<PAGE> 1
Exhibit 13
Five-Year Summary of Selected Financial Data
<TABLE>
<CAPTION>
Year Ended April 30,
-----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Income:
Net sales $632,486 $602,457 $565,476 $524,107 $517,832
Income from continuing operations
before cumulative effect of change in
accounting method(1) 26,357 37,763 36,348 30,935 29,453
Loss from discontinued
operations --- --- --- --- (140)
Cumulative effect of change in
accounting method(2) --- --- (2,958) --- ---
Net income 26,357 37,763 33,390 30,935 29,313
-----------------------------------------------------------------------------------------------------------------------------------
Financial Position:
Long-term debt 75,000 --- --- --- 60,800
Total assets 475,384 433,883 407,973 384,773 424,952
-----------------------------------------------------------------------------------------------------------------------------------
Other Data:
Earnings per Common Share:
Income from continuing operations
before cumulative effect of change in
accounting method(1) 0.92 1.30 1.25 1.06 1.01
Cumulative effect of change in
accounting method(2) --- --- (0.10) --- ---
Net income 0.92 1.30 1.15 1.06 1.01
Income from continuing operations
before cumulative effect of change in
accounting method - assuming
dilution(1) 0.92 1.29 1.24 1.06 1.00
Cumulative effect of change in
accounting method - assuming
dilution(2) --- --- (0.10) --- ---
Net income - assuming dilution 0.92 1.29 1.14 1.06 1.00
Dividends declared per Common Share:
Class A 0.61 0.57 0.53 0.52 0.52
Class B 0.61 0.57 0.53 0.52 0.52
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes, in 2000, nonrecurring charges of $14,492 ($9,626 after tax) or
$0.34 per share relating to the impairment of certain long-lived assets, as
discussed in Note C to the consolidated financial statements.
(2) 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.
<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, 2000 and 1999.
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
-----------------------------------------------------------------------------------------------------------------
Net Income
Net Income per Common
Net per Common Share-Assuming
Quarter Ended Net Sales Gross Profit Income Share Dilution
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2000 July 31 $161,495 $58,028 $ 11,037 $0.38 $0.38
October 31 163,965 54,873 9,389 0.33 0.32
January 31 150,428 54,491 4,963(1) 0.17(1) 0.17(1)
April 30 156,598 50,618 968(1) 0.03(1) 0.03(1)
-----------------------------------------------------------------------------------------------------------------
1999 July 31 $150,500 $53,862 $ 10,416 $0.36 $0.36
October 31 154,894 51,690 9,063 0.31 0.31
January 31 140,772 49,055 8,245 0.28 0.28
April 30 156,291 51,906 10,039 0.35 0.34
-----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes nonrecurring charges during fiscal 2000 third and fourth quarters
of $3,192 ($0.11 per share) and $6,434 ($0.23 per share), respectively,
relating to the impairment of certain long-lived assets as discussed in
Note C of the consolidated financial statements.
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 SJM.A and SJM.B, 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 26, 2000, was 5,403 and 3,457, 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>
2000 July 31 $25.75 $20.06 $0.15 July 31 $22.50 $17.13 $0.15
October 31 24.19 19.50 0.15 October 31 21.31 16.25 0.15
January 31 21.38 17.00 0.15 January 31 17.88 15.13 0.15
April 30 18.50 15.00 0.16 April 30 16.00 12.50 0.16
-----------------------------------------------------------------------------------------------------------------
1999 July 31 $25.56 $22.75 $0.14 July 31 $25.50 $22.63 $0.14
October 31 24.69 20.63 0.14 October 31 24.19 20.06 0.14
January 31 25.69 21.88 0.14 January 31 24.00 20.38 0.14
April 30 24.75 20.50 0.15 April 30 22.63 17.50 0.15
-----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Comparison of 2000 with 1999
Consolidated sales in fiscal 2000 were $632,486,000, up 5% from $602,457,000 in
the prior year. Domestic segment sales increased $15,333,000 or 3%, while the
international segment was up $14,696,000 or 20%. Excluding the impact of
nonrecurring charges, earnings for the year decreased from $37,763,000, or $1.30
per share in fiscal 1999 to $35,983,000, or $1.26 per share. Including the
impact of the nonrecurring charges, which is explained below, fiscal 2000
earnings were $26,357,000 or $0.92 per share.
In the domestic segment, the majority of the sales increase came from the
foodservice market, primarily as a result of three factors: (i) volume growth in
the portion control category; (ii) the addition of "Lea & Perrins" products to
the foodservice product line, as a result of a distribution agreement with Lea &
Perrins, Inc.; and (iii) sales of the new "Smucker's Uncrustables" peanut butter
and jelly sandwich. In the consumer market, overall sales were up approximately
1%, as stronger sales in the warehouse club channel offset a slight decrease in
the grocery channel. Despite the slight decline in grocery channel sales, the
Company's share of the domestic fruit spreads market hit record levels, passing
the 40% share level. The specialty foods business also contributed to overall
sales growth, as sales increased 9% over last year. Finally, the inclusion of
sales from the Company's new retail store along with an increase in catalog and
on-line sales resulted in an overall increase in the consumer direct market.
While sales in the industrial market increased modestly overall, industrial
sales in the domestic segment declined approximately 3% from last year due to
softness in sales with two large customers.
In the international segment, the increase in sales came from a combination of
growth in existing businesses and the addition of production facilities in new
geographical regions. The Canadian business contributed significantly to both
international sales and profits as sales increased approximately 10% over the
prior year. Sales also increased in the Australian market and the export
business in Europe. The Company's acquisition in December 1999 of a fruit
ingredient business in Brazil and sales from the new production facility in
Scotland contributed approximately $6,300,000 in sales. For the second
consecutive year, sales in Mexico increased in excess of 40%. The Mexican
business also earned a profit for the first time. In addition, the impact of
favorable exchange rates contributed $1,927,000 to the increase in international
sales.
