifications of Mark R. Belgya pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. | |
32 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002. | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
* | Management contract or compensatory plan or agreement. |
37
Exhibit 10.1
THE J.M. SMUCKER COMPANY RESTORATION PLAN
EFFECTIVE MAY 1, 2012
THE J.M. SMUCKER COMPANY RESTORATION PLAN
(EFFECTIVE MAY 1, 2012)
TABLE OF CONTENTS
Page | ||||||
ARTICLE I |
DEFINITIONS | 1 | ||||
1.1 |
Account | 1 | ||||
1.2 |
Affiliate | 1 | ||||
1.3 |
Base Salary | 1 | ||||
1.4 |
Beneficiary | 1 | ||||
1.5 |
Class Year Deferral | 2 | ||||
1.6 |
Code | 2 | ||||
1.7 |
Committee | 2 | ||||
1.8 |
Company | 2 | ||||
1.9 |
Deferral Account | 2 | ||||
1.10 |
Disability | 2 | ||||
1.11 |
Eligible Employee | 3 | ||||
1.12 |
Eligible Incentive Award | 3 | ||||
1.13 |
Employer | 3 | ||||
1.14 |
Equity and Incentive Compensation Plan | 3 | ||||
1.15 |
ERISA | 3 | ||||
1.16 |
Excess Compensation | 3 | ||||
1.17 |
401(k) Plan | 3 | ||||
1.18 |
Matching Contribution Account | 3 | ||||
1.19 |
Participant | 4 | ||||
1.20 |
Plan | 4 | ||||
1.21 |
Plan Year | 4 | ||||
1.22 |
Restoration Contribution Account | 4 | ||||
1.23 |
Separation from Service | 4 |
i
TABLE OF CONTENTS
(continued)
Page | ||||||
1.24 |
Specified Employee | 4 | ||||
1.25 |
Unforeseeable Emergency | 4 | ||||
ARTICLE II |
DEFERRED COMPENSATION PROVISIONS | 4 | ||||
2.1 |
Eligibility | 4 | ||||
2.2 |
Form and Time of Elections | 5 | ||||
2.3 |
Deferrals | 5 | ||||
2.4 |
Matching Contributions | 6 | ||||
2.5 |
Restoration Contributions | 6 | ||||
2.6 |
Account Adjustments | 7 | ||||
2.7 |
Vesting of Accounts | 8 | ||||
2.8 |
Distribution Provisions | 8 | ||||
ARTICLE III |
PLAN ADMINISTRATION | 11 | ||||
3.1 |
Authority to Interpret Plan | 11 | ||||
3.2 |
Employment of Advisors; Delegation | 11 | ||||
3.3 |
Claims Procedures | 11 | ||||
ARTICLE IV |
AMENDMENT AND TERMINATION | 12 | ||||
4.1 |
Company Reserves Right to Amend and Terminate | 12 | ||||
4.2 |
Effect of Amendment or Termination | 12 | ||||
ARTICLE V |
MISCELLANEOUS | 13 | ||||
5.1 |
Trust Authorized | 13 | ||||
5.2 |
Restriction against Assignment | 13 | ||||
5.3 |
Grantor Trust | 13 | ||||
5.4 |
No Employment Rights | 13 | ||||
5.5 |
Discharge of Liability | 13 | ||||
5.6 |
Location of Participant | 14 | ||||
5.7 |
Limitation of Liability | 14 | ||||
5.8 |
Construction | 14 |
ii
TABLE OF CONTENTS
(continued)
Page | ||||||
5.9 |
Unsecured General Creditor | 14 | ||||
5.10 |
Headings Not Part of Plan | 14 | ||||
5.11 |
Terms Used in the Plan | 15 | ||||
5.12 |
Compliance with Code Section 409A | 15 |
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THE J.M. SMUCKER COMPANY RESTORATION PLAN
(EFFECTIVE MAY 1, 2012)
The J.M. Smucker Company Restoration Plan (the Plan) is hereby established, effective as of May 1, 2012, and will be maintained by The J.M. Smucker Company (the Company) for the purpose of supplementing the retirement benefits of certain officers and key management employees of the Company and its subsidiaries who are selected to participate in the Plan.
The Plan is intended to be an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees, and is subject to, and intended to comply with Section 409A of the Code, and regulations thereunder and other applicable laws.
ARTICLE I
DEFINITIONS
Unless defined herein, any word, phrase or term used in the Plan shall have the meaning given to it in the 401(k) Plan. However, the following terms have the following meanings unless a different meaning is clearly required by the context:
1.1 | Account |
Collectively, the Deferral Account, Matching Contribution Account and Restoration Contribution Account. Separate subaccounts will be maintained in each of a Participants Deferral Account, Matching Contribution Account and Restoration Contribution Account to reflect each Class Year Deferral within such account.
1.2 | Affiliate |
Any of the subsidiaries or affiliated business entities, as determined in accordance with the provisions of Section 414 of the Code, of the Company.
1.3 | Base Salary |
Base Salary with respect to a Plan Year means an Eligible Employees base salary earned for services performed during the Plan Year for an Employer and does not include bonuses or other payments from an Employer that are not made on a regular basis.
1.4 | Beneficiary |
The person or persons selected by the Participant on a form provided by the Committee to receive the benefits provided under this Plan in the event of the Participants death. If there is no Beneficiary election in effect under the Plan with respect to a Class Year Deferral at the time of a Participants death, or if the designated Beneficiary with respect to a Class Year Deferral fails to survive the Participant, then the Beneficiary with respect to such Class Year Deferral shall be the Participants surviving spouse, or if there is no surviving spouse, the Participants estate.
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1.5 | Class Year Deferral |
Each Plan Years deferrals and contributions under this Plan shall constitute in the aggregate a separate Class Year Deferral comprised of the following:
(a) | Any deferral of a Participants Base Salary under Section 2.3(b) for the Plan Year plus the deferral under Section 2.3(c) of any portion of the Participants Eligible Incentive Award paid during the Plan Year, including any related adjustments for deemed investments in accordance with Section 2.6; |
(b) | All matching contributions credited to the Plan for a Participant under Section 2.4 with respect to such Plan Year, including any related adjustments for deemed investments in accordance with Section 2.6; and |
(c) | All restoration contributions credited to the Plan for a Participant under Section 2.5 with respect to such Plan Year, including any related adjustments for deemed investments in accordance with Section 2.6. |
1.6 | Code |
The Internal Revenue Code of 1986, as amended. References to the Code shall include the valid and binding governmental regulations, court decisions and other regulatory and judicial authority issued or rendered thereunder.
1.7 | Committee |
The Executive Committee of the Company, and to the extent of any delegation by the Committee to the Benefit Plans Administrative Committee, pursuant to Section 3.2, such committee.
1.8 | Company |
The Company means The J.M. Smucker Company, an Ohio corporation, and its successors.
