<PAGE> 1
Sequential Page
No. 1 of 12 Pages
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------ ------------
Commission File Number 1-5111
-------------------
THE J. M. SMUCKER COMPANY
Ohio 34-0538550
- ------------------ ----------------------
State of Incorporation IRS Identification No.
STRAWBERRY LANE
ORRVILLE, OHIO 44667
(330) 682-3000
The Company has filed all reports required to be filed by Section 13 or 15 (d)
of the Securities Exchange Act of 1934 during the preceding 12 months and has
been subject to such filing requirements for the past 90 days.
The Company had 14,398,723 Class A Common Shares and 14,727,842 Class B Common
Shares outstanding on July 31, 1998.
The Exhibit Index is located at Sequential Page No. 12.
<PAGE> 2
Sequential Page
No. 2
PART I. FINANCIAL INFORMATION
THE J. M. SMUCKER COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
Item 1. Financial Statements
--------------------
<TABLE>
<CAPTION>
Three Months Ended
July 31,
-----------------------
1998 1997
--------- ---------
(Dollars in thousands, except per share
data)
<S> <C> <C>
Net sales $ 150,500 $ 147,389
Cost of products sold 96,638 95,993
--------- ---------
53,862 51,396
Selling, distribution, and administrative expenses 37,342 35,390
--------- ---------
16,520 16,006
Other income (expense)
Interest income 625 698
Interest expense (4) (5)
Other - net 295 126
--------- ---------
Income before income taxes 17,436 16,825
Income taxes 7,020 6,852
--------- ---------
Net Income $ 10,416 $ 9,973
========= =========
Net income per Common Share $ .36 $ .34
========= =========
Net income per Common Share - assuming dilution $ .36 $ .34
========= =========
Dividends declared on Class A and Class B Common Shares $ .14 $ .13
========= =========
</TABLE>
See notes to condensed consolidated financial statements
<PAGE> 3
Sequential Page
No. 3
THE J. M. SMUCKER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, 1998 April 30,1998
(Unaudited) (Audited)
--------- ---------
(Dollars in Thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,052 $ 36,484
Trade receivables, less allowances 46,276 48,732
Inventories:
Finished products 43,176 41,264
Raw materials, containers, and supplies 94,466 62,201
--------- ---------
137,642 103,465
Other current assets 12,632 12,825
--------- ---------
Total Current Assets 203,602 201,506
PROPERTY, PLANT, AND EQUIPMENT
Land and land improvements 15,259 15,058
Buildings and fixtures 78,608 78,658
Machinery and equipment 179,116 177,372
Construction in progress 24,970 13,147
--------- ---------
297,953 284,235
Less allowances for depreciation (144,539) (140,521)
--------- ---------
Total Property, Plant and Equipment 153,414 143,714
OTHER NONCURRENT ASSETS
Intangible assets 44,584 42,410
Other assets 19,970 20,343
--------- ---------
Total Other Noncurrent Assets 64,554 62,753
--------- ---------
$ 421,570 $ 407,973
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 46,379 $ 41,410
Other current liabilities 48,222 43,490
--------- ---------
Total Current Liabilities 94,601 84,900
NONCURRENT LIABILITIES
Other noncurrent liabilities 21,024 20,896
SHAREHOLDERS' EQUITY
Class A Common Shares 3,600 3,597
Class B Common Shares (Non-Voting) 3,682 3,689
Additional capital 14,692 14,608
Retained income 304,036 298,316
Less:
Deferred compensation (2,147) (2,255)
Amount due from ESOP (9,787) (9,787)
Accumulated other comprehensive loss (8,131) (5,991)
--------- ---------
Total Shareholders' Equity 305,945 302,177
--------- ---------
$ 421,570 $ 407,973
========= =========
</TABLE>
See notes to condensed consolidated financial statements
<PAGE> 4
Sequential Page
No. 4
THE J. M. SMUCKER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
July 31,
-------------------------
1998 1997
---------- ----------
(Dollars in Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 10,416 $ 9,973
Adjustments (19,518) (2,295)
---------- ----------
Net cash (used for) provided by operating activities (9,102) 7,678
INVESTING ACTIVITIES
Businesses acquired - net of cash (9,901) ---