<PAGE> 4
Gross margin was consistent with the prior year at 34.5% vs. 34.3%, as increases
in certain fruit costs and manufacturing overhead were offset by improved
manufacturing efficiencies and lower costs on certain raw materials. Selling,
distribution, and administrative (SD&A) costs increased at a greater rate than
sales due to increased selling expenses in the grocery channel and selling costs
associated with expanded distribution of "Uncrustables" into school lunch
programs. Distribution costs also were up due to higher operating costs at
certain distribution centers and higher fuel costs in the latter part of the
year. Marketing expenditures were up approximately 8% due to investments in
support of new products and businesses, primarily in the consumer, consumer
direct, and international markets. Corporate administrative overhead also
contributed to the increase in SD&A, as these expenses increased 11%, primarily
due to planned costs associated with the Company's information technology
reengineering (ITR) project.
Interest expense increased significantly over the prior year due to the
long-term debt placement completed during the first quarter of the fiscal year
(see Capital Resources and Liquidity). During the fiscal year, the Company
capitalized approximately $1,069,000 in interest associated with the ITR
project.
The Company's effective income tax rate for the year was 36.5%, down from 38.7%
in the prior year, reflecting increased benefits from tax credits on a lower
base of taxable income.
During fiscal 2000, the Company initiated a financial review of its businesses
and assets, with a focus on those assets considered nonstrategic or
underperforming. This review resulted in a nonrecurring, noncash charge of
$14,492,000 ($9,626,000 net of tax) or $0.34 per share. Approximately
$10,700,000 of the charge resulted from the write-down of the carrying value of
certain intangible assets, primarily goodwill relating to previous acquisitions.
In addition, certain capitalized costs associated with unused or abandoned
software acquired as part of the Company's ITR project and other abandoned fixed
assets were written off.
The write-down of the intangible assets was based on the Company's estimate of
fair market value using future discounted cash flows projected to be generated
by the respective assets under review, over their estimated useful lives. Based
upon the results of this analysis, the expected useful lives of the assets were
reduced from periods ranging from five to forty years, to a range of two to ten
years.
In addition, the Company is pursuing the potential sale of real estate in
Pottstown, Pennsylvania, currently being leased to a third party, and it is
anticipated a loss may be incurred on that disposal. The effect of all
nonrecurring items on future earnings is not expected to be significant.
<PAGE> 5
Comparison of 1999 with 1998
Sales in fiscal 1999 were $602,457,000, an increase of $36,981,000 or 6.5% over
those of fiscal 1998. All of the Company's domestic segment businesses realized
an increase over fiscal 1998 with the largest dollar growth occurring in the
consumer and industrial markets. The combined dollar growth of these two markets
accounted for approximately 60% of the Company's total increase in sales.
Domestic segment sales increased $30,524,000 or 6%, while the international
segment was up $6,457,000 or nearly 10%.
The growth in the consumer market was primarily in sales to the grocery channel
with the majority of the increase the result of: (i) a favorable mix of products
sold within the fruit spreads category; (ii) the introduction during fiscal 1999
of "Smucker's Snackers", the Company's new shelf-stable peanut butter and jelly
offering for lunches and snacks; and (iii) the acquisition of the "Adams"
natural peanut butter brand in December 1998. In addition, sales to warehouse
club stores were also up over fiscal 1998. The Company's market position in the
core fruit spreads, toppings, and natural peanut butter categories remained
strong with share of market growing in each area.
In the international segment, the majority of the growth occurred in the
Australian market and was primarily due to the impact of the acquisition of the
"Allowrie" brand of fruit spreads, which was purchased in May 1998. Gains were
also realized in Mexico where sales increased nearly 50% over fiscal 1998.
Overall, acquisitions contributed approximately 10% to international sales for
fiscal 1999. 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 fiscal 1998, international sales would have
been up approximately $6,740,000 or an additional 10%.
Income for fiscal 1999 increased approximately 4% as earnings per share rose to
$1.30 from $1.25, before the cumulative-effect adjustment in fiscal 1998.
Investment spending in several areas caused the increase in earnings to lag
behind the percentage increase in sales. Cost of products sold increased as a
percentage of sales from 64.7% to 65.7% due to the impact of an increase in the
cost of certain fruits, and costs associated with implementing production
improvements. SD&A, although up from the same period in fiscal 1998, increased
at a slower rate than sales. The increase in SD&A was due to higher marketing
costs, primarily to support the introduction of "Smucker's Snackers", the
Company's consumer direct initiative, and sales of current products.
Distribution expenses were also up.
Income tax expense decreased from fiscal 1998 as the Company lowered its
effective income tax rate from 40.2% to 38.7%. The decrease in the tax rate was
primarily due to a reduction in state and local taxes.
<PAGE> 6
CAPITAL RESOURCES AND LIQUIDITY
The financial position of the Company remains strong with an increase in cash
and cash equivalents of $24,420,000 during the year. The increase in cash and
cash equivalents reflects cash generated by operations of $33,599,000 together
with proceeds from the Company's $75,000,000, ten-year, senior, unsecured 6.77%
fixed-rate notes, issued in June 1999.
Fiscal 2000 capital expenditures totaled $32,240,000, including capitalized
software and consulting costs in connection with the Company's ongoing ITR
project. The Company also completed two acquisitions utilizing cash of
$9,056,000. In addition to capital expenditures and acquisitions, other
significant uses of cash during the year included the repayment of short-term
borrowings existing at April 30, 1999, of $8,966,000, the payment of dividends,
and the repurchase of common stock. Dividends paid on all Common Shares
increased to $0.60 per share or $17,212,000, while 332,600 Class A and 615,900
Class B Common Shares were repurchased during the year as part of a previously
announced stock repurchase program. Total stock repurchases during the year
amounted to $17,654,000.
In May 2000, the Company announced plans for a shareholder value enhancement
plan. In connection with this plan, the Company is seeking shareholder approval
to combine the current Class A and Class B Common Shares into a single class of
common shares similar to the current Class A Common Shares. Simultaneous with
this combination, the Company is seeking to repurchase up to $100,000,000 of
Class A and Class B Common Shares at $18.50 per share. The Company will fund
these repurchases with a combination of cash on hand and proceeds from a
long-term debt placement.
