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