1.9 | Deferral Account |
The account established and maintained on the books of the Company to record a Participants interest under the Plan attributable to amounts credited to the Participant pursuant to Section 2.3.
1.10 | Disability |
The Participant shall be considered to have a Disability if he is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under any plan covering employees of the Employer.
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1.11 | Eligible Employee |
For a Plan Year, an employee of an Employer who has satisfied the requirements for eligibility set forth in Section 2.1.
1.12 | Eligible Incentive Award |
Eligible Incentive Award, with respect to a Plan Year, means any annual incentive bonus, holiday bonus, or other similar payment from the Company (excluding long-term incentive grants) that is payable to an Eligible Employee in cash during the Plan Year.
1.13 | Employer |
The Company and any Affiliate that is an Employer under (and as defined in) the 401(k) Plan.
1.14 | Equity and Incentive Compensation Plan |
The J.M. Smucker Company 2010 Equity and Incentive Compensation Plan, as it may be amended from time to time, or any equity and incentive compensation plan subsequently adopted by the Company as a replacement therefor.
1.15 | ERISA |
The Employee Retirement Income Security Act of 1974, as amended. References to ERISA shall include the valid and binding governmental regulations, court decisions and other regulatory and judicial authority issued or rendered thereunder.
1.16 | Excess Compensation |
The amount by which the sum of an Eligible Employees Base Salary and Eligible Incentive Award with respect to the Plan Year exceeds the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Code for that Plan Year (the Section 401(a)(17) Limit).
1.17 | 401(k) Plan |
The J.M. Smucker Company Employee Savings Plan, as such plan is in effect from time to time.
1.18 | Matching Contribution Account |
The account established and maintained on the books of the Company to record a Participants interest under the Plan attributable to amounts credited to the Participant pursuant to Section 2.4 of the Plan.
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1.19 | Participant |
An Eligible Employee who has elected to participate in the Plan for a Plan Year, or any other current or former Eligible Employee who has an Account balance under the Plan.
1.20 | Plan |
The J.M. Smucker Company Restoration Plan, as in effect from time to time.
1.21 | Plan Year |
The 12-month period commencing January 1 and ending the following December 31.
1.22 | Restoration Contribution Account |
The account established and maintained on the books of the Company to record a Participants interest under the Plan attributable to amounts credited to the Participant pursuant to Section 2.5 of the Plan.
1.23 | Separation from Service |
A separation from service as defined in Code Section 409A, with the Company and all Affiliates.
1.24 | Specified Employee |
A specified employee within the meaning of Section 409A of the Code, determined using the identification methodology selected by the Company from time to time.
1.25 | Unforeseeable Emergency |
An event that results in a severe financial hardship to a Participant resulting from (a) an illness or accident of the Participant or his spouse, dependent (as defined in Section 152(a) of the Code), or Beneficiary, (b) loss of the Participants property due to casualty, or (c) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.
ARTICLE II
DEFERRED COMPENSATION PROVISIONS
2.1 | Eligibility |
(a) | Determination of Eligible Employees: Prior to April 15th of each Plan Year, the Committee shall determine which employees shall be Eligible Employees for the immediately succeeding Plan Year in accordance with the provisions of this Section 2.1. During a Plan Year, the Committee may designate additional employees who first meet the requirements of Sections 2.1(b)(i) and 2.1(b)(ii) during the Plan Year as Eligible Employees. |
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(b) | Eligible Employees: An employee shall be an Eligible Employee with respect to a Plan Year if the employee: |
(i) | Serves the Company in the Functional Vice President level or above or has been hired or promoted to so serve the Company; |
(ii) | Is not a participant in any other executive nonqualified retirement plan maintained by The J.M. Smucker Company; and |
(iii) | Has been designated by the Committee as eligible to participate in the Plan. |
2.2 | Form and Time of Elections |
(a) | General: Each Eligible Employee for a Plan Year may elect to defer under the Plan such amounts as provided by this Article II in accordance with the procedures set forth in this Section 2.2. All elections made under this Section 2.2 shall be made in writing on a form, or pursuant to such other procedures, as may be prescribed from time to time by the Committee and shall be irrevocable for such Plan Year. |
(b) | Timing of Deferral Elections: A deferral election with respect to Base Salary and an Eligible Incentive Award for a Plan Year shall be made prior to May 1st of the calendar year immediately preceding the Plan Year. Notwithstanding the foregoing, an employee who first becomes an Eligible Employee during the course of a Plan Year may make a deferral election, within 30 days following the date the employee first becomes an Eligible Employee, with respect to Base Salary paid with respect to services provided during that Plan Year following the filing of the deferral election. Further, an employee who first becomes an Eligible Employee on or after May 1st of a Plan Year may make a deferral election with respect to Base Salary to be paid during the immediately succeeding Plan Year within 30 days following the date the employee first becomes an Eligible Employee, which deferral election shall be effective with respect to Base Salary paid for service performed during the immediately succeeding Plan Year following the filing of the deferral election. With respect to the 2012 Plan Year, prior to May 1, 2012, each Eligible Employee who has not been eligible to participate in The J.M. Smucker Company Voluntary Deferred Compensation Plan may make a deferral election with respect to Base Salary paid for services performed during the 2012 Plan Year on or after May 1, 2012. |
2.3 | Deferrals |
(a) | Deferral Accounts: An Employer shall establish and maintain on its books a Deferral Account for each Eligible Employee employed by such Employer who elects pursuant to Section 2.2 to defer the receipt of any amount under the Plan. Such Deferral Account shall be designated by the name of the Eligible Employee for whom established. The amount to be deferred under this Section 2.3 for a payroll period shall be credited to such Deferral Account on, or as soon as administratively practicable after, the applicable payroll date. |
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(b) | Election to Defer Excess Compensation: An Eligible Employee for a Plan Year may elect pursuant to Section 2.2 to defer up to 50% (in whole percentages) of the Eligible Employees Excess Compensation. |
(c) | Deferral Elections: An Eligible Employees deferral election under this Section 2.3 for each Plan Year shall indicate: |
(i) | The percentage of Excess Compensation the Eligible Employee elects to defer (including an election of zero percent); |
(ii) | The Eligible Employees form of payment election for the Class Year Deferral of which deferral pursuant to this Plan Year election is a part; |
(iii) | The deemed investment vehicle(s) in which the Eligible Employee designates that the Class Year Deferral of which deferral pursuant to this Plan Year election is a part shall be invested; and |
(iv) | A designation of Beneficiary for the portion of his Account attributable to the Class Year Deferral of which deferral pursuant to this Plan Year election is a part. |