Capital expenditures for fiscal 2001 are budgeted at $25,000,000. The Company
believes that cash on hand together with cash generated by operations, proceeds
from future long-term debt placements, and lines of credit will be sufficient to
meet its fiscal 2001 requirements, including the payment of dividends.
Recently Issued Accounting Standards
In 1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS 133). SFAS 133 changes the accounting related to derivative
instruments. Although the Company has not yet completed its evaluation of the
potential impact of adopting SFAS 133 on future earnings, it does not expect the
impact to be material.
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133 -- an amendment of FASB Statement No. 133, which defers
<PAGE> 7
the effective date of SFAS 133 for the Company until fiscal 2002. The Company
currently plans to adopt SFAS 133 as required in fiscal 2002.
Year 2000
The portion of the ITR project that resolved the Year 2000 issue as it related
to the Company's information technology (IT) systems was successfully
implemented in all domestic and international locations. As a result, the
Company experienced no material business disruptions at January 1, 2000, or at
February 29, 2000. With regard to the IT systems that were not replaced in time
to meet the change in millennium, the Company utilized outside consultants to
assist with renovation to the code at a cost of approximately $2,000,000, which
was equal to the original cost expectations. 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. The Company will continue to monitor its IT systems and those of
its vendors and customers throughout the year.
MARKET RISK DISCLOSURES
The following discussions about the Company's market risk disclosures involve
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. The Company is exposed to market
risk related to changes in interest rates and foreign currency exchange rates.
Interest Rate Risk. The fair value of the Company's cash and short-term
investment portfolio and the fair value of notes receivable and payable at April
30, 2000, approximated carrying value. Exposure to interest rate risk on the
Company's long-term debt is mitigated since it is at a fixed 6.77% rate until
maturity in June 2009. Market risk, as measured by the change in fair value
resulting from a hypothetical 10% change in interest rates, is not material.
Based on the Company's overall interest rate exposure as of and during the year
ended April 30, 2000, a hypothetical 10% movement in interest rates relating to
the Company's variable rate borrowings would not materially affect the Company's
results of operations.
Foreign Currency Exchange Risk. After analyzing the risk, the Company has chosen
at this time not to hedge its foreign currency exposure. Therefore, it has not
entered into any forward foreign exchange contracts to hedge foreign currency
transactions.
The Company has operations outside the United States with foreign currency
denominated assets and liabilities, primarily denominated in Australian and
Canadian dollars. Because the Company has foreign currency denominated assets
and liabilities, financial exposure may result, primarily from the timing of
transactions and the movement of exchange rates. The unhedged foreign currency
balance sheet
<PAGE> 8
exposures as of April 30, 2000, are not expected to result in a significant
impact on future earnings or cash flows.
Revenues from customers outside the United States represented approximately 14%
of net sales during fiscal 2000. As the Company has expanded its international
operations, its sales and expenses denominated in foreign currencies have
increased and that trend is expected to continue. Thus, certain sales and
expenses have been, and are expected to be, subject to the effect of foreign
currency fluctuations and these fluctuations may have an impact on operating
results.
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 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 nonretail business areas; foreign
currency exchange and interest rate fluctuations; level of capital resources
required for and success of future acquisitions; the approval of the shareholder
value enhancement plan; and the successful implementation of the Company's ITR
project.
<PAGE> 9
Statements of Consolidated Income
The J. M. Smucker Company
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) 2000 1999 1998
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 632,486 $ 602,457 $ 565,476
Cost of products sold 414,476 395,944 365,613
--------------------------------------------------------------------------------------------------------------
Gross Profit 218,010 206,513 199,863
Selling, distribution, and administrative expenses 162,283 147,538 142,799
Nonrecurring charge 14,492 --- ---
--------------------------------------------------------------------------------------------------------------
Operating Income 41,235 58,975 57,064
Interest income 2,706 1,948 2,525
Interest expense (3,111) (179) (145)
Other income - net 701 887 1,315
--------------------------------------------------------------------------------------------------------------
Income Before Income Taxes and Cumulative Effect
of Change in Accounting Method 41,531 61,631 60,759
Income taxes 15,174 23,868 24,411
--------------------------------------------------------------------------------------------------------------
Income Before Cumulative Effect of Change in
Accounting Method 26,357 37,763 36,348
Cumulative effect of change in accounting method,
net of tax benefit of $1,980 --- --- (2,958)
--------------------------------------------------------------------------------------------------------------
Net Income $ 26,357 $ 37,763 $ 33,390
--------------------------------------------------------------------------------------------------------------
Earnings per Common Share:
Income Before Cumulative Effect of Change in
Accounting Method $ 0.92 $ 1.30 $ 1.25
Cumulative effect of change in accounting method --- --- (0.10)
--------------------------------------------------------------------------------------------------------------
Net Income per Common Share $ 0.92 $ 1.30 $ 1.15
--------------------------------------------------------------------------------------------------------------
Earnings per Common Share - Assuming Dilution:
Income Before Cumulative Effect of Change in
Accounting Method $ 0.92 $ 1.29 $ 1.24
Cumulative effect of change in accounting method --- --- (0.10)
--------------------------------------------------------------------------------------------------------------
Net Income per Common Share - Assuming Dilution $ 0.92 $ 1.29 $ 1.14
--------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
<PAGE> 10
Consolidated Balance Sheets
The J. M. Smucker Company
<TABLE>
<CAPTION>
Assets April 30,
------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 33,103 $ 8,683
Trade receivables, less allowance for doubtful accounts 62,518 51,858
Inventories:
Finished products 52,653 51,983
Raw materials, containers, and supplies 68,862 62,217
------------------------------------------------------------------------------------------------------
121,515 114,200
Other current assets 11,996 11,401
------------------------------------------------------------------------------------------------------
Total Current Assets 229,132 186,142