Additions to property, plant, and equipment (9,173) (10,076)
Proceeds from the sale of property, plant, and
equipment 46 136
Other - net 313 291
---------- ----------
Net cash used for investing activities (18,715) (9,649)
FINANCING ACTIVITIES
Proceeds from short-term debt - net 3,473 96
Purchase of common shares --- (3,224)
Dividends paid (4,064) (3,798)
Other - net (447) 41
---------- ----------
Net cash used for financing activities (1,038) (6,885)
Cash flows used in operations (28,855) (8,856)
Effect of exchange rate changes (577) (281)
---------- ----------
Net decrease in cash and cash equivalents (29,432) (9,137)
Cash and cash equivalents at beginning of period 36,484 24,091
---------- ----------
Cash and cash equivalents at end of period $ 7,052 $ 14,954
========== ==========
</TABLE>
( ) Denotes use of cash
See notes to condensed consolidated financial statements
<PAGE> 5
Sequential Page
No. 5
THE J. M. SMUCKER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of Presentation
---------------------
The accompanying unaudited, condensed, consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included.
Operating results for the three-month period ended July 31, 1998, are not
necessarily indicative of the results that may be expected for the year ended
April 30, 1999. For further information, reference is made to the consolidated
financial statements and footnotes included in the Company's Annual Report on
Form 10-K for the year ended April 30, 1998.
Note B - Common Shares
-------------
At July 31, 1998, 35,000,000 Class A Common Shares and 35,000,000 Class
B Common Shares were authorized. At July 31, 1998, there were 14,398,723 and
14,727,842 outstanding shares of Class A Common and Class B Common,
respectively, while 14,387,402 Class A and 14,754,734 Class B Common Shares were
outstanding at April 30, 1998. Outstanding shares of each class are shown net of
1,813,565 Class A and 1,484,446 Class B treasury shares at July 31, 1998, and
1,824,886 Class A and 1,457,554 Class B treasury shares at April 30, 1998.
<PAGE> 6
Sequential Page
No. 6
Note C - Income Per Share
----------------
The following table sets forth the computation of earnings per Common
Share and earnings per Common Share - assuming dilution:
<TABLE>
<CAPTION>
Three Months Ended
July 31,
----------------------------
(Dollars in thousands, except per share data) 1998 1997
------------ ------------
<S> <C> <C>
Numerator:
----------
Net income $ 10,416 $ 9,973
============ ============
Denominator:
------------
Denominator for earnings per Common
Share - weighted-average shares 29,026,846 29,074,445
Effect of dilutive securities:
Stock options 239,599 115,238
Restricted stock 65,992 5,575
------------ ------------
Denominator for earnings per Common
Share - assuming dilution 29,332,437 29,195,258
============ ============
Net income per Common Share $ .36 $ .34
============ ============
Net income per Common Share - assuming
dilution $ .36 $ .34
============ ============
</TABLE>
Note D - Comprehensive Income
--------------------
The Company adopted Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income (SFAS 130), as of May 1, 1998, which
established standards for reporting and displaying comprehensive income and its
components in the financial statements. The adoption of SFAS 130, which had no
impact on the Company's net income or shareholders' equity, requires foreign
currency translation adjustments, which prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive
income. Prior year financial statements have been reclassified to conform to the
requirements of SFAS 130.
During the quarter ended July 31, 1998 and 1997, total comprehensive
income was $8,276,000 and $9,106,000, respectively.
<PAGE> 7
Sequential Page
No. 7
Note E - Recently Issued Accounting Standards
------------------------------------
The Financial Accounting Standards Board has issued final statements
that change the method of determining and reporting business segments and change
the disclosure requirements for pensions and other postretirement benefits.