2.4 | Matching Contributions |
(a) | Matching Contribution Account: An Employer shall establish and maintain on its books a Matching Contribution Account for each Eligible Employee employed by such Participating Employer who is credited with a matching contribution under this Section 2.4. Such Matching Contribution Account shall be designated by the name of the Eligible Employee for whom established. Each matching contribution under this Section 2.4 shall be credited to such Matching Contribution Account on, or as soon as administratively practicable after, the date on which the related deferral under Section 2.3 is credited to the Eligible Employees Deferral Account. |
(b) | Matching Contributions for Plan Deferrals: Subject to the provisions of Section 2.4(c), if a Participant defers any amount pursuant to Section 2.3, such Participants Employer shall credit the Participants Matching Contribution Account with a matching contribution in the amount of 100% of the Participants deferral under Section 2.3, but not exceeding six percent of the Participants Excess Compensation. |
(c) | Payroll Taxes: The Committee may determine, in its sole and exclusive discretion, to deduct from the amount otherwise to be credited to the Matching Contribution Account of a Participant for a Plan Year an amount necessary to pay any related payroll taxes. |
2.5 | Restoration Contributions |
(a) | Restoration Contribution Account: An Employer shall establish and maintain on its books a Restoration Contribution Account for each Eligible Employee |
6
employed by such Employer who is credited with a restoration contribution under this Section 2.5. Such Restoration Contribution Account shall be designated by the name of the Eligible Employee for whom established. |
(b) | Restoration Contributions: Each Plan Year, an Employer shall credit to the Restoration Contribution Account under the Plan of each Eligible Employee employed by such Employer (regardless of whether the Eligible Employee has elected to defer Base Salary and/or Eligible Incentive Award under Section 2.3 for such Plan Year) a restoration contribution equal to 2% of the Eligible Employees Excess Compensation for the Plan Year. Restoration contributions under the Plan shall be determined and credited as soon as administratively practicable following the end of the applicable Plan Year. |
2.6 | Account Adjustments |
(a) | Deemed Investment of Deferral Accounts: The Committee shall from time to time designate one or more investment vehicle(s) in which the Accounts of Participants shall be deemed to be invested. The investment vehicle(s) may be designated by reference to the investments available under other plans sponsored by the Company (including the 401(k) Plan). Each Participant shall designate the investment vehicle(s) in which his Account shall be deemed to be invested according to the procedures developed by the Committee. The Company shall be under no obligation to acquire or invest in any of the deemed investment vehicle(s) under this subparagraph, and any acquisition of or investment in a deemed investment vehicle by the Company shall be made in the name of the Company and shall remain the sole property of the Company. The Committee shall also establish from time to time a default fund into which a Participants Account shall be deemed to be invested if the Participant fails to provide investment instructions pursuant to this Section 2.6(a). Until otherwise changed, such default fund shall be the applicable investment vehicle determined pursuant to the terms of the 401(k) Plans default investment provisions. |
(b) | Changes in Elections; Transfers Among Funds: During a Plan Year, a Participant may change the investment vehicle in which his Account shall be deemed to be invested according to the procedures developed by the Committee. A Participant may also elect to transfer amounts credited to his Account from any deemed investment vehicle to any other deemed investment vehicle, according to the procedures developed by the Committee. The Committee may establish any limitations on the frequency with which Participants may make, and the timing of, investment designations and transfer elections under this Section 2.6(c) as the Committee may determine necessary or appropriate from time to time, including limitations related to frequent trading, market timing activities and restrictions on executive officer trading. |
(c) | Periodic Account Adjustments: Each Account shall be adjusted from time to time at such intervals as determined by the Committee until the entire amount credited to the Account has been distributed to the Participant or his Beneficiary. The amount of the adjustment shall equal the amount that each Participants |
7
Account would have earned (or lost) for the period since the last adjustment had the Account actually been invested in the deemed investment vehicle(s) designated by the Participant for such period. |
2.7 | Vesting of Accounts |
All Accounts shall be fully vested.
2.8 | Distribution Provisions |
(a) | Class Year Form of Payment Election: With respect to each Class Year Deferral, a Participant shall elect the form of payment that shall apply to distributions upon Separation from Service, death and Disability. The alternative forms of payment are lump sum payment and substantially equal annual installments for a period of not less than two nor greater than 10 years. Each Participant shall make the class year form of payment election coincident with the deferral election under Sections 2.3(b) and 2.3(c). A Participant who fails to make a class year form of payment election for a Class Year Deferral shall be deemed to have elected a lump sum payment for such Class Year Deferral. |
(b) | Subsequent Changes to Payment Elections: A Participant may change his form of payment election according to procedures developed by the Committee, provided that subsequent changes to the form of payment of any Class Year Deferral shall not be effective unless the election satisfies the following requirements: |
(i) | A change of election will not be effective until at least twelve months after the date on which the Participant files it with the Committee; |
(ii) | A change of election with respect to a payment commencing on, or made on, a specified date must be filed with the Committee at least twelve months prior to such date; and |
(iii) | A change of election with respect to the form of payment must provide that the payment subject to the change be deferred for a period of not less than five years from the date such payment would otherwise have been made, except in the event of a payment made on account of the Participants death or Disability. |
The Committee may impose such other restrictions and limitations on subsequent changes to a form of payment election as it determines appropriate.
(c) | Distribution Events; Time of Distribution: All amounts credited to a Participants Account under the Plan shall be distributed to, or with respect to, a Participant based on the earliest to occur of such Participants Separation from Service, death or Disability, as set forth below: |
(i) | In the event of Separation from Service, except as provided in Section 2.8(d) and subject to Section 2.8(h), the Participants Account shall be distributed or commence to be distributed after the later of attainment of age 55 and six months following Separation from Service; |
8
(ii) | In the event of Disability, the Participants Account shall be distributed or commence to be distributed as soon as administratively practicable following such Disability; and |
(iii) | In the event of death (including death following Separation from Service but before age 55), the Participants Account shall be distributed or commence to be distributed as soon as administratively practicable following such death. |
In the event death causes a Separation from Service, death shall be deemed to be the earliest event to occur under the Plan.
