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