The Company is currently evaluating the effects of these new standards
and will adopt the disclosure requirements of Statement of Financial Accounting
Standards No. 131 (SFAS 131), Disclosures about Segments of an Enterprise and
Related Information, and SFAS 132, Employers' Disclosure about Pensions and
Other Postretirement Benefits, in the fourth quarter of fiscal 1999, as
required.
- --------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis
------------------------------------
This discussion and analysis deals with comparisons of material changes
in the condensed, consolidated financial statements for the three-month periods
ended July 31, 1998 and 1997, respectively.
Results of Operations
- ---------------------
Sales for the first quarter ended July 31, 1998, were up approximately
2 percent, to $150,500,000 from $147,389,000 in the prior year first quarter.
Sales increased in the consumer, industrial, foodservice, and beverages business
areas, with the majority of the increase occurring in consumer and industrial.
Growth in the consumer area was the result of an increase in grocery
market sales of the "Sunberry Farms", "Simply Fruit" and "Light" fruit spread
products, and to the launch of "Smucker's Snackers", the Company's new
shelf-stable peanut butter and jelly offering for lunches and snacks. In the
industrial area, the sales growth came in the bakery, yogurt filling, and frozen
dairy categories from a combination of both new and existing products.
In the international area, sales continued to be adversely impacted by
the strength of the American dollar versus the Australian and Canadian
currencies. As a result, the international area reported sales for the quarter
that were slightly behind those of the prior year, despite strong gains for the
Australian business when measured in its domestic currency. Assuming a constant
exchange rate (as compared to the first quarter of last year), consolidated
sales for the quarter would have increased an additional 1%.
Earnings for the first quarter ended July 31, 1998, were $10,416,000,
up 4 percent over earnings of $9,973,000 for the same period last year. On a
diluted basis, earnings per share were $.36 compared to $.34 per share last
year.
<PAGE> 8
Sequential Page
No. 8
The increase in earnings resulted primarily from a combination of sales
growth and a decrease in administrative expenses, offset by an increase in
marketing expenditures. The increase in marketing represented investment
spending for several new product initiatives, including "Smucker's Snackers",
along with additional support for the fruit spreads business. Marketing support
is expected to continue at a higher level through the remainder of the fiscal
year.
Financial Condition - Liquidity and Capital Resources
- -----------------------------------------------------
The financial position of the Company remains strong despite the
reduction in cash and cash equivalents of $29,432,000 during the first quarter.
Historically, the first quarter results in a net cash outflow due to
expenditures required for the seasonal procurement of fruit inventories. More
cash was used in the first quarter for fruit procurement this year than in the
prior year, and that was due primarily to certain fruits being purchased in
higher quantities this year. In addition to fruit purchases, other significant
uses of cash during the quarter were capital expenditures, including capitalized
software and consulting costs, acquisitions costs, and the payment of dividends.
During the second quarter, the Company will continue to borrow against
its lines of credit in order to finance remaining seasonal fruit purchases and
other working capital requirements. Assuming that there are no additional
acquisitions or other investments requiring significant cash outlays and that
the results of operations are as anticipated, the Company expects (i) cash
provided from operations and borrowing to be sufficient to meet cash
requirements and (ii) all short-term borrowing to be repaid by April 30, 1999.
Impact of Year 2000
- -------------------
The Company is in the process of replacing its primary computer systems
as part of its information technology reengineering (ITR) project, which is
intended 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 ITR project, the Company has completed an assessment of
its Year 2000 requirements. The new systems being installed are fully Year 2000
compliant and will replace 80% of the Company's non-compliant systems. 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 $18,000,000 towards the project of which $10,000,000 has been
capitalized at July 31, 1998. Capitalized costs will be expensed over a period
ranging from three to seven years in accordance with the Company's accounting
policy.
<PAGE> 9
Sequential Page
No. 9
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. Implementation of components of the ITR project have been
prioritized to ensure replacement of those systems most affected by the Year
2000 problem. With regard to the systems that either are not being replaced by
the ITR project or will not be replaced in time to meet the change in millenium,
the Company has identified the software that will be affected by the Year 2000
problem and has plans in place to make corrections. The Company has engaged
outside consultants to assist with these corrections and 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.