(d) | Distribution Upon Separation from Service after a Change in Control: Not withstanding any election a Participant has made under Section 2.2(d) and any provision of the Plan to the contrary, if a Participant incurs a Separation from Service for any reason (whether by reason of his voluntary or involuntary termination of employment) within the two-year period following a Change in Control, the Participants Deferral Account shall, subject to Section 2.8(h), be distributed to the Participant (or his Beneficiary in the event death causes the Separation from Service) in a single lump sum within 30 days following the date of such Separation from Service, provided, however, if such Change in Control does not constitute a permitted distribution event under Section 409A(a)(2) of the Code, this Section 2.8(d) shall not affect the time or form of distribution of the Participants Deferral Account. For purposes of this Section 2.8(d), Change in Control shall have the same meaning as in Equity and Incentive Compensation Plan. |
(e) | No Benefit Payable upon Certain Events: |
(i) | The right of any Participant or Beneficiary to receive any amount credited to his Matching Contribution Account and Restoration Contribution Account (collectively the Employer Account) will be terminated, or if payment thereof has begun, all future payments will be discontinued and forfeited, in the event the Participant (i) at any time wrongly discloses any secret process or trade secret of the Company, or (ii) within a two-year period following his Separation from Service, engages, either directly or indirectly, as an officer, trustee, employee, partner, or substantial shareholder, on his own account or in any other capacity, in a business venture that the Companys board of directors reasonably determines to be competitive with the Company to a degree materially contrary to the Companys best interest. |
(ii) | Notwithstanding anything to the contrary contained in the Plan, if a Participants employment is terminated because the Company determines the Participant (i) engaged in dishonest or fraudulent acts against the |
9
Company, (ii) willfully injured property of the Company, (iii) conspired against the Company, or (iv) disclosed confidential information concerning the Company, then no amount credited to the Participants Employer Account shall be payable to the Participant or Beneficiary under the Plan. |
(f) | Distribution of Small Amounts: If, at any time following Separation from Service, death or Disability, the value of a Participants Account is less than $10,000, the Company may elect to distribute such account balance in a lump sum payment regardless of the Participants election. |
(g) | Distributions on Account of an Unforeseeable Emergency: A Participant (including a Participant who has Separated from Service but whose Accounts have not commenced to be distributed) may, in the Committees sole discretion and according to the procedures developed by the Committee in accordance with Code Section 409A, receive a distribution of all or any part of the amounts previously credited to the Participants Deferral Accounts in the case of an Unforeseeable Emergency. A Participant requesting a payment pursuant to this Section shall have the burden of proof of establishing, to the Committees satisfaction, the existence of such Unforeseeable Emergency, and the amount of the payment needed to satisfy the same (including taxes reasonably anticipated as a result of the distribution). If the Committee determines that a distribution should be made to a Participant under this Section 2.8(g), such distribution shall be made within 30 days after the Committees determination of the existence of such Unforeseeable Emergency and the amount of distribution so needed. |
(h) | Special Provisions for Specified Employees: Notwithstanding any provision in the Plan to the contrary, to the extent applicable, in no event shall any payment hereunder be made to a Specified Employee earlier than six months after the date of the Participants Separation from Service, except in connection with the Participants death. |
(i) | Distributions of Amounts in Excess of Code Section 162(m): Notwithstanding any provisions of the Plan to the contrary, no amount may be distributed from the Plan if the Company reasonably anticipates that such amount would not be deductible under Code Section l62(m), as determined by the Committee in its sole discretion, and in accordance with Code Section 409A. |
(j) | Distributions of Amounts Deemed Includable in Gross Income: Notwithstanding any provisions of the Plan to the contrary, if at any time a court or the Internal Revenue Service determines that an amount in a Participants Account is includable in the gross income of the Participant and subject to tax, the Committee may, in its sole discretion, and in accordance with Code Section 409A, permit a lump sum distribution of an amount equal to the amount determined to be includable in the Participants gross income. |
(k) | Distributions of Amounts in Violation of Securities Laws: Notwithstanding any provisions of the Plan to the contrary, a payment under the Plan may be |
10
delayed if the Company reasonably anticipates that the making of such payment will violate federal securities laws or other applicable law, in the Committees sole discretion, and in accordance with Code Section 409A, provided that the payment is made on the earliest date at which the Company reasonably anticipates that the making of the payment will not cause such violation. |
ARTICLE III
PLAN ADMINISTRATION
3.1 | Authority to Interpret Plan |
The Plan shall be administered by the Committee, which shall have the authority to interpret and construe the terms of the Plan as it deems appropriate including the authority to determine eligibility for benefits under the Plan. The Committee shall have the duty and responsibility of maintaining records, making the requisite calculations and disbursing the payments hereunder. Subject to Section 3.3, the Committees interpretations, determinations, regulations and calculations shall be final and binding on all interested persons and parties. Any benefits payable under this Plan will be paid only if the Committee decides in its discretion that the applicant is entitled to them.
3.2 | Employment of Advisors; Delegation |
The Committee may employ such attorneys, agents, and accountants as it may deem necessary or advisable to assist in carrying out its duties hereunder. The Committee may designate a person or persons (including the Companys Benefit Plans Administrative Committee) other than the Committee to carry out any of such powers, authority, or responsibility. Expenses of administration shall be paid by the Company. The Committee shall be entitled to rely on all tables, valuations, certifications, opinions, data and reports furnished by any actuary, accountant, controller, counsel or other person employed or engaged by the Committee with respect to the Plan.
3.3 | Claims Procedures |
Whenever the Committee decides for whatever reason to deny, whether in whole or in part, a claim for benefits under the Plan filed by any person (the Claimant), it shall transmit a written notice of such decision to the Claimant, in most cases no later than 90 days after the Plan receives the claim for benefits, or within 180 days alter the Plan receives the claim for benefits if there are special circumstances and if within 90 days the Committee provides notice of the reason for the delay and the date a decision can be expected, which notice shall be written in a manner calculated to be understood by the Claimant and shall contain a statement of the specific reasons for the denial of the claim and a statement advising the Claimant that, within 60 days of the date on which he receives such notice, he may obtain review of such decision in accordance with the Plans claim procedures. Within such 60-day period, the Claimant may request that the claim denial be reviewed by filing with the Committee a written request therefore, which request shall contain the following information:
(a) | The date on which the Claimants request was filed with the Committee; provided, however, that the date on which the Claimants request for review was in fact filed with the Committee shall control in the event that the date of the actual filing is later than the dates stated by the Claimant pursuant to this Section 3.3(a); |
11
(b) | The specific portions of the denial of his claim which the Claimant requests the Committee to review; |
(c) | A statement by the Claimant setting forth the basis upon which he believes the Committee should reverse the previous denial of his claim for benefits and accept his claim as made; and |
(d) | Any written material (offered as exhibits) which the Claimant desires the Committee to examine in its consideration of his position as stated pursuant to Section 3.3(c). |
Within 60 days of the date determined by Section 3.3(a), the Committee shall conduct a full and fair review of the initial claim for the benefits and the decisions denying the Claimants claim for benefits, or within 120 days if special circumstances require more time and if within 60 days the Committee provides notice of reason for the delay, and the date a decision can be expected. Within 60 days (or 120 days if extended as provided herein) of the date of such review, the Committee shall render its written decision on review, written in a manner calculated to be understood by the Claimant, specifying the reasons and Plan provisions upon which its decision was based.
ARTICLE IV
AMENDMENT AND TERMINATION
4.1 | Company Reserves Right to Amend and Terminate |
The Company reserves the right to amend or terminate the Plan at any time, prospectively or retroactively, through an instrument executed by an officer pursuant to authorization or ratification by the Companys Board of Directors or by any committee designated by the Board of Directors.