------------------------------------------------------------------------------------------------------
Property, Plant, and Equipment
Land and land improvements 18,479 15,729
Buildings and fixtures 87,803 83,290
Machinery and equipment 214,012 201,913
Construction in progress 29,507 23,296
------------------------------------------------------------------------------------------------------
349,801 324,228
Accumulated depreciation (175,153) (157,685)
------------------------------------------------------------------------------------------------------
Total Property, Plant, and Equipment 174,648 166,543
------------------------------------------------------------------------------------------------------
Other Noncurrent Assets
Goodwill 36,795 45,371
Trademarks and patents 13,490 15,256
Other assets 21,319 20,571
------------------------------------------------------------------------------------------------------
Total Other Noncurrent Assets 71,604 81,198
------------------------------------------------------------------------------------------------------
$ 475,384 $ 433,883
------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity April 30,
-----------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Liabilities
Accounts payable $ 32,520 $ 40,262
Notes payable --- 8,966
Salaries, wages, and additional compensation 13,772 13,957
Accrued marketing and merchandising 8,718 8,588
Income taxes 1,687 4,700
Dividends payable 4,488 4,377
Other current liabilities 7,004 6,781
-----------------------------------------------------------------------------------------------------------
Total Current Liabilities 68,189 87,631
-----------------------------------------------------------------------------------------------------------
Noncurrent Liabilities
Long-term debt 75,000 ---
Postretirement benefits other than pensions 13,593 12,775
Deferred income taxes 3,221 7,007
Other noncurrent liabilities 1,908 2,141
-----------------------------------------------------------------------------------------------------------
Total Noncurrent Liabilities 93,722 21,923
-----------------------------------------------------------------------------------------------------------
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 -
14,259,429 in 2000 and 14,432,619 in 1999 (net of
1,952,859 and 1,779,669 treasury shares, respectively),
at stated value 3,565 3,608
Class B - (Nonvoting) Authorized - 35,000,000 shares;
outstanding - 14,065,851 in 2000 and 14,726,576 in
1999 (net of 2,146,437 and 1,485,712 treasury
shares, respectively), at stated value 3,516 3,682
Additional capital 17,190 15,604
Retained income 310,843 318,660
Less:
Deferred compensation (3,091) (2,001)
Amount due from ESOP Trust (9,223) (9,526)
Accumulated other comprehensive loss (9,327) (5,698)
-----------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 313,473 324,329
-----------------------------------------------------------------------------------------------------------
$ 475,384 $ 433,883
-----------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
<PAGE> 12
Statements of Consolidated Cash Flows
The J. M. Smucker Company
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 26,357 $ 37,763 $ 33,390
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 21,674 19,660 18,780
Amortization 4,524 3,734 3,759
Nonrecurring charge, net of tax benefit 9,626 --- ---
Cumulative effect of change in accounting method, net of
tax benefit --- --- 2,958
Deferred income tax (benefit) expense (3,872) 120 (2,285)
Changes in assets and liabilities, net of effect from
business acquisitions:
Trade receivables (11,678) (2,627) (1,697)
Inventories (6,924) (9,332) (10,522)
Other current assets (733) 1,587 653
Accounts payable and accrued items (7,272) (5,123) 10,855
Income taxes 2,628 (1,292) 5,683
Other - net (731) (965) (533)
--------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 33,599 43,525 61,041
--------------------------------------------------------------------------------------------------------------------------
Investing Activities
Additions to property, plant, and equipment (32,240) (38,693) (29,058)
Businesses acquired - net of cash (9,056) (26,590) (1,406)
Disposal of property, plant, and equipment 91 747 682
Other - net 1,387 1,288 1,196
--------------------------------------------------------------------------------------------------------------------------
Net Cash Used for Investing Activities (39,818) (63,248) (28,586)
--------------------------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from long-term debt 75,000 --- ---
Proceeds from (repayment of) short-term debt - net (8,966) 8,966 ---
Purchase of Common Shares - net (17,654) (811) (4,465)
Dividends paid (17,212) (16,246) (15,100)
Net amount received from ESOP Trust 303 261 240
Other - net (217) 101 160
--------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used for) Financing Activities 31,254 (7,729) (19,165)
Effect of exchange rate changes on cash (615) (349) (897)
--------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 24,420 (27,801) 12,393
Cash and cash equivalents at beginning of year 8,683 36,484 24,091
--------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 33,103 $ 8,683 $ 36,484
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
( ) Denotes use of cash
See notes to consolidated financial statements
<PAGE> 13
Statements of Consolidated Shareholders' Equity
The J. M. Smucker Company
<TABLE>
<CAPTION>
Accumulated Total
Amount Other Share-
Common Shares Additional Retained Deferred Due From Comprehensive holders'
(Dollars in thousands) Class A Class B Capital Income Compensation ESOP Trust Loss Equity
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at May 1, 1997 $3,606 $3,696 $12,439 $284,605 $(1,396) $(10,027) $(1,032) $291,891
Net income 33,390 33,390
Foreign currency
translation adjustment (4,959) (4,959)
-----------
Comprehensive Income 28,431
Purchase of treasury shares (33) (18) (94) (4,320) (4,465)
Stock plans 24 11 1,629 (859) 805
Cash dividends declared -
$0.53 a share (15,359) (15,359)
Other 634 240 874
---------------------------------------------------------------------------------------------------------------------------------
Balance at April 30, 1998 3,597 3,689 14,608 298,316 (2,255) (9,787) (5,991) 302,177
Net income 37,763 37,763
Foreign currency
translation adjustment 293 293
-----------
Comprehensive Income 38,056
Purchase of treasury shares (5) (3) (17) (786) (811)
Stock plans 16 (4) 360 (92) 254 534
Cash dividends declared -
$0.57 a share (16,541) (16,541)
Other 653 261 914
---------------------------------------------------------------------------------------------------------------------------------
Balance at April 30, 1999 3,608 3,682 15,604 318,660 (2,001) (9,526) (5,698) 324,329
Net income 26,357 26,357
Foreign currency
translation adjustment (3,629) (3,629)
-----------
Comprehensive Income 22,728
Purchase of treasury shares (83) (154) (566) (16,851) (17,654)
Stock plans 40 (12) 1,570 (1,090) 508
Cash dividends declared -
$0.61 a share (17,323) (17,323)
Other 582 303 885
---------------------------------------------------------------------------------------------------------------------------------
Balance at April 30, 2000 $3,565 $3,516 $17,190 $310,843 $(3,091) $(9,223) $(9,327) $313,473
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
<PAGE> 14
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.