Recently Issued Accounting Standards
- ------------------------------------
The Financial Accounting Standards Board has issued final statements
that change the method of determining and reporting business segments and change
the disclosure requirements for pensions and other postretirement benefits.
The Company is currently evaluating the effects of these new standards
and will adopt the disclosure requirements of Statement of Financial Accounting
Standards No. 131 (SFAS 131), Disclosures about Segments of an Enterprise and
Related Information, and SFAS 132, Employers' Disclosure about Pensions and
Other Postretirement Benefits, in the fourth quarter of fiscal 1999, as
required.
Certain Forward-Looking Statements
- ----------------------------------
This quarterly report includes certain forward-looking statements that
are based on current expectations and are subject to a number of risks and
uncertainties. Actual results may differ depending on a number of factors
including: the success of the Company's marketing programs during the year;
competitive activity; the mix of products sold; and level of marketing
expenditures needed to generate sales; an increase in fruit costs or costs of
other significant ingredients, including sweeteners; the ability of the Company
to maintain and/or improve sales and earnings performance of its non-retail
business areas; foreign currency exchange rate fluctuations; and the successful
implementation of the Company's information technology reengineering project and
Year 2000 modifications.
<PAGE> 10
Sequential Page
No. 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
See the Index of Exhibits that appears on Sequential Page No. 12
of this report.
(b) Reports on Form 8-K
-------------------
No Reports on Form 8-K were required to be filed during the
quarter for which this report is filed.
<PAGE> 11
Sequential Page
No. 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
September 11, 1998 THE J. M. SMUCKER COMPANY
/s/ Steven J. Ellcessor
------------------------
BY STEVEN J. ELLCESSOR
Vice President-Administration, Secretary,
and General Counsel
/s/ Richard K. Smucker
------------------------
AND RICHARD K. SMUCKER
President
<PAGE> 12
Sequential Page
No. 12
INDEX OF EXHIBITS
That are filed with the Commission and
The New York Stock Exchange
<TABLE>
<CAPTION>
Assigned Sequential
Exhibit No. * Description Page No.
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
27 Financial data schedules pursuant to Article 5 in
Regulation S-X.
</TABLE>
* Exhibits 2, 3, 4, 10, 11, 15, 18, 19, 22, 23, 24, and 99 are either
inapplicable to the Company or require no answer.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> JUL-31-1998
<CASH> 7,052
<SECURITIES> 0
<RECEIVABLES> 46,692
<ALLOWANCES> (416)
<INVENTORY> 137,642
<CURRENT-ASSETS> 203,602
<PP&E> 297,953
<DEPRECIATION> (144,539)
<TOTAL-ASSETS> 421,570
<CURRENT-LIABILITIES> 94,601
<BONDS> 0
0
0
<COMMON> 7,282
<OTHER-SE> 298,663
<TOTAL-LIABILITY-AND-EQUITY> 421,570
<SALES> 150,500
<TOTAL-REVENUES> 150,500
<CGS> 96,638
<TOTAL-COSTS> 96,638
<OTHER-EXPENSES> 37,342
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> 17,436
<INCOME-TAX> 7,020
<INCOME-CONTINUING> 10,416
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,416
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> JUL-31-1997
<CASH> 14,954
<SECURITIES> 0
<RECEIVABLES> 51,819
<ALLOWANCES> (402)
<INVENTORY> 115,347
<CURRENT-ASSETS> 192,378
<PP&E> 274,755
<DEPRECIATION> (129,933)
<TOTAL-ASSETS> 403,933
<CURRENT-LIABILITIES> 88,504
<BONDS> 0
0
0
<COMMON> 7,282
<OTHER-SE> 286,887
<TOTAL-LIABILITY-AND-EQUITY> 403,933
<SALES> 147,389
<TOTAL-REVENUES> 147,389
<CGS> 95,993
<TOTAL-COSTS> 95,993
<OTHER-EXPENSES> 35,390
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> 16,825
<INCOME-TAX> 6,852
<INCOME-CONTINUING> 9,973
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,973
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