4.2 | Effect of Amendment or Termination |
Any termination shall be in writing and shall be effective when made. In the event the Company elects to terminate the Plan, any amounts credited to the Participants Accounts shall remain subject to the provisions of the Plan and distribution will not be accelerated because of the termination of the Plan, except as otherwise provided in an amendment to the Plan, and under the circumstances permitted in accordance with Code Section 409A. No amendment or termination shall directly or indirectly reduce the balance of any Accounts as of the later of the date of such amendment or termination, or the effective date of such amendment or termination. No additional credits or contributions will be made to the Participants Accounts after termination of the Plan, but Participants Accounts will continue to fluctuate with investment gains and losses until all benefits are distributed to the Participants or to their Beneficiaries.
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ARTICLE V
MISCELLANEOUS
5.1 | Trust Authorized |
The Company may establish a trust which may be used to pay benefits arising under this Plan and all costs, charges and expenses relating thereto; except that, to the extent that the funds held in the trust are insufficient to pay such benefits, costs, charges and expenses, the Company shall pay such benefits, costs, charges and expenses.
5.2 | Restriction against Assignment |
The benefits payable hereunder or the right to receive future benefits under the Plan may not be anticipated, alienated, sold, transferred, assigned, pledged, encumbered, or subjected to any charge or legal process; no interest or right to receive a benefit may be taken, either voluntarily or involuntarily, for the satisfaction of the debts of, or other obligations or claims against, such person or entity, including claims for alimony, support, separate maintenance and claims in bankruptcy proceedings, except pursuant to a qualified domestic relations order and as permitted by Code Section 409A.
5.3 | Grantor Trust |
The Plan at all times shall be considered entirely unfunded both for tax purposes and for purposes of ERISA and no provision shall at any time be made with respect to segregating any assets of the Company for payment of any benefits hereunder. Funds invested hereunder shall continue for all purposes to be part of the general assets of the Company. No Participant, Beneficiary or any other person shall have any interest in any particular assets of the Company by reason of the right to receive a benefit under the Plan and to the extent the Participant, Beneficiary or any other person acquires a right to receive benefits under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Company.
5.4 | No Employment Rights |
The sole rights of a Participant or Beneficiary under this Plan shall be to have this Plan administered according to its provisions, to receive whatever benefits he may be entitled to hereunder, and nothing in this Plan shall be interpreted as a guaranty that any funds in a Trust or assets of an Employer will be sufficient to pay any such benefit. Further, the adoption and maintenance of this Plan shall not be construed as creating any contract of employment between an Employer and any Participant. The Plan shall not affect the right of an Employer to deal with any Participants in employment respects, including their hiring, discharge, compensation, and conditions of employment.
5.5 | Discharge of Liability |
The Company may from time to time establish rules and procedures which it determines to be necessary for the proper administration of the Plan and the benefits payable to an individual in the event that individual is declared incompetent and a conservator or other
13
person legally charged with such individuals care is appointed. Except as otherwise provided herein, when the Company determines that such individual is unable to manage his or her financial affairs, the Company may pay such individuals benefits to such conservator, person legally charged with such individuals care, or institution then contributing toward or providing for the care and maintenance of such individual. Any such payment shall constitute a complete discharge of any liability of the Company and the Plan for such individual.
5.6 | Location of Participant |
Each Participant shall keep the Company informed of his or her current address and the current address of his or her Beneficiary. The Company shall not be obligated to search for any person.
5.7 | Limitation of Liability |
Notwithstanding any provision herein to the contrary, neither the Company nor any individual acting as an employee or agent of the Company shall be liable to any Participant, former Participant, Beneficiary, or any other person for any claim, loss, liability or expense incurred in connection with the Plan, unless attributable to fraud or willful misconduct on the part of the Company or any such employee or agent of the Company.
5.8 | Construction |
All questions pertaining to the construction, validity and effect of the Plan shall be determined in accordance with the laws of the United States and to the extent not preempted by such laws, by the laws of the State of Ohio.
5.9 | Unsecured General Creditor |
Any and all of the Companys assets shall be, and remain, the general unpledged, unrestricted assets of the Company. The Companys obligation under this Plan shall be merely that of an unfunded and unsecured promise of the Company to pay money in the future, and the rights of the Participants and beneficiaries shall be no greater than those of unsecured general creditors. It is the intention of the Company that this Plan be unfunded for purposes of the Code and for purposes of Title I of ERISA.
5.10 | Headings Not Part of Plan |
Headings and subheadings in this Plan are inserted for convenience of reference only and are not to be considered in the construction of the provisions hereof.
14
5.11 | Terms Used in the Plan |
Any term used in this Plan which is defined in the Plan shall have the meaning set forth in the Plan for all purposes of this Plan. The singular form of any word shall include the plural and the masculine gender shall include the feminine wherever necessary for the proper interpretation of this Plan.
5.12 | Compliance with Code Section 409A |
To the extent applicable, it is intended that this Plan and any deferrals of compensation made hereunder comply with the provisions of Code Section 409A. This Plan and any deferrals or compensation made hereunder shall be administrated in a manner consistent with this intent, and any provisions that would cause this Plan or any grant made hereunder to fail to satisfy Code Section 409A shall have no force and effect until amended to comply with Code Section 409A (which amendment may be retroactive to the extent permitted by Code Section 409A and may be made by the Company without the consent of Participants). Any reference in this Plan to Code Section 409A will also include any proposed temporary or final regulations, or any other guidance, promulgated with respect to Code Section 409A by the U.S. Department of the Treasury or the Internal Revenue Service. In no event, however, shall this Section 5.12 or any other provisions of this Plan be construed to require the Company to provide any gross-up for the tax consequences of, or payments under, this Plan and the Company shall have no responsibility for tax or legal consequences to any Participant or Beneficiary resulting from the terms or operation of this Plan.
The Company hereby adopts The J.M. Smucker Company Executive Defined Contribution Restoration Plan as set forth above.
THE J.M. SMUCKER COMPANY | ||
By: | /s/ Barry C. Dunaway | |
Dated: | June 5, 2012 |
15
Exhibit 10.2
AMENDMENT NO. 1
TO
THE J. M. SMUCKER COMPANY DEFINED CONTRIBUTION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(Restated Effective May 1, 2008)
The J. M. Smucker Company hereby adopts this Amendment No. 1 to The J. M. Smucker Company Defined Contribution Supplemental Executive Retirement Plan (the Plan) established effective as of May 1, 2008. Words and phrases used herein with initial capital letters which are defined in the Plan are used herein as so defined. The provisions of this Amendment shall be effective as of May 1, 2012.
Section 1
Section 2.1 of the Plan is hereby amended in its entirety to read as follows:
2.1 Eligible Participants
An employee who has been hired or promoted to serve as an officer or in an equivalent position and has been designated by the Committee shall become a Participant in the Plan as of the date of designation.
Notwithstanding the foregoing, for all purposes under the Plan, after April 30, 2012, no further officers shall first become eligible to participate in the Plan.