Financial Instruments: Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist principally of
cash investments and accounts receivable. The Company places its cash
investments with high quality financial institutions and limits the amount of
credit exposure to any one institution. The Company considers all short-term
investments with a maturity of three months or less when purchased to be cash
equivalents.
With respect to accounts receivable, concentration of credit risk is limited due
to the large number of customers. Although the Company does not require
collateral from its customers, the Company has historically incurred minimal
credit losses.
The fair value of the Company's financial instruments, other than its
fixed-rate, long-term debt, approximates their carrying amounts. The fair value
of the Company's 6.77% senior, unsecured notes, due June 1, 2009, estimated
using current market rates and a discounted cash flow analysis, was
approximately $65,000,000 at April 30, 2000.
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.
Revenue Recognition: The Company recognizes revenue when products are
shipped to customers.
Stock Compensation: The Company has elected to follow Accounting
Principles 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 (see Note H).
<PAGE> 15
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 $11,644,000 and
$11,776,000 higher than reported at April 30, 2000 and 1999, 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 trended downturns in
business 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 (see Note C). Accumulated amortization of goodwill and intangible
assets at April 30, 2000 and 1999, was $26,879,000 and $23,601,000,
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.
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 2000, 1999, and 1998 totaled
$14,042,000, $12,762,000, and $10,950,000, respectively; included therein were
cold storage facility rentals, based on quantities stored, amounting to
$5,283,000, $4,999,000, and $4,956,000, respectively.
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, 2000 and 1999, were $24,321,000 and $20,296,000,
respectively, of which $17,468,000 and $13,843,000 were included in construction
in progress. Interest costs of $1,069,000 and $528,000 were capitalized during
fiscal 2000 and 1999, respectively.
<PAGE> 16
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.
In accordance with EITF 97-13, the Company incurred a one-time, net of tax
charge of $2,958,000, or $0.10 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.
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 component of shareholders'
equity in accumulated other comprehensive loss.
Advertising Expense: Advertising costs are expensed as incurred.
Advertising expense was $14,764,000, $12,685,000, and $10,809,000 in fiscal
2000, 1999, and 1998, respectively.
Recently Issued Accounting Standards: In 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities (SFAS 133). SFAS
133 changes the accounting related to derivative instruments. Although the
Company has not yet completed its evaluation of the potential impact of adopting
SFAS 133 on future earnings, it does not expect the impact to be material.
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133 -- an amendment of FASB Statement No. 133, which defers the effective date
of SFAS 133 for the Company until fiscal 2002. The Company currently plans to
adopt SFAS 133 as required in fiscal 2002.
Reclassifications: Certain prior year amounts have been reclassified to
conform to current year classifications.
Risks and Uncertainties: The principal products of the Company are
fruit spreads, dessert toppings, peanut butter, industrial fruit products, fruit
and vegetable juices, juice beverages, syrups,
<PAGE> 17
condiments, and gift packages. In the domestic markets, the Company's products
are primarily sold through brokers to chain, wholesale, cooperative, independent
grocery accounts and other consumer markets, to foodservice distributors and
chains including hotels, restaurants, and institutions, and to other food
manufacturers. The Company's distribution outside the United States is
principally in Canada, Australia, Mexico, Latin America, the Pacific Rim, and
Greater Europe. The fruit raw materials used by the Company are generally
purchased from 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 nonperformance 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 noninsurable events would not
have a material adverse effect on the Company's operations as a whole.
Note B: Operating Segments
The Company operates in one industry: the manufacturing and marketing of food
products. The Company has two reportable segments, domestic and international.
The domestic segment represents the aggregation of the consumer, foodservice,
beverage, specialty foods, consumer direct, and industrial business areas. Food
products are distributed through various retail channels including grocery, mass
retail, military, warehouse club, health food, and specialty food markets along
with restaurants, health care facilities, schools, and other institutions
throughout the United States. These products include a variety of fruit spreads,
dessert toppings, natural peanut butters, fruit and vegetable-based beverages,
formulated fruit-based fillings, and gift boxes. The international segment
consists of products that are similar in nature to those in the domestic segment
but are distributed to geographical markets outside of the United States.
<PAGE> 18
The following table sets forth operating segments information:
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999 1998
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales:
Domestic $ 543,929 $ 528,596 $ 498,072
International 88,557 73,861 67,404
--------------------------------------------------------------------------------------------------------
Total net sales $ 632,486 $ 602,457 $ 565,476
--------------------------------------------------------------------------------------------------------
Depreciation:
Domestic $ 19,789 $ 18,296 $ 17,442
International 1,885 1,364 1,338
--------------------------------------------------------------------------------------------------------
Total depreciation $ 21,674 $ 19,660 $ 18,780
--------------------------------------------------------------------------------------------------------
Segment profit:
Domestic $ 89,570 $ 94,489 $ 92,511
International 10,387 7,134 6,559
--------------------------------------------------------------------------------------------------------
Total segment profit 99,957 101,623 99,070
--------------------------------------------------------------------------------------------------------
Interest income 2,706 1,948 2,525
Interest expense (3,111) (179) (145)
Amortization expense (4,524) (3,734) (3,759)
Nonrecurring charge (14,492) --- ---
Corporate administrative expenses (39,371) (37,912) (42,013)
Other unallocated income (expenses) 366 (115) 5,081
--------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative
effect of change in accounting method $ 41,531 $ 61,631 $ 60,759
--------------------------------------------------------------------------------------------------------
Total assets:
Domestic $ 396,923 $ 371,403 $ 351,943
International 78,461 62,480 56,030
--------------------------------------------------------------------------------------------------------
Total assets $ 475,384 $ 433,883 $ 407,973
--------------------------------------------------------------------------------------------------------
Expenditures for additions to long-lived assets:
--------------------------------------------------------------------------------------------------------
Domestic $ 26,012 $ 53,737 $ 27,829
International 13,824 10,538 2,635
--------------------------------------------------------------------------------------------------------
Total expenditures for additions to long-lived
assets, including acquisitions $ 39,836 $ 64,275 $ 30,464
--------------------------------------------------------------------------------------------------------
</TABLE>
Segment profit represents revenue less direct and allocable operating expenses
and excludes nonrecurring charges in fiscal 2000 of $13,536,000 and $956,000,
relating to the domestic and international segments, respectively (see Note C).
<PAGE> 19
The following table presents product sales information:
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------------------------------------------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fruit spreads 39% 41% 43%
Industrial ingredients 15 17 17
Portion control 12 12 12
Juices and beverages 10 10 11
Toppings and syrups 9 9 9
Peanut butter 7 6 5
Other 8 5 3
--------------------------------------------------------------------------------------------------
Total 100% 100% 100%
--------------------------------------------------------------------------------------------------
</TABLE>
Note C: Nonrecurring Charge
During fiscal 2000, the Company recorded a nonrecurring, noncash charge of
$14,492,000 ($9,626,000 net of tax) or $0.34 per share. This charge was the
result of a financial review by the Company, of its businesses and assets, with
a focus on those assets considered nonstrategic or underperforming.
Approximately $10,700,000 of the charge resulted from the write-down of the
carrying value of certain intangible assets, primarily goodwill, resulting from
previous acquisitions primarily in the domestic segment. In addition, certain
capitalized costs associated with unused or abandoned software acquired as part
of the Company's information technology reengineering project and other
abandoned fixed assets were written off.
The write-down of the intangible assets was based on the Company's estimate of
fair market value using future discounted cash flows projected to be generated
by the respective assets under review, over their estimated useful lives. Based
upon the results of this analysis, the expected useful lives of the assets were
reduced from periods ranging from five to forty years, to a range of two to ten
years.
<PAGE> 20
Note D: Earnings per Share
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) 2000 1999 1998
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income for earnings per Common Share
and earnings per Common Share -
assuming dilution $26,357 $37,763 $33,390
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Denominator:
Denominator for earnings per
Common Share - weighted-average
shares 28,670,770 29,057,593 29,038,723
Effect of dilutive securities:
Stock options 56,380 179,679 247,155
Restricted stock 23,205 37,447 59,400
---------------------------------------------------------------------------------------------
Denominator for earnings per Common
Share - assuming dilution 28,750,355 29,274,719 29,345,278
---------------------------------------------------------------------------------------------
Earnings per Common Share $0.92 $1.30 $ 1.15
---------------------------------------------------------------------------------------------
Earnings per Common Share - assuming
Dilution $0.92 $1.29 $ 1.14
---------------------------------------------------------------------------------------------
</TABLE>
Options to purchase 689,800 Class A and 475,000 Class B Common Shares at $20.88
to $31.50 per share were outstanding during fiscal 2000 but were not included in
the computation of earnings per Common Share - assuming dilution, as the
options' exercise prices were greater than the average market price of the
Common Shares and, therefore, the effect would be antidilutive.
Note E: Acquisitions
During fiscal 2000, the Company utilized cash on hand to complete two
acquisitions for a total of $9,056,000. During fiscal 1999, the Company
completed five acquisitions for an aggregate of $26,590,000, utilizing cash on
hand as well as borrowings under the Company's uncommitted lines of credit.
Each of the acquisitions was accounted for as a purchase and the results of
operations of the acquired companies were included in the consolidated results
of the Company from their respective acquisition dates. As a result of the
acquisitions, approximately $2,869,000 and $15,054,000 in goodwill and
<PAGE> 21
$2,213,000 and $6,393,000 in trademarks were recorded in 2000 and 1999,
respectively, and are being amortized using the straight-line method over
periods of 10 to 20 years.
Note F: Pensions and Other Postretirement Benefits
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.
In addition to providing pension benefits, the Company sponsors several unfunded
defined postretirement plans that 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 benefit cost included the following components:
<TABLE>
<CAPTION>
Defined Benefit Pension Other Postretirement
(Dollars in thousands) Plans Benefits
-------------------------------------------------------------------------------------------------------------------------------
Year Ended April 30, 2000 1999 1998 2000 1999 1998
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 2,216 $ 1,841 $ 1,500 $ 513 $ 490 $ 393
Interest cost 4,668 4,043 3,822 717 662 732
Expected return on plan assets (6,053) (5,703) (4,398) --- --- ---
Amortization of prior service
costs/(credit) 927 489 489 (61) (61) (20)
Amortization of initial net asset (91) (91) (91) --- --- ---
Recognized net actuarial gain (272) (322) (19) (28) (27) (43)
-------------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 1,395 $ 257 $ 1,303 $ 1,141 $ 1,064 $ 1,062
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 22
The following table sets forth the combined status of the plans as recognized in
the consolidated balance sheets at April 30, 2000 and 1999:
<TABLE>
<CAPTION>
Defined Benefit Pension Plans Other Postretirement Benefits
-------------------------------------------------------------------------------------------------------------------------------
April 30, April 30,
-------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of the year $ 67,887 $ 59,156 $ 10,442 $ 10,397
Service cost 2,216 1,841 513 490
Interest cost 4,668 4,043 717 662
Amendments 2,358 5,565 --- ---
Actuarial gain (6,947) (598) (2,789) (960)
Benefits paid (2,512) (2,120) (323) (147)
-------------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of the year $ 67,670 $ 67,887 $ 8,560 $ 10,442
-------------------------------------------------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at beginning of the year $ 65,254 $ 63,313 $ --- $ ---
Actual return on plan assets 7,513 2,493 --- ---
Asset gain 3,061 795 --- ---
Company contributions 910 773 323 147
Benefits paid (2,512) (2,120) (323) (147)
-------------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of the year $ 74,226 $ 65,254 $ --- $ ---
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Funded status of the plan $ 6,556 $ (2,633) $ (8,560) $(10,442)
-------------------------------------------------------------------------------------------------------------------------------
Unrecognized net actuarial gain (18,622) (7,426) (4,219) (1,458)
Unrecognized prior service cost/(credit) 11,278 9,847 (814) (875)
Unrecognized initial asset (1,141) (1,232) --- ---
-------------------------------------------------------------------------------------------------------------------------------
Accrued benefit cost $ (1,929) $ (1,444) $(13,593) $(12,775)
-------------------------------------------------------------------------------------------------------------------------------
Weighted average assumptions:
Discount rate 8% 7% 8% 7%
Expected return on plan assets 9% 9% --- ---
Rate of compensation increase 5% 5% --- ---
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For fiscal 2001, the assumed health care cost trend rates are 6.25% for
participants under age 65 and 5% for participants age 65 or older. The rate for
participants under age 65 is 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 change
in the assumed cost trend rate would have the following effect:
<TABLE>
<CAPTION>
One - Percentage Point
--------------------------------------------------------------------------------------------------------------
(Dollars in thousands) Increase Decrease
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total service and interest cost components $ 277 $ (212)
Effect on postretirement benefit obligation $ 1,474 $ (1,172)
--------------------------------------------------------------------------------------------------------------
</TABLE>
The projected benefit obligation applicable to pension plans with accumulated
benefit obligations in excess of plan assets was $9,896,000 and $12,252,000 at
April 30, 2000 and 1999, respectively, primarily due to a supplemental
retirement benefit plan. The accumulated benefit obligation related to the
<PAGE> 23
supplemental retirement benefit plan was $7,795,000 and $6,277,000 at April 30,
2000 and 1999, respectively.