Section 2
Section 3.1 of the Plan is hereby amended in its entirety to read as follows:
3.1 Establishment of Accounts
The Company shall establish and maintain an account for each Participant, or designated Beneficiary of the Participant upon the death of the Participant, and shall credit such accounts each Plan Year with a Contribution Credit and Earnings Credits, as applicable, in accordance with the provision of this Article III.
1
Section 3
Section 3.3 of the Plan is hereby amended in its entirety to read as follows:
3.3 Earnings Credit
Earnings Credit means the amount which shall be credited each Plan Year to the account maintained for a Participant or Beneficiary by calculating interest at a rate to be determined by the Committee. As determined by the Committee, the interest rate for the Plan effective May 1, 2012 shall be 120% of the federal long-term interest rate under Section 1274(d) of the Code. Such rate shall remain in effect until the Company determines that the record keeper engaged to assist the Company with the administration of the Plan is equipped to credit earnings based on the Participants deemed investments, as provided in Section 3.6, after which, the Earnings Credit shall mean the amount (including a negative amount) credited to the account maintained for a Participant or Beneficiary under Section 3.6.
Section 4
The last sentence of Section 3.5 of the Plan is hereby amended in its entirety to read as follows:
Earnings Credits will be made through the date specified in Section 3.6(c).
Section 5
Article III of the Plan is hereby amended by adding a new Section 3.6, immediately following Section 3.5, to read as follows:
3.6 Deemed Investment Earnings
(a) Deemed Investment of Accounts: The Company shall from time to time designate one or more investment vehicle(s) in which the accounts for Participants shall be deemed to be invested. The investment vehicle(s) may be designated by reference to the investments available under The J.M. Smucker Company Employee Savings Plan (the 401(k) Plan). Each Participant shall designate the investment vehicle(s) in which his account shall be deemed to be invested according to the procedures developed by the Company. The Company shall be under no obligation to acquire or invest in any of the deemed investment vehicle(s) under this subparagraph, and any acquisition of or investment in a deemed investment vehicle by the Company shall be made in the name of the Company and shall remain the sole property of the Company. The Company shall also establish from time to time a default fund into which a Participants account shall be deemed to be invested if the Participant fails to provide investment instructions pursuant to this Section 3.6(a). Until otherwise changed, such default fund shall be the applicable investment vehicle determined pursuant to the terms of the 401(k) Plans default investment provisions.
(b) Changes in Elections; Transfers Among Funds: During a Plan Year, a Participant may change the investment vehicles in which his account shall be deemed to be invested according to the procedures developed by the Company. A Participant may also elect to transfer amounts credited to his account from any deemed investment vehicle to any
2
other deemed investment vehicle according to the procedures developed by the Company. The Company may establish any limitations on the frequency with which Participants may make, and the timing of, investment designations and transfer elections under this Section 3.6(b) as the Company may determine necessary or appropriate from time to time, including limitations related to frequent trading, market timing activities and restrictions on executive officer trading.
(c) Periodic Account Adjustments: The account of each Participant shall be adjusted from time to time at such intervals as determined by the Company until the entire amount credited to the account has been distributed to the Participant or his Beneficiary. The amount of the adjustment shall equal the amount that each Participants account would have earned (or lost) for the period since the last adjustment had the account actually been invested in the deemed investment vehicle(s) designated by the Participant for such period.
Section 6
Section 4.3 of the Plan is hereby amended in its entirety to read as follows:
4.3 Forms of Distribution
Any vested benefit payable to or on behalf of a Participant under the Plan pursuant to Section 4.1 shall be payable pursuant to a fixed schedule in accordance with the provisions of Section 409A of the Code. Each Participant must elect the payment schedule from one of the options below within 30 days of becoming designated to participate in the Plan. The possible payment options are as follows:
(a) One single lump sum payment; or
(b) For benefits commencing prior to May 1, 2012, equal monthly installments payable over a fixed period (five, ten, fifteen or twenty years, as elected by the Participant), determined based on the Participants vested account balance and the interest crediting rate in effect at the later of the date of (i) Separation from Service, Disability, or death, as applicable, or (ii) the date that payments commence; or
(c) For benefits commencing on or after May 1, 2012, substantially equal monthly installments payable over a fixed period (five, ten, fifteen or twenty years, as elected by the Participant), determined based on the Participants account balance. The amount of the unpaid installment payments remaining in the Participants Account shall continue to be credited with earnings as provided in Section 3.6.
3
If no election is made by a Participant or if the Participant elects installment payments but fails to elect the fixed period, the default form of payment shall be the method described in (a) above.
IN WITNESS WHEREOF, the Company has caused this Amendment No. 1 to the Plan to be executed this 5th day of June, 2012.
THE J. M. SMUCKER COMPANY | ||
By: | /s/ Barry C. Dunaway | |
Title: | Senior Vice President and Chief Administrative Officer |
4
Exhibit 12
The J.M. Smucker Company
Computation of Ratio of Earnings to Fixed Charges
(in thousands of dollars)
Three Months Ended July 31, 2012 |
||||
Earnings before fixed charges: |
||||
Income before income taxes |
$ | 167,265 | ||
Total fixed charges |
30,054 | |||
Less: capitalized interest |
(1,415 | ) | ||
|
|
|||
Earnings available for fixed charges |
$ | 195,904 | ||
Fixed charges: |
||||
Interest and other debt expense, net of capitalized interest |
$ | 23,882 | ||
Capitalized interest |
1,415 | |||
Estimated interest portion of rent expense (a) |
4,757 | |||
|
|
|||
Total fixed charges |
$ | 30,054 | ||
Ratio of earnings to fixed charges |
6.5 | |||
|
|
(a) | For purposes of this calculation, management estimates approximately one-third of rent expense is representative of interest expense. |
Exhibit 31.1
RULE 13a-14(a)/15d-14(a) CERTIFICATIONS
I, Richard K. Smucker, Chief Executive Officer of The J. M. Smucker Company, certify that:
(1) | I have reviewed this quarterly report on Form 10-Q of The J. M. Smucker Company; |
(2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
(3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; |
(4) | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
(5) | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: September 6, 2012
/s/ Richard K. Smucker | ||
Name: | Richard K. Smucker | |
Title: | Chief Executive Officer |
Exhibit 31.2
RULE 13a-14(a)/15d-14(a) CERTIFICATIONS
I, Mark R. Belgya, Senior Vice President and Chief Financial Officer of The J. M. Smucker Company, certify that:
(1) | I have reviewed this quarterly report on Form 10-Q of The J. M. Smucker Company; |
(2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
(3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; |
(4) | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
(5) | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: September 6, 2012
/s/ Mark R. Belgya | ||
Name: | Mark R. Belgya | |
Title: | Senior Vice President and Chief Financial Officer |
Exhibit 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of The J. M. Smucker Company (the Company) for the quarter ended July 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the Report), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officers knowledge:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report. |
/s/ Richard K. Smucker | ||
Name: | Richard K. Smucker | |
Title: | Chief Executive Officer | |
/s/ Mark R. Belgya | ||
Name: | Mark R. Belgya | |
Title: | Senior Vice President and Chief Financial Officer |
Date: September 6, 2012
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.