Pension plan assets consist of listed stocks and government obligations,
including 168,000 of both the Company's Class A and Class B Common Shares at
April 30, 2000 and 1999. The market value of these shares is $4,935,000 at April
30, 2000. The Company paid dividends of $202,000 on these shares during the
year. 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 $854,000, $808,000, and
$716,000 in 2000, 1999, and 1998, 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.
In addition, certain of the Company's active employees participate in
multiemployer 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 $1,687,000, $1,569,000, and
$1,727,000 in 2000, 1999, and 1998, respectively.
Note G: Savings Plans
ESOP: The Company sponsors an Employee Stock Ownership Plan and Trust
(ESOP) for domestic, nonrepresented 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. Interest incurred on ESOP debt
was $846,000, $821,000, and $905,000 in 2000, 1999, and 1998, respectively.
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, $361,000, and $363,000 in 2000, 1999, and 1998, respectively. The
principal payments received from the ESOP in 2000, 1999, and 1998 were $303,000,
$261,000, and $240,000, 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). As permitted by SOP 93-6, the Company does not apply
<PAGE> 24
the statement to shares purchased prior to 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, 2000, the ESOP held 605,048 unallocated shares consisting of 124,124 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.
401(k) 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 2000, 1999, and 1998 were $1,193,000,
$1,098,000, and $981,000, respectively.
Note H: Stock Benefit Plans
The Company provides for equity-based incentives to be awarded to key
employees through its 1998 Equity and Performance Incentive Plan, the Restricted
Stock Bonus Plan adopted in 1979, and the 1987 Stock Option Plan.
1998 Equity and Performance Incentive Plan: This plan provides for the
issuance of stock options and restricted stock, which may include performance
criteria, as well as stock appreciation rights, deferred shares, and performance
shares. At April 30, 2000, there are 501,000 Class A and 501,000 Class B Common
Shares available for future issuance under this plan. Of this total amount
available for issuance, the amount of restricted stock is limited to 225,000
Class A and 225,000 Class B Common Shares. Restricted shares issued under this
plan are subject to a risk of forfeiture for at least three years, in the event
of termination of employment or failure to meet performance criteria. 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.
Restricted Stock Bonus Plan: 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. There are 3,100 Class A and 46,100 Class B
Common Shares available for issuance under the plan at April 30, 2000. In fiscal
2000 and 1998, awards of 41,000 and 30,500 shares, respectively, of Class A and
Class B Common Shares were made while no awards were granted in 1999.
1987 Stock Option Plan: 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
<PAGE> 25
of the shares on the effective date of the grant. There are 32,000 Class A and
522,700 Class B Common Shares available for future grant under this plan.
As permitted by Statement of Financial Accounting Standards No. 123, Accounting
for Stock Based Compensation (SFAS 123), the Company has elected to account for
the stock options under Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees (APB 25). If compensation costs for the stock
options granted in fiscal 2000, 1999, and 1998 had been determined based on the
fair market value method of SFAS 123, the Company's earnings per share would
have been $0.02-$0.04 less than amounts determined using the intrinsic method of
APB 25.
The fair value of each option grant was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
Year Ended April 30,
-------------------------------------------------------------------------------------------
2000 1999 1998
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 6.20% 4.75% 5.50%
Dividend yield 2.50% 2.50% 2.50%
Volatility
Class A 26.00% 26.60% 27.60%
Class B 20.90% 20.00% 20.10%
Average expected term (years) 5.00 5.00 5.00
Fair value of options granted
Class A $5.22 $5.32 $6.77
Class B $3.84 $4.10 $5.14
-------------------------------------------------------------------------------------------
</TABLE>
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 May 1, 1997 1,239,612 $21.69 930,312 $17.97
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 1,012,236 $19.20
Granted 169,500 21.91 169,500 20.88
Exercised (65,901) 16.05 (67,201) 15.67
Forfeited (5,334) 22.63 (5,334) 21.44
-----------------------------------------------------------------------------------------------------------------------
Outstanding at April 30, 1999 1,416,501 $22.78 1,109,201 $19.66
Granted 204,500 19.78 204,500 16.66
Exercised (143,567) 18.74 (102,167) 18.17
Forfeited (7,800) 19.26 (39,200) 18.69
-----------------------------------------------------------------------------------------------------------------------
Outstanding at April 30, 2000 1,469,634 $22.78 1,172,334 $19.30
Exercisable at April 30, 1998 1,008,069 $22.87 702,069 $18.79
Exercisable at April 30, 1999 1,097,501 $22.91 790,201 $19.05
Exercisable at April 30, 2000 1,111,134 $23.28 807,167 $19.45
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 26
The following table summarizes the range of exercise prices and weighted-average
exercise prices for options outstanding and exercisable at April 30, 2000, under
the Company's stock benefit plans:
<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>
Class A $17.25--$22.50 779,834 $19.34 6.4 471,001 $18.57
Class A $22.51--$31.50 689,800 $26.67 3.8 640,133 $26.74
Class B $15.94--$24.31 1,172,334 $19.30 6.4 807,167 $19.45
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
Note I: Financing Arrangements
The Company has an uncommitted line of credit providing up to $10,000,000 for
short-term borrowings. No amounts were outstanding at April 30, 2000. The
interest rate to be charged on any outstanding balance is based on prevailing
market rates.
In June 1999, the Company issued $75,000,000 of 6.77% senior, unsecured notes
due June 1, 2009. Proceeds from the issuance were used to refinance existing
indebtedness and to fund general corporate purposes such as stock repurchases,
acquisitions, and new product ventures. Interest on the notes is paid
semiannually. Among other restrictions, the note purchase agreements contain
certain covenants relating to liens, consolidated net worth, and sale of assets
as defined in the agreement. The Company is in compliance with all covenants.
Interest paid at April 30, 2000, 1999, and 1998 totaled $2,293,000, $751,000,
and $109,000, respectively.
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.
<PAGE> 27
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
April 30,
--------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999
--------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ 12,326 $ 12,819
Other (each less than 5% of total liabilities) 2,251 3,359
--------------------------------------------------------------------------------------------
Total deferred tax liabilities 14,577 16,178
--------------------------------------------------------------------------------------------
Deferred tax assets:
Postretirement benefits other than pensions 5,778 5,429
Other employee benefits 4,196 3,989
Intangible assets 3,818 327
Other (each less than 5% of total assets) 4,744 6,667
--------------------------------------------------------------------------------------------
Total deferred tax assets 18,536 16,412
Valuation allowance for deferred tax assets (1,728) (1,695)
--------------------------------------------------------------------------------------------
Total deferred tax assets less allowance 16,808 14,717
--------------------------------------------------------------------------------------------
Net deferred tax asset (liability) $ 2,231 $ (1,461)
--------------------------------------------------------------------------------------------
</TABLE>
The Company has recorded a valuation allowance related to certain foreign
deferred tax assets due to the uncertainty of their realization.
No U.S. income or foreign withholding taxes have been recorded on undistributed
earnings of foreign subsidiaries since these amounts are considered to be
permanently reinvested. Any additional taxes payable on the earnings of foreign
subsidiaries, if remitted, would be partially offset by U.S. tax credits and
deductions for foreign taxes already paid.
Income before income taxes and cumulative effect of change in accounting method
is as follows:
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999 1998
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $36,716 $57,778 $57,061
Foreign 4,815 3,853 3,698
-------------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of
change in accounting method $41,531 $61,631 $60,759
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999 1998
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $15,048 $19,706 $21,684
Foreign 2,048 1,445 1,499
State and local 1,950 2,597 3,513
Deferred (3,872) 120 (2,285)
-------------------------------------------------------------------------------------------------------------------------
Total income tax expense $15,174 $23,868 $24,411
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 28
A reconciliation of the statutory federal income tax rate and the effective
income tax rate follows:
<TABLE>
<CAPTION>
Percent of Pretax Income Year Ended April 30,
--------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999 1998
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Increase (decrease) in income taxes resulting from:
State and local income taxes, net of federal income
tax benefit 3.1 2.7 3.8
Research credits (1.6) (0.8) (1.3)
Other items --- 1.8 2.7
--------------------------------------------------------------------------------------------------------------
Effective income tax rate 36.5% 38.7% 40.2%
--------------------------------------------------------------------------------------------------------------
Income taxes paid $ 19,761 $ 23,542 $ 20,755
--------------------------------------------------------------------------------------------------------------
</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 nonvoting,
except under certain conditions outlined in the Company's Amended Articles of
Incorporation.
Pursuant to a shareholders' rights plan established during fiscal 1999, each
outstanding share of the Company's Class A and Class B Common Shares carries a
share purchase right issued as a result of a dividend distribution declared by
the Company's Board of Directors in April 1999 and distributed to shareholders
of record on May 14, 1999.
Under the plan, the rights will initially trade together with the Company's
Common Shares and will not be exercisable. In the absence of further action by
the directors, the rights generally will become exercisable and allow the holder
to acquire the Company's Class A or Class B Common Shares at a discounted price
if a person or group acquires 10% or more of the outstanding Class A Common
Shares or 15% or more of the Company's outstanding Common Shares. Rights held by
persons who exceed the applicable thresholds will be void. Shares held by
members of the Smucker family are not subject to the thresholds. If exercisable,
each right entitles the shareholder to buy one Common Share at a discounted
price. Under certain circumstances, the rights will entitle the holder to buy
shares in an acquiring entity at a discounted price.
The plan also includes an exchange option. In general, if the rights become
exercisable, the directors may, at their option, effect an exchange of part or
all of the rights - other than rights that have become void - for Common Shares.
Under this option, the Company would issue one Class A Common Share for each
Class A right and one Class B Common Share for each Class B right, in each case
subject to adjustment in certain circumstances.
<PAGE> 29
The Company's directors may, at their option, redeem all rights for $0.01 per
right, generally at any time prior to the rights becoming exercisable. The
rights will expire May 14, 2009, unless earlier redeemed, exchanged, or amended
by the directors.
In May 2000, the Company announced plans for a shareholder value enhancement
plan. The Company is seeking shareholder approval to combine the current Class A
and Class B Common Shares into a single class of common shares similar to the
current Class A Common Shares. Simultaneously with this combination, the Company
is seeking to repurchase up to $100,000,000 of Class A and Class B Common Shares
at $18.50 per share. The Company will fund these repurchases with a combination
of cash on hand and proceeds from a long-term debt placement.