Restructuring (Details Textual) (USD $)
|
3 Months Ended | 12 Months Ended | |
---|---|---|---|
Jul. 31, 2012
Y
Facility
Position
|
Jul. 31, 2011
|
Apr. 30, 2012
|
|
Restructuring (Textual) [Abstract] | |||
Reduction in positions due to restructuring | 850 | ||
Plants announced to be closed | 6 | ||
Percent of positions reduced due to restructuring | 75.00% | ||
Total expected restructuring charge | $ 245,000,000 | ||
Restructuring costs incurred announcement-to-date | 203,300,000 | ||
Years over which balance of restructuring costs will be incurred | 1 | ||
Total restructuring charges | 14,455,000 | 19,600,000 | 81,141,000 |
Cost of products sold restructuring | $ 3,600,000 | $ 9,700,000 |
Other Financial Instruments and Fair Value Measurements (Details 1) (USD $)
In Thousands, unless otherwise specified |
Jul. 31, 2012
|
Apr. 30, 2012
|
---|---|---|
Financial assets (liabilities) measured at fair value on a recurring basis | ||
Long-term debt | $ (2,471,540) | $ (2,443,514) |
Fair value measurements recurring [Member]
|
||
Financial assets (liabilities) measured at fair value on a recurring basis | ||
Long-term debt | (2,471,540) | (2,443,514) |
Total financial assets measured at fair value | (2,405,405) | (2,421,293) |
Fair value measurements recurring [Member] | Equity mutual funds [Member]
|
||
Financial assets (liabilities) measured at fair value on a recurring basis | ||
Other investments | 18,419 | 14,649 |
Fair value measurements recurring [Member] | Municipal obligations [Member]
|
||
Financial assets (liabilities) measured at fair value on a recurring basis | ||
Other investments | 24,831 | 20,392 |
Fair value measurements recurring [Member] | Other investments [Member]
|
||
Financial assets (liabilities) measured at fair value on a recurring basis | ||
Other investments | 1,990 | 1,132 |
Fair value measurements recurring [Member] | Commodity contracts - net [Member]
|
||
Financial assets (liabilities) measured at fair value on a recurring basis | ||
Derivatives | 21,239 | (13,406) |
Fair value measurements recurring [Member] | Foreign currency exchange contracts - net [Member]
|
||
Financial assets (liabilities) measured at fair value on a recurring basis | ||
Derivatives | (344) | (546) |
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair value measurements recurring [Member]
|
||
Financial assets (liabilities) measured at fair value on a recurring basis | ||
Long-term debt | (803,651) | (777,023) |
Total financial assets measured at fair value | (762,124) | (774,031) |
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair value measurements recurring [Member] | Equity mutual funds [Member]
|
||
Financial assets (liabilities) measured at fair value on a recurring basis | ||
Other investments | 18,419 | 14,649 |
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair value measurements recurring [Member] | Municipal obligations [Member]
|
||
Financial assets (liabilities) measured at fair value on a recurring basis | ||
Other investments | 0 | 0 |
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair value measurements recurring [Member] | Other investments [Member]
|
||
Financial assets (liabilities) measured at fair value on a recurring basis | ||
Other investments | 1,990 | 1,132 |
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair value measurements recurring [Member] | Commodity contracts - net [Member]
|
||
Financial assets (liabilities) measured at fair value on a recurring basis | ||
Derivatives | 21,118 | (12,788) |
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair value measurements recurring [Member] | Foreign currency exchange contracts - net [Member]
|
||
Financial assets (liabilities) measured at fair value on a recurring basis | ||
Derivatives | 0 | (1) |
Significant Observable Inputs (Level 2) [Member] | Fair value measurements recurring [Member]
|
||
Financial assets (liabilities) measured at fair value on a recurring basis | ||
Long-term debt | (1,667,889) | (1,666,491) |
Total financial assets measured at fair value | (1,643,281) | (1,647,262) |
Significant Observable Inputs (Level 2) [Member] | Fair value measurements recurring [Member] | Equity mutual funds [Member]
|
||
Financial assets (liabilities) measured at fair value on a recurring basis | ||
Other investments | 0 | 0 |
Significant Observable Inputs (Level 2) [Member] | Fair value measurements recurring [Member] | Municipal obligations [Member]
|
||
Financial assets (liabilities) measured at fair value on a recurring basis | ||
Other investments | 24,831 | 20,392 |
Significant Observable Inputs (Level 2) [Member] | Fair value measurements recurring [Member] | Other investments [Member]
|
||
Financial assets (liabilities) measured at fair value on a recurring basis | ||
Other investments | 0 | 0 |
Significant Observable Inputs (Level 2) [Member] | Fair value measurements recurring [Member] | Commodity contracts - net [Member]
|
||
Financial assets (liabilities) measured at fair value on a recurring basis | ||
Derivatives | 121 | (618) |
Significant Observable Inputs (Level 2) [Member] | Fair value measurements recurring [Member] | Foreign currency exchange contracts - net [Member]
|
||
Financial assets (liabilities) measured at fair value on a recurring basis | ||
Derivatives | (344) | (545) |
Significant Unobservable Inputs (Level 3) [Member] | Fair value measurements recurring [Member]
|
||
Financial assets (liabilities) measured at fair value on a recurring basis | ||
Long-term debt | 0 | 0 |
Total financial assets measured at fair value | 0 | 0 |
Significant Unobservable Inputs (Level 3) [Member] | Fair value measurements recurring [Member] | Equity mutual funds [Member]
|
||
Financial assets (liabilities) measured at fair value on a recurring basis | ||
Other investments | 0 | 0 |
Significant Unobservable Inputs (Level 3) [Member] | Fair value measurements recurring [Member] | Municipal obligations [Member]
|
||
Financial assets (liabilities) measured at fair value on a recurring basis | ||
Other investments | 0 | 0 |
Significant Unobservable Inputs (Level 3) [Member] | Fair value measurements recurring [Member] | Other investments [Member]
|
||
Financial assets (liabilities) measured at fair value on a recurring basis | ||
Other investments | 0 | 0 |
Significant Unobservable Inputs (Level 3) [Member] | Fair value measurements recurring [Member] | Commodity contracts - net [Member]
|
||
Financial assets (liabilities) measured at fair value on a recurring basis | ||
Derivatives | 0 | 0 |
Significant Unobservable Inputs (Level 3) [Member] | Fair value measurements recurring [Member] | Foreign currency exchange contracts - net [Member]
|
||
Financial assets (liabilities) measured at fair value on a recurring basis | ||
Derivatives | $ 0 | $ 0 |
Derivative Financial Instruments (Details) (USD $)
In Thousands, unless otherwise specified |
Jul. 31, 2012
|
Apr. 30, 2012
|
---|---|---|
Other Current Assets [Member]
|
||
Fair value of derivative instruments [Line Items] | ||
Derivatives Instruments, Assets | $ 35,012 | $ 10,171 |
Other Current Assets [Member] | Designated as hedging instruments [Member]
|
||
Fair value of derivative instruments [Line Items] | ||
Derivatives Instruments, Assets | 10,441 | 6,569 |
Other Current Assets [Member] | Not designated as hedging instruments [Member]
|
||
Fair value of derivative instruments [Line Items] | ||
Derivatives Instruments, Assets | 24,571 | 3,602 |
Other Current Assets [Member] | Commodity contracts [Member] | Designated as hedging instruments [Member]
|
||
Fair value of derivative instruments [Line Items] | ||
Derivatives Instruments, Assets | 10,441 | 6,569 |
Other Current Assets [Member] | Commodity contracts [Member] | Not designated as hedging instruments [Member]
|
||
Fair value of derivative instruments [Line Items] | ||
Derivatives Instruments, Assets | 24,366 | 3,166 |
Other Current Assets [Member] | Foreign currency exchange contracts [Member] | Not designated as hedging instruments [Member]
|
||
Fair value of derivative instruments [Line Items] | ||
Derivatives Instruments, Assets | 205 | 436 |
Other Current Liabilities [Member]
|
||
Fair value of derivative instruments [Line Items] | ||
Derivatives Instruments, Liabilities | 14,117 | 24,123 |
Other Current Liabilities [Member] | Designated as hedging instruments [Member]
|
||
Fair value of derivative instruments [Line Items] | ||
Derivatives Instruments, Liabilities | 3,282 | 19,510 |
Other Current Liabilities [Member] | Not designated as hedging instruments [Member]
|
||
Fair value of derivative instruments [Line Items] | ||
Derivatives Instruments, Liabilities | 10,835 | 4,613 |
Other Current Liabilities [Member] | Commodity contracts [Member] | Designated as hedging instruments [Member]
|
||
Fair value of derivative instruments [Line Items] | ||
Derivatives Instruments, Liabilities | 3,282 | 19,510 |
Other Current Liabilities [Member] | Commodity contracts [Member] | Not designated as hedging instruments [Member]
|
||
Fair value of derivative instruments [Line Items] | ||
Derivatives Instruments, Liabilities | 10,286 | 3,631 |
Other Current Liabilities [Member] | Foreign currency exchange contracts [Member] | Not designated as hedging instruments [Member]
|
||
Fair value of derivative instruments [Line Items] | ||
Derivatives Instruments, Liabilities | $ 549 | $ 982 |
Other Financial Instruments and Fair Value Measurements (Details Textual) (USD $)
In Thousands, unless otherwise specified |
Jul. 31, 2012
|
---|---|
Other Financial Instruments and Fair Value Measurements (Textual) [Abstract] | |
Company's Municipal bond mature in 2013 | $ 3,605 |
Company's Municipal bond mature in 2014 | 731 |
Company's Municipal bond mature in 2015 | 2,727 |
Company's Municipal bond mature in 2016 | 928 |
Company's Municipal bond mature in 2017 and beyond | $ 16,840 |
Guarantor and Non-Guarantor Financial Information (Tables)
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 31, 2012
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Guarantor and Non-Guarantor Financial Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME |
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
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CONDENSED CONSOLIDATED BALANCE SHEETS |
CONDENSED CONSOLIDATED BALANCE SHEETS
CONDENSED CONSOLIDATED BALANCE SHEETS
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CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS |
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
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Share-Based Payments (Tables)
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3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 31, 2012
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Share-Based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based payments |
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Common Shares (Details)
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Jul. 31, 2012
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Apr. 30, 2012
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Common share information | ||
Common shares authorized | 150,000,000 | 150,000,000 |
Common shares outstanding | 110,438,142 | 110,284,715 |
Treasury shares | 18,167,023 | 18,320,450 |
Equity Method Investment (Details Textual) (USD $)
In Millions, unless otherwise specified |
3 Months Ended | |
---|---|---|
Jul. 31, 2012
|
Mar. 26, 2012
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Equity method investment (Textual) [Abstract] | ||
Percentage of acquired entity | 25.00% | |
Amount of acquisition | $ 35.9 |
Pensions and Other Postretirement Benefits (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | |
---|---|---|
Jul. 31, 2012
|
Jul. 31, 2011
|
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Pensions and Other Postretirement Benefits (Textual) [Abstract] | ||
Reduction in positions due to restructuring | 850 | |
Defined Benefit Pension Plans [Member]
|
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Components of net periodic benefit cost | ||
Service cost | $ 2,298 | $ 2,062 |
Interest cost | 6,028 | 6,523 |
Expected return on plan assets | (6,322) | (6,885) |
Recognized net actuarial loss (gain) | 3,362 | 2,201 |
Settlement loss | 6,669 | 0 |
Other | 254 | 300 |
Net periodic benefit cost | 12,289 | 4,201 |
Other Postretirement Benefits [Member]
|
||
Components of net periodic benefit cost | ||
Service cost | 673 | 525 |
Interest cost | 765 | 780 |
Expected return on plan assets | 0 | 0 |
Recognized net actuarial loss (gain) | 0 | (25) |
Settlement loss | 0 | 0 |
Other | (106) | (100) |
Net periodic benefit cost | $ 1,332 | $ 1,180 |
Equity Method Investment
|
3 Months Ended |
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Jul. 31, 2012
|
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Equity Method Investment [Abstract] | |
Equity Method Investment |
Note 4: Equity Method Investment On March 26, 2012, the Company acquired a 25 percent equity interest in Guilin Seamild Biologic Technology Development Co., Ltd. (“Seamild”), a privately-owned manufacturer and marketer of oats products headquartered in Guilin in the Guangxi province of China, for $35.9 million. Seamild’s products, primarily oatmeal and oat-based cereals, are sold under the leading Seamild brand with distribution in retail channels throughout China. Seamild’s portfolio of quality, trusted products aligns with the Company’s strategy of owning and marketing leading food brands. The initial investment in Seamild was recorded at cost and is included in other noncurrent assets in the Consolidated Balance Sheet. The difference between the carrying amount of the investment and the underlying equity in net assets is primarily attributable to goodwill and other intangible assets. Under the equity method of accounting, the investment is adjusted for the Company’s proportionate share of earnings or losses, including consideration of basis differences resulting from the difference between the initial carrying amount of the investment and the underlying equity in net assets. The investment did not have a material impact on the Company’s consolidated financial statements for the three months ended July 31, 2012. |